What’s
important
to you is
important
to us.
2015 Westpac Group
Annual Report
It’s personal.
It’s more than being a bank—becoming
a world renowned service organisation is
more than knowing and serving customers.
It’s about understanding what matters to
them, how we can help, and make a real
difference in their lives. Getting that right
is deeply personal to every one of our
40,000 people at the Westpac Group.
What’s
important
to you is
important
to us.
2015 Westpac Group
Annual Review &
Sustainability Report
What’s
important
to you is
important
to us.
2015 Westpac Group
Annual Report
What’s
important
to you is
important
to us.
2015 Westpac Group
Sustainability
Performance Report
2015 Annual Review
& Sustainability Report
2015 Annual Report
2015 Sustainability
Performance Report
The Westpac Group Annual Review & Sustainability Report, the Westpac Group
Annual Report, and the Westpac Group Sustainability Performance Report
represent Westpac’s extended reporting framework.
This report to shareholders, which will be lodged with the Australian Securities
Exchange and the Australian Securities and Investments Commission, is also available
on our website www.westpac.com.au/investorcentre
For more information about Westpac refer to Section 1 and the inside back cover,
or visit www.westpac.com.au/investorcentre
Westpac Banking Corporation ABN 33 007 457 141
Table of contents
In this Annual Report a reference to ‘Westpac’, ‘Group’,
‘Westpac Group’, ‘we’, ‘us’ and ‘our’ is to Westpac Banking
Corporation ABN 33 007 457 141 and its subsidiaries unless it
clearly means just Westpac Banking Corporation.
For certain information about the basis of preparing the financial
information in this Annual Report see ‘Reading this report’ in
Section 2. In addition, this Annual Report contains statements that
constitute ‘forward-looking statements’ within the meaning of
Section 21E of the US Securities Exchange Act of 1934. For an
explanation of forward-looking statements and the risks,
uncertainties and assumptions to which they are subject, see
‘Reading this report’ in Section 2.
Information contained in or accessible through the websites
mentioned in this Annual 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.
Annual Report
Performance highlights
Section 1
Chairman’s report
Chief Executive Officer’s report
Information on Westpac
Business strategy
Westpac’s approach to sustainability
Five year non-financial summary
Outlook
Significant developments
Corporate governance
Directors’ report
Remuneration Report
Section 2
Five year summary
Reading this report
Review of Group operations
Income statement review
Balance sheet review
Capital resources
Divisional performance
Westpac Retail & Business Banking
St.George Banking Group
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Other divisions
Risk and risk management
Risk factors
Risk management
Credit risk
Liquidity risk
Market risk
Operational risk and compliance risk
Other risks
Other Westpac business information
Section 3
Financial statements
Notes to the financial statements
Statutory statements
Section 4
Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations and defined terms
Contact us
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3
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29
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82
86
88
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109
112
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249
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273
inside back cover
1
2
3
4
2015 Westpac Group Annual Report
1
Performance highlights
Net profit after tax $8,012 million, up 6%
Dividends $1.87, up 3%2
Net profit after tax1 ($m)
Dividends per ordinary share (cents) Special dividends
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
–
2
1
0
,
8
1
6
5
,
7
1
9
9
,
6
6
4
3
,
6
1
5
7
,
6
6
3
9
,
5
1
5
4
,
3
9
5
8
,
3
6
4
4
,
3
1
7
0
,
3
06
07
08
09
10
11
12
13
14
15
200
180
160
140
120
100
80
60
40
20
–
0
2
4
7
1
2
8
1
7
8
1
6
6
1
6
5
1
2
4
1
1
3
1
9
3
1
6
1
1
6
1
1
06
07
08
09
10
11
12
13
14
15
Cash earnings $7,820 million, up 3%
Returns 15.8%
Cash earnings3,4,5 ($m)
Cash earnings to average ordinary equity3,4,5 (%)
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
–
8
2
6
,
7
0
2
8
,
7
3
6
0
,
7
1
0
3
,
6
4
6
5
,
6
9
7
8
,
5
7
4
0
,
7 5
0
5
,
3
5
7
6
,
4
9
7
0
,
3
06
07
08
09
10
11
12
13
14
15
25
20
15
10
5
–
0
.
3
2
8
.
3
2
3
.
2
2
1
.
6
1
0
.
6
1
4
.
5
1
9
.
5
1
4
.
6
1
8
.
5
1
0
.
4
1
06
07
08
09
10
11
12
13
14
15
Cash earnings per ordinary share, up 2%
Cash earnings per ordinary share3,4,5 (cents)
300
250
200
150
100
50
–
4
.
9
8
1
3
.
8
9
1
2
.
7
6
1
7
.
3
6
1
3
.
9
0
2
8
.
4
1
2
8
.
7
9
1
4
.
5
4
2
5
.
9
4
2
8
.
7
2
2
06
07
08
09
10
11
12
13
14
15
2015
2014
% change
2015 / 2014
Reported earnings
Net profit after tax1 ($m)
Earnings per share (cents)
Dividends per share (cents)
Return on equity6 (%)
Expense to income ratio (%)
Common Equity Tier 1 capital ratio (%)
Asset quality ratio7 (%)
Cash basis3,5
Cash earnings ($m)
Cash earnings per share (cents)
Cash return on equity6 (%)
Economic profit8 ($m)
8,012
256.3
187
16.2
43.8
9.5
1.8
7,820
249.5
15.8
4,418
7,561
243.7
182
16.3
42.9
9.0
2.5
7,628
245.4
16.4
4,491
6%
5%
3%
(4bps)
90bps
53bps
(69bps)
3%
2%
(57bps)
(2%)
1 Net profit attributable to ordinary equity holders.
2 Excluding special dividends but including dividends determined in
2015.
3 The adjustments to our reported results to derive cash earnings are
described in Note 2 of our 2015 financial statements.
4 Figures for 2009 (and for cash earnings in 2008 only) are presented
on a ‘pro forma’ basis, that is, as if the merger between Westpac and
St.George Bank Limited was completed on 1 October 2007. The
basis of presentation of the pro forma results is explained in more
detail in Section 2.1 of Westpac’s Full Year 2009 Results
(incorporating the requirements of Appendix 4E) lodged with the ASX
on 4 November 2009 and that section of the ASX Announcement is
incorporated by reference into this Annual Report.
5 Cash earnings for 2009 has been restated to exclude the impact of
fair value adjustments related to the St.George merger. For further
information refer to Note 32 to the financial statements in Westpac’s
Annual Report 2010.
6 Return on average ordinary equity.
7 Net impaired assets to equity and collectively assessed provisions.
8 Economic profit represents the excess of adjusted cash earnings
over a minimum required rate of return on equity invested. For this
purpose, adjusted cash earnings is defined as cash earnings plus the
estimated value of franking credits paid to shareholders. The
calculation of economic profit is described in more detail in Section 5
of Westpac’s Full Year 2015 Results (incorporating the requirements
of Appendix 4E) lodged with the ASX on 2 November 2015 (the
‘ASX Announcement’).
2
2015 Westpac Group Annual Report
Performance highlights
Chairman’s report
Chief Executive Officer’s report
Information on Westpac
Corporate governance
Directors’ report
Remuneration Report
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
–
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
–
300
250
200
150
100
50
–
Performance highlights
Net profit after tax $8,012 million, up 6%
Dividends $1.87, up 3%2
Net profit after tax1 ($m)
Dividends per ordinary share (cents) Special dividends
2
1
0
,
8
1
6
5
,
7
1
9
9
,
6
6
4
3
,
6
1
5
7
,
6
6
3
9
,
5
0
2
4
7
1
2
8
1
7
8
1
6
6
1
6
5
1
2
4
1
1
3
1
9
3
1
6
1
1
6
1
1
1
5
4
,
3
9
5
8
,
3
6
4
4
,
3
1
7
0
,
3
06
07
08
09
10
11
12
13
14
15
06
07
08
09
10
11
12
13
14
15
Cash earnings $7,820 million, up 3%
Returns 15.8%
Cash earnings3,4,5 ($m)
Cash earnings to average ordinary equity3,4,5 (%)
8
2
6
,
7
0
2
8
,
7
3
6
0
,
7
1
0
3
,
6
4
6
5
,
6
9
7
8
,
5
7
4
0
,
7 5
0
5
,
3
5
7
6
,
4
9
7
0
,
3
0
.
3
2
8
.
3
2
3
.
2
2
1
.
6
1
0
.
6
1
4
.
5
1
9
.
5
1
4
.
6
1
8
.
5
1
0
.
4
1
06
07
08
09
10
11
12
13
14
15
06
07
08
09
10
11
12
13
14
15
200
180
160
140
120
100
80
60
40
20
–
25
20
15
10
5
–
Cash earnings per ordinary share, up 2%
Cash earnings per ordinary share3,4,5 (cents)
4
.
9
8
1
3
.
8
9
1
2
.
7
6
1
7
.
3
6
1
3
.
9
0
2
8
.
4
1
2
8
.
7
9
1
4
.
5
4
2
5
.
9
4
2
8
.
7
2
2
06
07
08
09
10
11
12
13
14
15
2015
2014
2015 / 2014
% change
Reported earnings
Net profit after tax1 ($m)
Earnings per share (cents)
Dividends per share (cents)
Return on equity6 (%)
Expense to income ratio (%)
Common Equity Tier 1 capital ratio (%)
Asset quality ratio7 (%)
Cash basis3,5
Cash earnings ($m)
Cash earnings per share (cents)
Cash return on equity6 (%)
Economic profit8 ($m)
8,012
256.3
7,561
243.7
187
16.2
43.8
9.5
1.8
7,820
249.5
15.8
4,418
182
16.3
42.9
9.0
2.5
7,628
245.4
16.4
4,491
6%
5%
3%
(4bps)
90bps
53bps
(69bps)
3%
2%
(57bps)
(2%)
1 Net profit attributable to ordinary equity holders.
2 Excluding special dividends but including dividends determined in
2015.
3 The adjustments to our reported results to derive cash earnings are
described in Note 2 of our 2015 financial statements.
4 Figures for 2009 (and for cash earnings in 2008 only) are presented
on a ‘pro forma’ basis, that is, as if the merger between Westpac and
St.George Bank Limited was completed on 1 October 2007. The
basis of presentation of the pro forma results is explained in more
detail in Section 2.1 of Westpac’s Full Year 2009 Results
(incorporating the requirements of Appendix 4E) lodged with the ASX
on 4 November 2009 and that section of the ASX Announcement is
incorporated by reference into this Annual Report.
5 Cash earnings for 2009 has been restated to exclude the impact of
fair value adjustments related to the St.George merger. For further
information refer to Note 32 to the financial statements in Westpac’s
Annual Report 2010.
6 Return on average ordinary equity.
7 Net impaired assets to equity and collectively assessed provisions.
8 Economic profit represents the excess of adjusted cash earnings
over a minimum required rate of return on equity invested. For this
purpose, adjusted cash earnings is defined as cash earnings plus the
estimated value of franking credits paid to shareholders. The
calculation of economic profit is described in more detail in Section 5
of Westpac’s Full Year 2015 Results (incorporating the requirements
of Appendix 4E) lodged with the ASX on 2 November 2015 (the
‘ASX Announcement’).
2
2015 Westpac Group Annual Report
Performance highlights
Chairman’s report
Chief Executive Officer’s report
Information on Westpac
Corporate governance
Directors’ report
Remuneration Report
1
Chairman’s report
Chairman’s report
Lindsay Maxsted
Chairman
Positioned for the future
In another period of significant change and development, Westpac has continued to deliver value for shareholders
.
The 2015 financial year has been another significant period
for Westpac.
We appointed a new CEO, refreshed the Group’s strategy,
and proactively responded to regulatory change. At the
same time we have supported shareholders by enhancing
the value of the franchise and increasing dividends.
In February 2015 Brian Hartzer commenced as our 25th
CEO, taking the reins from Gail Kelly who had successfully
led your company for the previous seven years. Gail was a
great leader and left the organisation in very good shape.
Choosing a new CEO is one of the most important roles of a
Board and we were very pleased to appoint such a strong
executive with the skills and experience to take Westpac into
its third century.
In selecting a new CEO, the Board set clear criteria and
undertook a global search. I would like to share some of our
considerations with shareholders as it reinforces how the
Board thinks about Westpac’s future, and the areas we want
to develop.
At the top of our criteria list, the Board was looking for a
seasoned banking executive with excellent leadership skills.
While it may appear obvious, it is important to highlight that
banking is a complex industry and the Board strongly
believes that deep banking experience is essential to run
one of the largest banks in the world.
On strategy, the Board is committed to our customer-centric
approach, and we were looking for an executive who would
further develop this strategy while recognising the significant
change facing our industry. Accordingly we sought a CEO
who was alert to the issues and had the capability to
proactively respond and turn opportunity into advantage.
Brian Hartzer met this criteria, particularly with his strong
grasp of digital technologies and how they are impacting our
industry. This, combined with his success in managing our
Australian Financial Services division for the prior three
years, made Brian the clear choice for CEO.
Performance summary
The Group has had another solid year in 2015. Cash
earnings1 were $7,820 million, an increase of 3% over the
previous year. The company uses cash earnings as a key
metric for determining dividends and believes it is the most
appropriate measure for assessing financial performance.
Statutory net profit in 2015 increased 6% to $8,012 million.
This year, the Group reported some significant infrequent
items including a gain on the partial sale of BT Investment
Management (BTIM), a tax benefit associated with our
acquisition of select Australian businesses of Lloyds Bank,
and costs from changes to the accounting of technology
investment spending. Because of their size and nature they
were excluded from the calculation of cash earnings.
Cash earnings growth was supported by a solid operating
performance across all divisions which led to a 4% rise in
operating revenue, and a 3% lift in core earnings (profit
before impairment charges).
The Group’s key financial metrics also remained strong with
a cash return on equity of 15.8%, net interest margin of
2.08% and an expense to income ratio of 42%. This latter
efficiency metric places Westpac as one of the more efficient
banks in the world.
Strength remains a hallmark of Westpac with all dimensions
improving.
A hallmark of Westpac is strength and this continued in 2015
with all dimensions of the business improving, including:
asset quality has further improved with impaired assets
declining 19%, and delinquent accounts remaining low;
capital levels have significantly lifted; and
funding and liquidity remain strong with total liquid
assets reaching $136 billion and the liquidity coverage
ratio reaching 121%.
1 Results refer to cash earnings unless otherwise stated. For an
explanation of cash earnings see footnote 3 of the ‘Performance
Highlights’ section of Westpac’s Annual Report.
Capital
Dividends
Following the release of the final report from the Financial
The Group’s solid financial performance has supported a
System Inquiry (FSI) in late 2014, capital has been a hot
further increase in dividends through the year. The 2015
topic across the industry. Among a range of considerations,
final dividend was 94 cents per share fully franked, and
the FSI report recommended that Australian banks needed
combined with the 2015 interim dividend, total dividends for
to be ‘unquestionably strong’ and to achieve that they would
the year were 187 cents per share, an increase of 3%.
need to increase capital.
We responded, raising capital early and aiming to lift our
Comparing dividends paid to the share price at 30
September 2015 of $29.70, that translates to a yield of 6.3%.
capital ratios to the upper end of our preferred range. That
While dividends have increased, because of our capital
preferred range for our common equity tier 1 (CET1) capital
initiatives, the path of increases has slowed with a one cent
ratio is between 8.75 and 9.25%.
This saw Westpac raise $2 billion of equity with our 2015
first half result. We also raised a further $0.5 billion from the
per share rise over the last two halves. We continue to pay
out a high portion of profits as dividends to distribute
franking credits that are valued by shareholders.
partial sale of our shareholding in BTIM. These initiatives
It is important to highlight that despite increasing capital, we
contributed to increasing our CET1 capital ratio to 9.5% by
have maintained our dividend approach of steadily
September 2015 and above our preferred range.
increasing dividends within a sustainable pay-out ratio.
In July this year APRA responded to the FSI report,
including announcing changes to the calculation of risk
While on the topic of dividends, a number of shareholders
have written to me following suggestions that Australia’s
weighted assets for Australian mortgages. That change is to
imputation system should be reviewed.
apply from 1 July 2016. This was significant, increasing the
capital we need to support our Australian mortgage portfolio
by over 50%.
I am on the record as being a strong advocate of Australia’s
imputation system. There are a number of reasons for this
view but in summary Australia’s imputation system: removes
The size of this required increase led us to announce a fully
the double taxation of company profits; encourages
underwritten pro rata Entitlement Offer to raise
appropriate balance sheet settings by companies; reduces
approximately $3.5 billion of additional equity. We decided to
the incentive for companies to minimise tax; and it supports
raise capital via an Entitlement Offer as we felt this was the
the efficient allocation of resources across the economy. It is
fairest alternative for shareholders. At the time of writing, the
good tax policy and good for our economy and we will
Entitlement Offer had not been finalised but feedback has
continue to make our views well known.
been very positive. The institutional offer was particularly
well supported with approximately 95% of institutional
entitlements being taken up.
In aggregate, and following the Entitlement Offer, we will
have topped up our capital by around $6 billion this calendar
year, with the majority raised from existing shareholders.
The Board and I greatly appreciate the very strong support
from shareholders for these initiatives.
Changes in the capital required by Australian banks is part
of a global debate on how much capital banks should hold.
In essence, regulators are aiming to avoid a repeat of the
Global Financial Crisis. This is a worthy aim, and we are
advocates for strong banking systems that are able to
withstand crisis.
Australia has a very strong banking sector, recognised by
many as one of the strongest in the world, but remaining
strong requires constant vigilance as the next source of
stress is usually different from the last.
Regulatory objectives to strengthen the banks are
supported, but at the same time we must acknowledge the
sector’s strong starting point and that efforts to further
strengthen banks, and balance sheets, come at a cost.
Requiring banks to hold more capital for example has real
costs. It impacts returns, it increases costs to borrowers and
it impacts the economy by diverting resources from other
productive uses. It is vital that we seek to get this balance
right between capital and strength, particularly at a time
when our economy is in need of both confidence
and investment.
The operating environment
Banking is undergoing significant change; changes in
technology, changes in customer behaviour and changes in
regulation. If anything, these trends have accelerated.
Technology, or the digital revolution, is a particular challenge
for boards because, as has been experienced in other
industries, it has the potential to materially impact the value
of the business.
This year the Board devoted more time to technology
developments and issues such as cyber-crime, disruption,
and the progress on our various technology investments.
Our technology management team has also been
strengthened through the year.
Technology and potential disruption are topics we take very
seriously and I am pleased that we have maintained a
dedicated Board Technology Committee since 2009 to lead
our thinking on these matters.
Regulatory change has also been significant across the
sector through 2015. In addition to capital increases we have
needed to respond to changes in regulation across a range
of areas including superannuation, financial planning and
liquidity management. We have also responded to inquiries
on financial advice and on credit cards. At the same time,
failures in other banking markets have prompted regulators
to question whether the same issues exist in Australia or not,
and this has increased regulatory scrutiny.
All these elements have involved significant cost and effort.
We are working cooperatively with regulators to continue to
protect customers and hope that future change will not
impose excessive costs or stifle innovation.
4
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
5
Chairman’s report
In another period of significant change and development, Westpac has continued to deliver value for shareholders
The 2015 financial year has been another significant period
Performance summary
Lindsay Maxsted
Chairman
Positioned for the future
.
for Westpac.
We appointed a new CEO, refreshed the Group’s strategy,
and proactively responded to regulatory change. At the
same time we have supported shareholders by enhancing
the value of the franchise and increasing dividends.
In February 2015 Brian Hartzer commenced as our 25th
CEO, taking the reins from Gail Kelly who had successfully
led your company for the previous seven years. Gail was a
great leader and left the organisation in very good shape.
Choosing a new CEO is one of the most important roles of a
Board and we were very pleased to appoint such a strong
executive with the skills and experience to take Westpac into
its third century.
In selecting a new CEO, the Board set clear criteria and
undertook a global search. I would like to share some of our
considerations with shareholders as it reinforces how the
Board thinks about Westpac’s future, and the areas we want
to develop.
At the top of our criteria list, the Board was looking for a
seasoned banking executive with excellent leadership skills.
While it may appear obvious, it is important to highlight that
banking is a complex industry and the Board strongly
believes that deep banking experience is essential to run
one of the largest banks in the world.
On strategy, the Board is committed to our customer-centric
approach, and we were looking for an executive who would
further develop this strategy while recognising the significant
change facing our industry. Accordingly we sought a CEO
who was alert to the issues and had the capability to
proactively respond and turn opportunity into advantage.
Brian Hartzer met this criteria, particularly with his strong
grasp of digital technologies and how they are impacting our
industry. This, combined with his success in managing our
Australian Financial Services division for the prior three
years, made Brian the clear choice for CEO.
The Group has had another solid year in 2015. Cash
earnings1 were $7,820 million, an increase of 3% over the
previous year. The company uses cash earnings as a key
metric for determining dividends and believes it is the most
appropriate measure for assessing financial performance.
Statutory net profit in 2015 increased 6% to $8,012 million.
This year, the Group reported some significant infrequent
items including a gain on the partial sale of BT Investment
Management (BTIM), a tax benefit associated with our
acquisition of select Australian businesses of Lloyds Bank,
and costs from changes to the accounting of technology
investment spending. Because of their size and nature they
were excluded from the calculation of cash earnings.
Cash earnings growth was supported by a solid operating
performance across all divisions which led to a 4% rise in
operating revenue, and a 3% lift in core earnings (profit
before impairment charges).
The Group’s key financial metrics also remained strong with
a cash return on equity of 15.8%, net interest margin of
2.08% and an expense to income ratio of 42%. This latter
efficiency metric places Westpac as one of the more efficient
banks in the world.
improving.
Strength remains a hallmark of Westpac with all dimensions
A hallmark of Westpac is strength and this continued in 2015
with all dimensions of the business improving, including:
asset quality has further improved with impaired assets
declining 19%, and delinquent accounts remaining low;
capital levels have significantly lifted; and
funding and liquidity remain strong with total liquid
assets reaching $136 billion and the liquidity coverage
ratio reaching 121%.
1 Results refer to cash earnings unless otherwise stated. For an
explanation of cash earnings see footnote 3 of the ‘Performance
Highlights’ section of Westpac’s Annual Report.
Capital
Following the release of the final report from the Financial
System Inquiry (FSI) in late 2014, capital has been a hot
topic across the industry. Among a range of considerations,
the FSI report recommended that Australian banks needed
to be ‘unquestionably strong’ and to achieve that they would
need to increase capital.
We responded, raising capital early and aiming to lift our
capital ratios to the upper end of our preferred range. That
preferred range for our common equity tier 1 (CET1) capital
ratio is between 8.75 and 9.25%.
This saw Westpac raise $2 billion of equity with our 2015
first half result. We also raised a further $0.5 billion from the
partial sale of our shareholding in BTIM. These initiatives
contributed to increasing our CET1 capital ratio to 9.5% by
September 2015 and above our preferred range.
In July this year APRA responded to the FSI report,
including announcing changes to the calculation of risk
weighted assets for Australian mortgages. That change is to
apply from 1 July 2016. This was significant, increasing the
capital we need to support our Australian mortgage portfolio
by over 50%.
The size of this required increase led us to announce a fully
underwritten pro rata Entitlement Offer to raise
approximately $3.5 billion of additional equity. We decided to
raise capital via an Entitlement Offer as we felt this was the
fairest alternative for shareholders. At the time of writing, the
Entitlement Offer had not been finalised but feedback has
been very positive. The institutional offer was particularly
well supported with approximately 95% of institutional
entitlements being taken up.
In aggregate, and following the Entitlement Offer, we will
have topped up our capital by around $6 billion this calendar
year, with the majority raised from existing shareholders.
The Board and I greatly appreciate the very strong support
from shareholders for these initiatives.
Changes in the capital required by Australian banks is part
of a global debate on how much capital banks should hold.
In essence, regulators are aiming to avoid a repeat of the
Global Financial Crisis. This is a worthy aim, and we are
advocates for strong banking systems that are able to
withstand crisis.
Australia has a very strong banking sector, recognised by
many as one of the strongest in the world, but remaining
strong requires constant vigilance as the next source of
stress is usually different from the last.
Regulatory objectives to strengthen the banks are
supported, but at the same time we must acknowledge the
sector’s strong starting point and that efforts to further
strengthen banks, and balance sheets, come at a cost.
Requiring banks to hold more capital for example has real
costs. It impacts returns, it increases costs to borrowers and
it impacts the economy by diverting resources from other
productive uses. It is vital that we seek to get this balance
right between capital and strength, particularly at a time
when our economy is in need of both confidence
and investment.
Chairman’s report
Dividends
The Group’s solid financial performance has supported a
further increase in dividends through the year. The 2015
final dividend was 94 cents per share fully franked, and
combined with the 2015 interim dividend, total dividends for
the year were 187 cents per share, an increase of 3%.
Comparing dividends paid to the share price at 30
September 2015 of $29.70, that translates to a yield of 6.3%.
While dividends have increased, because of our capital
initiatives, the path of increases has slowed with a one cent
per share rise over the last two halves. We continue to pay
out a high portion of profits as dividends to distribute
franking credits that are valued by shareholders.
It is important to highlight that despite increasing capital, we
have maintained our dividend approach of steadily
increasing dividends within a sustainable pay-out ratio.
While on the topic of dividends, a number of shareholders
have written to me following suggestions that Australia’s
imputation system should be reviewed.
I am on the record as being a strong advocate of Australia’s
imputation system. There are a number of reasons for this
view but in summary Australia’s imputation system: removes
the double taxation of company profits; encourages
appropriate balance sheet settings by companies; reduces
the incentive for companies to minimise tax; and it supports
the efficient allocation of resources across the economy. It is
good tax policy and good for our economy and we will
continue to make our views well known.
The operating environment
Banking is undergoing significant change; changes in
technology, changes in customer behaviour and changes in
regulation. If anything, these trends have accelerated.
Technology, or the digital revolution, is a particular challenge
for boards because, as has been experienced in other
industries, it has the potential to materially impact the value
of the business.
This year the Board devoted more time to technology
developments and issues such as cyber-crime, disruption,
and the progress on our various technology investments.
Our technology management team has also been
strengthened through the year.
Technology and potential disruption are topics we take very
seriously and I am pleased that we have maintained a
dedicated Board Technology Committee since 2009 to lead
our thinking on these matters.
Regulatory change has also been significant across the
sector through 2015. In addition to capital increases we have
needed to respond to changes in regulation across a range
of areas including superannuation, financial planning and
liquidity management. We have also responded to inquiries
on financial advice and on credit cards. At the same time,
failures in other banking markets have prompted regulators
to question whether the same issues exist in Australia or not,
and this has increased regulatory scrutiny.
All these elements have involved significant cost and effort.
We are working cooperatively with regulators to continue to
protect customers and hope that future change will not
impose excessive costs or stifle innovation.
4
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
5
1
Competition is expected to remain strong as the sector
adjusts to holding more capital.
Summary
It has been another good year for Westpac. Our divisions
are in good shape, performance has been sound and we
have materially strengthened the company’s balance sheet.
Banking is undergoing significant change but given our clear
strategy, ongoing investment and strong management team,
your company is well positioned for the changing
environment.
Westpac is well placed to continue delivering sound returns
to shareholders.
LINDSAY MAXSTED
Chairman
Westpac Group
The operating environment for banks more generally has
been supportive although sentiment remains cautious. This
can be seen in consumer spending and their approach to
borrowing. For businesses, caution is reflected in modest
investment and conservative balance sheets. As a result,
credit growth has hovered at around 6% for much of 2015.
The flip side to caution and modest growth is that consumer
and business balance sheets are healthy and asset quality
remains in excellent shape.
We have seen stronger growth in housing, along with
commercial property and infrastructure. That growth has
tended to be skewed to NSW and Victoria, which have been
less impacted by the slowdown in mining. Conversely,
growth in Western Australia has been more subdued with
the economy adjusting to lower incomes as mining
investment eases.
Board composition
Following some major changes in the Board over recent
years, 2015 was a period of moderate change. Brian Hartzer
joined the Board on becoming CEO while Gail Kelly retired.
We also welcomed Craig Dunn to the Board in June. Craig is
a strong addition, and as the immediate past CEO of AMP
Limited, he brings experience as a recent executive and a
deep understanding of wealth management – a key area of
growth for the Group. Craig also brings additional digital
insights to the Board as Chairman of the recently opened
Stone and Chalk. Stone and Chalk is a fintech hub
supporting digital innovation in financial services in Australia.
Outlook
We continue to be positive about the outlook for Australia
and New Zealand. Both economies have relatively low
unemployment, controlled inflation and moderate growth.
Growth has been below trend as the slowdown in mining
investment has not been fully offset by improved spending or
from the effects of the lower Australian dollar.
Within Australia, the outlook is for a modest lift in the real
GDP growth rate back to trend which we now assess at
around 2.75%.That compares with growth of around 2.2%
over the last year.
The anticipated lift in the GDP growth rate reflects
expectations for some improvement in household spending
growth, non-mining investment, and exports. Partially
offsetting these factors is an expected further contraction in
mining investment and a smaller contribution from residential
construction. These forecasts are reliant upon some further
weakness in the Australian dollar, ongoing record low
interest rates, and a stable year for our terms of trade.
A bright spot will be the ongoing recovery in Australia’s net
exports of services that are benefitting significantly from the
competitive Australian dollar.
These sectors along with health and professional services
are boosting jobs growth. Lead indicators point to the
unemployment rate initially stabilising before drifting lower as
economic growth improves.
For banking we are expecting broadly similar credit growth
to that achieved in 2015 although the composition is
expected to be a little different, with improved business
lending and an easing in housing growth.
Chief Executive Officer’s report
Brian Hartzer
Chief Executive Officer
Building on Strong Foundations
Dear Fellow Shareholders,
In my first report to you as Chief Executive Officer I would
like to start by acknowledging what an honour it is to have
the opportunity to lead a company with such a rich history,
strong values, and well-positioned businesses.
I believe banks exist to support economic development, and
Westpac’s position as Australia’s first bank, and oldest
company, means we have a proud history of contributing to
the success of the Australian and New Zealand economies.
In this and future letters, my aim will be to share with you my
candid assessment of how the company is performing, what
challenges and opportunities we are facing, and what our
priorities will be for the next period.
Thanks to the outstanding leadership of my predecessor,
Gail Kelly, and the talent and dedication of the 40,000
people who work here, I’m pleased to report that our
company is in great shape.
We have a very strong balance sheet, excellent asset
quality, and are the most efficient bank in the sector. More
broadly, our approach to running our business in a way that
balances the needs of all stakeholders—customers,
shareholders, employees, and the communities we serve—
has seen us once again recognised as the global banking
leader in the Dow Jones Sustainability Index —the eighth
time we’ve been named the sector leader since 2002.
All of our business divisions are performing well, and I’m
pleased to report that— unlike many of our global banking
peers—we have not been distracted by businesses outside
of our core markets or with significant legacy problems that
need to be remediated.
Our financial results for the 2015 financial year reflect this.
As you can see in this report, Westpac delivered cash
earnings of $7,820 million in full year 2015, a 3% uplift on
the prior year. This represented earnings per share of 249.5
cents, and a cash return on equity of 15.8% - a solid
performance given the environment. Reported net profit was
up a stronger 6%.
This performance is a testament to the strong foundation
that was built by the leaders in whose footsteps I follow:
most recently Gail Kelly—as well as David Morgan and Bob
Joss before her—who led Westpac through periods of
significant change while enhancing the value of the
company. My aim is to continue this tradition.
Strong leadership is an essential element in any company,
and one of my first priorities as CEO has been to build a
first-rate team. Westpac has a very experienced and
talented executive team who have worked well together over
many years.
To this strong starting point we have added some fresh
energy through the recruitment of Lyn Cobley—who leads
our Institutional Banking business—as well as the internal
promotions of David Lindberg to lead our Commercial &
Business Bank; George Frazis—to lead our new Consumer
Bank—and the confirmation of David McLean as CEO
Westpac New Zealand. Gary Thursby (Chief Strategy
Officer) also joined the Group executive team during
the year.
Getting the right leadership team in place has been critical.
While financial services has regularly seen significant
change since Westpac first opened its doors almost 199
years ago, seldom have we seen a period where external
forces are so rapidly transforming our operating
environment. In my opinion, it’s the biggest period of change
that we’ve seen in Australian banking since deregulation in
the 1980s.
The drivers of this have been well reported: the shift from a
resource and construction driven economy to a service-led
economy; the aging of the baby boomers, and the pervasive
impact of technology on customer needs and competition.
In financial services, we are also dealing with the aftermath
of the Global Financial Crisis (GFC), in several respects.
First, there are ongoing efforts by regulators to address the
risk of ‘too big to fail’ banks by tightening requirements on
capital levels, funding, and liquidity. Second, in response to
various mis-selling and other scandals, there is rightly no
tolerance from regulators and communities for poor conduct
and culture. And finally there’s the pressure on banks’
lending margins as central banks try to stimulate economic
growth through quantitative easing—the impact of the ‘wall
of money’ in financial markets.
6
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
7
The operating environment for banks more generally has
Competition is expected to remain strong as the sector
been supportive although sentiment remains cautious. This
adjusts to holding more capital.
Chief Executive Officer’s report
Summary
It has been another good year for Westpac. Our divisions
are in good shape, performance has been sound and we
have materially strengthened the company’s balance sheet.
Banking is undergoing significant change but given our clear
strategy, ongoing investment and strong management team,
your company is well positioned for the changing
environment.
to shareholders.
Westpac is well placed to continue delivering sound returns
LINDSAY MAXSTED
Chairman
Westpac Group
can be seen in consumer spending and their approach to
borrowing. For businesses, caution is reflected in modest
investment and conservative balance sheets. As a result,
credit growth has hovered at around 6% for much of 2015.
The flip side to caution and modest growth is that consumer
and business balance sheets are healthy and asset quality
remains in excellent shape.
We have seen stronger growth in housing, along with
commercial property and infrastructure. That growth has
tended to be skewed to NSW and Victoria, which have been
less impacted by the slowdown in mining. Conversely,
growth in Western Australia has been more subdued with
the economy adjusting to lower incomes as mining
investment eases.
Board composition
Following some major changes in the Board over recent
years, 2015 was a period of moderate change. Brian Hartzer
joined the Board on becoming CEO while Gail Kelly retired.
We also welcomed Craig Dunn to the Board in June. Craig is
a strong addition, and as the immediate past CEO of AMP
Limited, he brings experience as a recent executive and a
deep understanding of wealth management – a key area of
growth for the Group. Craig also brings additional digital
insights to the Board as Chairman of the recently opened
Stone and Chalk. Stone and Chalk is a fintech hub
supporting digital innovation in financial services in Australia.
Outlook
We continue to be positive about the outlook for Australia
and New Zealand. Both economies have relatively low
unemployment, controlled inflation and moderate growth.
Growth has been below trend as the slowdown in mining
investment has not been fully offset by improved spending or
from the effects of the lower Australian dollar.
Within Australia, the outlook is for a modest lift in the real
GDP growth rate back to trend which we now assess at
around 2.75%.That compares with growth of around 2.2%
over the last year.
The anticipated lift in the GDP growth rate reflects
expectations for some improvement in household spending
growth, non-mining investment, and exports. Partially
offsetting these factors is an expected further contraction in
mining investment and a smaller contribution from residential
construction. These forecasts are reliant upon some further
weakness in the Australian dollar, ongoing record low
interest rates, and a stable year for our terms of trade.
A bright spot will be the ongoing recovery in Australia’s net
exports of services that are benefitting significantly from the
competitive Australian dollar.
These sectors along with health and professional services
are boosting jobs growth. Lead indicators point to the
unemployment rate initially stabilising before drifting lower as
economic growth improves.
For banking we are expecting broadly similar credit growth
to that achieved in 2015 although the composition is
expected to be a little different, with improved business
lending and an easing in housing growth.
Brian Hartzer
Chief Executive Officer
Building on Strong Foundations
Dear Fellow Shareholders,
In my first report to you as Chief Executive Officer I would
like to start by acknowledging what an honour it is to have
the opportunity to lead a company with such a rich history,
strong values, and well-positioned businesses.
I believe banks exist to support economic development, and
Westpac’s position as Australia’s first bank, and oldest
company, means we have a proud history of contributing to
the success of the Australian and New Zealand economies.
In this and future letters, my aim will be to share with you my
candid assessment of how the company is performing, what
challenges and opportunities we are facing, and what our
priorities will be for the next period.
Thanks to the outstanding leadership of my predecessor,
Gail Kelly, and the talent and dedication of the 40,000
people who work here, I’m pleased to report that our
company is in great shape.
We have a very strong balance sheet, excellent asset
quality, and are the most efficient bank in the sector. More
broadly, our approach to running our business in a way that
balances the needs of all stakeholders—customers,
shareholders, employees, and the communities we serve—
has seen us once again recognised as the global banking
leader in the Dow Jones Sustainability Index —the eighth
time we’ve been named the sector leader since 2002.
All of our business divisions are performing well, and I’m
pleased to report that— unlike many of our global banking
peers—we have not been distracted by businesses outside
of our core markets or with significant legacy problems that
need to be remediated.
Our financial results for the 2015 financial year reflect this.
As you can see in this report, Westpac delivered cash
earnings of $7,820 million in full year 2015, a 3% uplift on
the prior year. This represented earnings per share of 249.5
cents, and a cash return on equity of 15.8% - a solid
performance given the environment. Reported net profit was
up a stronger 6%.
This performance is a testament to the strong foundation
that was built by the leaders in whose footsteps I follow:
most recently Gail Kelly—as well as David Morgan and Bob
Joss before her—who led Westpac through periods of
significant change while enhancing the value of the
company. My aim is to continue this tradition.
Strong leadership is an essential element in any company,
and one of my first priorities as CEO has been to build a
first-rate team. Westpac has a very experienced and
talented executive team who have worked well together over
many years.
To this strong starting point we have added some fresh
energy through the recruitment of Lyn Cobley—who leads
our Institutional Banking business—as well as the internal
promotions of David Lindberg to lead our Commercial &
Business Bank; George Frazis—to lead our new Consumer
Bank—and the confirmation of David McLean as CEO
Westpac New Zealand. Gary Thursby (Chief Strategy
Officer) also joined the Group executive team during
the year.
Getting the right leadership team in place has been critical.
While financial services has regularly seen significant
change since Westpac first opened its doors almost 199
years ago, seldom have we seen a period where external
forces are so rapidly transforming our operating
environment. In my opinion, it’s the biggest period of change
that we’ve seen in Australian banking since deregulation in
the 1980s.
The drivers of this have been well reported: the shift from a
resource and construction driven economy to a service-led
economy; the aging of the baby boomers, and the pervasive
impact of technology on customer needs and competition.
In financial services, we are also dealing with the aftermath
of the Global Financial Crisis (GFC), in several respects.
First, there are ongoing efforts by regulators to address the
risk of ‘too big to fail’ banks by tightening requirements on
capital levels, funding, and liquidity. Second, in response to
various mis-selling and other scandals, there is rightly no
tolerance from regulators and communities for poor conduct
and culture. And finally there’s the pressure on banks’
lending margins as central banks try to stimulate economic
growth through quantitative easing—the impact of the ‘wall
of money’ in financial markets.
6
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
7
1
These rising community and regulatory expectations of the
sector make it essential that we strive to operate our
business sustainably.
At Westpac, we pride ourselves on engaging with all our
stakeholders, but there is more we can do to better explain
this balance and the inherent trade-offs that we make.
From a business point of view, the magnitude of change that
we face has meant we needed to take a fresh look at our
strategy and priorities for the next 3-5 years, to make sure
that we were keeping up with stakeholder expectations and,
as far as possible, turning these challenges into
opportunities to strengthen our competitive position.
The sections that follow describe the strategy and our
priorities and why we believe Westpac is well placed to
move to leadership as we enter our third century of business
in 2017.I will also provide my perspective on the
performance of our various business units and some of the
material decisions we took this year.
Service-led strategy
The starting point for our strategy has been to understand
the fundamental shifts in customers’ needs and
expectations. Customers’ financial needs are becoming
more complex, and at the same time they want their banking
to be dramatically simpler and more efficient. They expect
high quality, unbiased advice, and they want it at a time and
place that suits them—not the bank. They want the strength
and trust that comes in dealing with a safe bank brand, and
they recognise that they have growing choice in providers.
Technology has clearly played a role in these changes. The
growth of the Internet and ubiquity of mobile devices in many
aspects of commerce is changing what customers expect
from their bank, as well as giving banks more flexibility in the
way they deliver products and services. It also creates the
very real threat of disruption to existing businesses from new
competitors.
Rather than fear these changes, Westpac has decided to
embrace them.
We believe that if we stay focused on delivering great
service to our customers, then new technologies give us a
fantastic opportunity to become even more competitive
and efficient.
As a result, earlier this year we added the small, but
important word ‘service’ into our overall company vision – to
be one of the world’s great service companies, helping
our customers, communities and people to prosper
and grow.
This may seem like a minor change, but we see it as an
important difference. It affects everything we do, from
changing what we offer customers and the way we work, to
how we reward our people and set our priorities as
a company.
As a service company, our job is to help customers achieve
something that’s important to them—not just to sell them
another product. It’s also a philosophy that is consistent with
our role as a bank in supporting economic development, and
running our business in a sustainable way.
From an investment point of view, the focus on service helps
us retain and grow our customer base, as well as build
loyalty and deepen relationships, without relying solely on
price. That allows us to sustain our margins and continue to
invest in the business. A service orientation also encourages
us to avoid excessively risky segments and to offer suitable
products and services in line with customers and regulatory
expectations. All of this in turn enhances the value of
our franchise.
Many of our competitors refer to similar themes, so our
success in achieving service leadership will depend to a
great degree on how well we implement.
We have therefore translated our strategy into a 3-5 year
program that we call the ‘Service Revolution’. The program
is comprised of five strategic priorities, supported by a series
of projects that have clear accountabilities and metrics to
assess performance.
We are making good progress on each of these priorities.
1. Performance discipline
Westpac is already recognised for its disciplined financial
management and strong balance sheet. At an overall level,
we seek to balance strength, return, productivity, and
growth. At a divisional level, all our businesses generate
solid returns, operate in a highly efficient way, and have an
excellent risk profile.
While our overarching objective is to grow the long-term
value of the franchise, we know that it is important to deliver
strong financial performance, year-in and year-out. To that
end we are seeking to maintain our return on equity above
15%-a challenging target in the context of increasing
capital requirements.
Around the world, well-managed banks with similar mix of
businesses have typically achieved this level of return, and
we consider Westpac to be in the same league. We also
recognise capital is a scarce and valuable resource that
needs to be put to work efficiently. At this level of return we
can also continue to sustain dividends and support growth.
2. Service leadership
As we seek to build one of the world’s great service
companies, we’ve substantially evolved the way we are
responding to customers’ expectations about how and where
we support them.
This includes an increase in our future annual investment
spend of around 20%, directed to growth, service, and
efficiency initiatives. This year we have made significant
progress in using digital innovation to redesign the customer
experience, making things simpler, easier and better for our
customers and for our people.
For example, our new online/mobile banking platform,
Westpac Live, has contributed to an increase in the number
of products per customer and a significant decrease in
complaints. Similar results are being achieved in New
Zealand since the February 2015 launch of our new award-
winning online banking platform, Westpac One.
We are also investing in our physical network. This includes
the reconfiguration of branches into new formats that offer
state-of-the-art digital solutions to make transactions quicker
and easier for both consumer and business customers.
This approach frees up bankers to spend more time with
To measure our progress on this, we’ve set a new target of
customers. Regardless of their location, customers can also
achieving a 40% cost to income ratio by 2017.
Chief Executive Officer’s report
connect via video conference with a range of financial
service specialists—a particularly powerful solution for
business customers. Over 80% of our sites are video
enabled and we expect over half our branch network to be in
the new format over the next three years.
To measure our success with this priority we have set a
target to attract another one million customers by 2017, and
deepen our relationship with them by increasing the number
of our products they have. This is a stretching goal and will
mean that our people will have to work hard to nurture every
4. Targeted growth
While we have delivered sound growth over recent years, it
is vital that we identify and invest in those sectors and
segments that will generate stronger growth over the
medium term. We are focusing on wealth, small and medium
enterprises (SME) and Asia as our big-ticket growth
‘highways’. In addition, we are seeking to grow in markets
and segments where specific opportunities have been
identified—in particular home lending to owner-occupiers.
In wealth, the Group already has a leading position in
administration platforms and is seeking to build on that
further with our investment in Panorama, a state-of-the-art
single customer relationship.
3. Digital transformation
completely new ways.
Digitisation brings with it exciting opportunities to improve
online platform that helps customers—and their advisers—to
efficiency and to deliver banking and financial services in
manage their wealth, including their superannuation. To date
the system has over $1.3 billion of funds under
administration and more than 2,000 advisers are registered
We have already seen the benefits of this opportunity this
year. This included the launch of our Live Online Lending
to use the platform.
Application (LOLA) that has completely reengineered the
Insurance is another area where we see significant
application and approval process for small business lending;
opportunities to grow. We recently entered into a strategic
and BT Go-Invest, the first-of-its-kind digital portal that
alliance with Allianz to expand the range of insurance
enables customers to view their share portfolios and make
products available, and to streamline the origination process.
transactions online 24/7. We have also introduced a range of
As part of this, a number of competitive new products will be
new mobile apps, including the first banking app for a
rolled out in the 2016 financial year.
smart watch.
We’re also alert to the emergence of new business models
modest over recent years, we continue to see opportunity.
with the potential to ‘disrupt’ traditional banking, as well as
Australia and New Zealand business is fundamentally SME-
the increased threat of cyber-crime. To ensure we stay one
dominated, so supporting this segment is good for the entire
While growth from SME customers has been relatively
step ahead of these issues, we are exploring innovative
technology partnerships and investments.
This includes a $50 million investment in our Reinventure
fund, which invests in promising start-up ‘fintech’
businesses. One of the early investments was in Society
One – one of Australia’s first peer-to-peer lenders. With a
economy. Our investment is focused on being proactive in
supporting businesses and making it easier for them to do
business with us. Our revolutionary LOLA platform is not
only making the process of taking out a loan easier, it is
helping customers to determine how much they can borrow
and what their options are to grow their business.
different take on traditional banking, peer-to-peer lending
In Asia, the Group continues to invest and build our
has created a niche market offshore and we wanted to keep
capability. Our strategy is focused on connecting Australian
abreast of developments locally.
So far, Reinventure has made seven separate business
investments, which helps us to keep pace with digital
and New Zealand customers with Asia and increasingly, to
support Asian-based customers looking to invest and grow
in Australia and New Zealand.
innovation. As some of these new fintech solutions begin to
We have steadily built our business in the region and now
take off we hope to be already on the runway with them.
have strong capabilities in trade, financial markets and
We’re also continually improving the resilience and security
of our systems to protect the confidentiality, integrity and
transactional banking. We have also built market leadership
in AUD/CNY currency hedging.
availability of customer information and sensitive commercial
5. Workforce revolution
data. This saw us invest in QuintessenceLabs, a security
firm specialising in quantum-computing enhanced
cyber security.
At the core of Westpac’s ability to meet the challenges of the
future and revolutionise the way we deliver service is our
people and our organisation’s culture.
This investment will further boost the Group’s information
security capabilities and provide access to a pipeline of
security innovations. It also signals our proactive, strategic
approach to building security capabilities now and in
the future.
We have increased our efforts on a number of fronts to get
this right, including programs to provide the best physical
environment, tools, systems and policies for our people,
while fostering a new mindset to drive greater agility,
productivity, and wellbeing.
The ultimate impact of this digital transformation will be a
genuine win-win: our customers will benefit from better
security and an improved customer experience; our staff will
have more time to spend with customers and on meaningful
work; and the bank (and its shareholders) will benefit from
lower risk and significantly improved productivity.
We’re also working to ensure that our organisational culture
attracts employees who put customers’ interests first, are
highly engaged, inclusive, and digitally confident.
By the end of the calendar year more than 10,000
employees will have relocated into new, ‘agile’ workspaces –
8
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
9
These rising community and regulatory expectations of the
From an investment point of view, the focus on service helps
material decisions we took this year.
We are making good progress on each of these priorities.
sector make it essential that we strive to operate our
business sustainably.
At Westpac, we pride ourselves on engaging with all our
stakeholders, but there is more we can do to better explain
this balance and the inherent trade-offs that we make.
From a business point of view, the magnitude of change that
we face has meant we needed to take a fresh look at our
strategy and priorities for the next 3-5 years, to make sure
that we were keeping up with stakeholder expectations and,
as far as possible, turning these challenges into
opportunities to strengthen our competitive position.
The sections that follow describe the strategy and our
priorities and why we believe Westpac is well placed to
move to leadership as we enter our third century of business
in 2017.I will also provide my perspective on the
performance of our various business units and some of the
Service-led strategy
The starting point for our strategy has been to understand
the fundamental shifts in customers’ needs and
expectations. Customers’ financial needs are becoming
more complex, and at the same time they want their banking
to be dramatically simpler and more efficient. They expect
high quality, unbiased advice, and they want it at a time and
place that suits them—not the bank. They want the strength
and trust that comes in dealing with a safe bank brand, and
they recognise that they have growing choice in providers.
Technology has clearly played a role in these changes. The
growth of the Internet and ubiquity of mobile devices in many
aspects of commerce is changing what customers expect
from their bank, as well as giving banks more flexibility in the
way they deliver products and services. It also creates the
very real threat of disruption to existing businesses from new
competitors.
embrace them.
Rather than fear these changes, Westpac has decided to
We believe that if we stay focused on delivering great
service to our customers, then new technologies give us a
fantastic opportunity to become even more competitive
and efficient.
As a result, earlier this year we added the small, but
important word ‘service’ into our overall company vision – to
be one of the world’s great service companies, helping
our customers, communities and people to prosper
and grow.
This may seem like a minor change, but we see it as an
important difference. It affects everything we do, from
changing what we offer customers and the way we work, to
how we reward our people and set our priorities as
a company.
As a service company, our job is to help customers achieve
something that’s important to them—not just to sell them
another product. It’s also a philosophy that is consistent with
our role as a bank in supporting economic development, and
running our business in a sustainable way.
us retain and grow our customer base, as well as build
loyalty and deepen relationships, without relying solely on
price. That allows us to sustain our margins and continue to
invest in the business. A service orientation also encourages
us to avoid excessively risky segments and to offer suitable
products and services in line with customers and regulatory
expectations. All of this in turn enhances the value of
our franchise.
Many of our competitors refer to similar themes, so our
success in achieving service leadership will depend to a
great degree on how well we implement.
We have therefore translated our strategy into a 3-5 year
program that we call the ‘Service Revolution’. The program
is comprised of five strategic priorities, supported by a series
of projects that have clear accountabilities and metrics to
assess performance.
1. Performance discipline
Westpac is already recognised for its disciplined financial
management and strong balance sheet. At an overall level,
we seek to balance strength, return, productivity, and
growth. At a divisional level, all our businesses generate
solid returns, operate in a highly efficient way, and have an
excellent risk profile.
While our overarching objective is to grow the long-term
value of the franchise, we know that it is important to deliver
strong financial performance, year-in and year-out. To that
end we are seeking to maintain our return on equity above
15%-a challenging target in the context of increasing
capital requirements.
Around the world, well-managed banks with similar mix of
businesses have typically achieved this level of return, and
we consider Westpac to be in the same league. We also
recognise capital is a scarce and valuable resource that
needs to be put to work efficiently. At this level of return we
can also continue to sustain dividends and support growth.
2. Service leadership
As we seek to build one of the world’s great service
companies, we’ve substantially evolved the way we are
responding to customers’ expectations about how and where
we support them.
This includes an increase in our future annual investment
spend of around 20%, directed to growth, service, and
efficiency initiatives. This year we have made significant
progress in using digital innovation to redesign the customer
experience, making things simpler, easier and better for our
customers and for our people.
For example, our new online/mobile banking platform,
Westpac Live, has contributed to an increase in the number
of products per customer and a significant decrease in
complaints. Similar results are being achieved in New
Zealand since the February 2015 launch of our new award-
winning online banking platform, Westpac One.
We are also investing in our physical network. This includes
the reconfiguration of branches into new formats that offer
state-of-the-art digital solutions to make transactions quicker
and easier for both consumer and business customers.
This approach frees up bankers to spend more time with
customers. Regardless of their location, customers can also
connect via video conference with a range of financial
service specialists—a particularly powerful solution for
business customers. Over 80% of our sites are video
enabled and we expect over half our branch network to be in
the new format over the next three years.
To measure our success with this priority we have set a
target to attract another one million customers by 2017, and
deepen our relationship with them by increasing the number
of our products they have. This is a stretching goal and will
mean that our people will have to work hard to nurture every
single customer relationship.
3. Digital transformation
Digitisation brings with it exciting opportunities to improve
efficiency and to deliver banking and financial services in
completely new ways.
We have already seen the benefits of this opportunity this
year. This included the launch of our Live Online Lending
Application (LOLA) that has completely reengineered the
application and approval process for small business lending;
and BT Go-Invest, the first-of-its-kind digital portal that
enables customers to view their share portfolios and make
transactions online 24/7. We have also introduced a range of
new mobile apps, including the first banking app for a
smart watch.
We’re also alert to the emergence of new business models
with the potential to ‘disrupt’ traditional banking, as well as
the increased threat of cyber-crime. To ensure we stay one
step ahead of these issues, we are exploring innovative
technology partnerships and investments.
This includes a $50 million investment in our Reinventure
fund, which invests in promising start-up ‘fintech’
businesses. One of the early investments was in Society
One – one of Australia’s first peer-to-peer lenders. With a
different take on traditional banking, peer-to-peer lending
has created a niche market offshore and we wanted to keep
abreast of developments locally.
So far, Reinventure has made seven separate business
investments, which helps us to keep pace with digital
innovation. As some of these new fintech solutions begin to
take off we hope to be already on the runway with them.
We’re also continually improving the resilience and security
of our systems to protect the confidentiality, integrity and
availability of customer information and sensitive commercial
data. This saw us invest in QuintessenceLabs, a security
firm specialising in quantum-computing enhanced
cyber security.
Chief Executive Officer’s report
To measure our progress on this, we’ve set a new target of
achieving a 40% cost to income ratio by 2017.
4. Targeted growth
While we have delivered sound growth over recent years, it
is vital that we identify and invest in those sectors and
segments that will generate stronger growth over the
medium term. We are focusing on wealth, small and medium
enterprises (SME) and Asia as our big-ticket growth
‘highways’. In addition, we are seeking to grow in markets
and segments where specific opportunities have been
identified—in particular home lending to owner-occupiers.
In wealth, the Group already has a leading position in
administration platforms and is seeking to build on that
further with our investment in Panorama, a state-of-the-art
online platform that helps customers—and their advisers—to
manage their wealth, including their superannuation. To date
the system has over $1.3 billion of funds under
administration and more than 2,000 advisers are registered
to use the platform.
Insurance is another area where we see significant
opportunities to grow. We recently entered into a strategic
alliance with Allianz to expand the range of insurance
products available, and to streamline the origination process.
As part of this, a number of competitive new products will be
rolled out in the 2016 financial year.
While growth from SME customers has been relatively
modest over recent years, we continue to see opportunity.
Australia and New Zealand business is fundamentally SME-
dominated, so supporting this segment is good for the entire
economy. Our investment is focused on being proactive in
supporting businesses and making it easier for them to do
business with us. Our revolutionary LOLA platform is not
only making the process of taking out a loan easier, it is
helping customers to determine how much they can borrow
and what their options are to grow their business.
In Asia, the Group continues to invest and build our
capability. Our strategy is focused on connecting Australian
and New Zealand customers with Asia and increasingly, to
support Asian-based customers looking to invest and grow
in Australia and New Zealand.
We have steadily built our business in the region and now
have strong capabilities in trade, financial markets and
transactional banking. We have also built market leadership
in AUD/CNY currency hedging.
5. Workforce revolution
At the core of Westpac’s ability to meet the challenges of the
future and revolutionise the way we deliver service is our
people and our organisation’s culture.
This investment will further boost the Group’s information
security capabilities and provide access to a pipeline of
security innovations. It also signals our proactive, strategic
approach to building security capabilities now and in
the future.
We have increased our efforts on a number of fronts to get
this right, including programs to provide the best physical
environment, tools, systems and policies for our people,
while fostering a new mindset to drive greater agility,
productivity, and wellbeing.
The ultimate impact of this digital transformation will be a
genuine win-win: our customers will benefit from better
security and an improved customer experience; our staff will
have more time to spend with customers and on meaningful
work; and the bank (and its shareholders) will benefit from
lower risk and significantly improved productivity.
We’re also working to ensure that our organisational culture
attracts employees who put customers’ interests first, are
highly engaged, inclusive, and digitally confident.
By the end of the calendar year more than 10,000
employees will have relocated into new, ‘agile’ workspaces –
8
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
9
1
including at Melbourne’s Collins Street, Brisbane’s Eagle
Street and Sydney’s Barangaroo and Kogarah. Among those
employees already in the new workspaces we’ve already
seen dramatic improvements across key measures of
productivity, flexibility, and absenteeism.
We also believe a workforce that embraces diversity–those
from different cultural backgrounds, different ages, genders,
abilities and sexual orientation—allows us to tap a deeper
talent pool and gives us greater insight to respond creatively
to the needs of our diverse customer base.
In 2015 we took further action on a number of these
priorities. This year the proportion of leadership roles held by
women rose to 46%, up from 44% last year. And initiatives
to deliver our Reconciliation Action Plan have put us well on
track to attract an additional 500 Aboriginal or Torres Strait
Islander people to our organisation by 2017. We’re proud of
these outcomes, but we have significant work to do to keep
up momentum and create true inclusion.
An important milestone this year was the completion of a
new Enterprise Agreement with the Finance Sector Union
that creates substantial benefits for employees, the business
and customers. The new agreement, which replaces 19
complex instruments with one set of innovative, customer-
focused terms, represents a market-leading package to help
attract and retain the right people.
With that background on our strategy and priorities, let me
now turn to our financial performance this year.
2015: A solid financial performance
Our 2015 result can be best summarised as one of
disciplined growth, well-managed margins, continued
investment and a strengthening of all elements of
the franchise.
Cash earnings, our preferred measure of performance was
up 3% to $7,820 million for the 2015 financial year with cash
earnings per share up 2% to 249.5 cents. Our return on
equity was a solid 15.8% and remains above our 15% target.
On a reported basis Westpac's net profit of $8,012 million
was 6% higher. The stronger growth in reported profit
compared to cash earnings was due to a small number of
large infrequent items that are included in reported profit but
which were excluded from the calculation of cash earnings.
These items included $665 million after tax gain on the
partial sale of BTIM and $64 million of tax benefits
associated with the acquisition of Lloyds Australia. These
were partially offset by changes in the accounting of
technology investment spending which contributed to a
$354 million (post tax) write-down of capitalised
technology costs.
Operating income for the group was up by 4% from a 7%
increase in lending, a 4% increase in customer deposits and
flat net interest margins.
The increase in lending was mostly due to an increase in
Australian mortgages of 7%, which was broadly in line with
growth in the system. Within housing, the investor category
has seen much attention over the year, particularly following
the introduction of a regulatory cap on growth of 10% per
annum. We responded by tightening our lending criteria and
adjusting our pricing on investment loans, and our growth
has now eased below the 10% limit. At the same time, as
opportunities in investor housing slowed we increased our
focus on owner-occupied lending, and this has contributed to
a strong uplift in applications and approvals in the latter
months of the year.
Business lending has shown some ‘green shoots’ in recent
months and after a period of relatively subdued activity we
experienced solid growth. For the last year much of that
growth was in areas such as infrastructure and commercial
property, although more recently we are seeing a broader
pickup in commercial activity. This has been especially
strong in SME, where our new ‘Connect’ model of video
conferencing is supporting our bankers and customers
where there is improving confidence to invest and grow.
We have also continued to experience good growth in
equipment financing, thanks in part to our acquisition of
Lloyd’s Australian operations last year. This has been a very
successful acquisition for us which continues to perform
ahead of expectations.
Non-interest income was little changed over the year
although the underlying trends are positive, particularly in
wealth management. A good example was the 8% increase
in Funds Under Administration (FUA), where we continue to
lead the market on platforms and have seen continuing
positive flows. However, these gains were offset by a lower
contribution from trading income and some severe storms
which increased claims and reduced insurance income.
Expenses increased 5% over the year, with most of that
increase due to investment related costs, including the
reconfiguration and upgrade of our branches and launching
a new online capability in both Australia and New Zealand.
These investments represent a deliberate commitment to the
future of our franchise, and were partially offset by
productivity benefits in our existing operations of around
$239million.
Our expense to income ratio for the year was 42%, a little
higher than 2014 but still ranking us as the most efficient
bank in Australia, and one of the more efficient
banks globally.
Impairment charges (or bad debts) were $103 million higher
over the year with the increase due to lower write-backs,
higher write-offs and the growth in our book.
To be clear, the rise in impairments is in the context of a
portfolio that has been well managed and is in good shape,
rather than from a deterioration in asset quality.
Over recent years we have been successful in assisting
stressed businesses to improve their financial position. This
has meant we have been able to write back provisions that
we had previously set aside for loss. However, there is a
limited pool of such stressed assets, and as the proportion of
stressed companies has declined, so too have the write-
backs—leading to a net increase in impairments charge.
Divisional Performance
To support our service strategy, we made changes during
the year to our organisational structure. This has led to the
creation of two new divisions: Consumer Bank, with
accountability for the service and support of retail banking
customers; and the Commercial & Business Bank, to
support the needs of commercial and small business
customers. These divisions will continue to support our
portfolio of brands. Our other divisions – BT Financial Group,
completed on 30th of October 2015 while the proposed sale
Westpac Institutional Bank, and New Zealand remain
largely unchanged.
Given the restructure occurred in the latter half of the year
we reported our 2015 performance using the previous
operating structure; the new structure will apply to our
2016 reporting.
Our retail and business banking divisions represent 69% of
our business and were the real drivers of performance this
year. Westpac Retail & Business Banking increased cash
earnings by 8%, St.George Banking Group increased cash
earnings by 7% and our New Zealand business increased
cash earnings by 6% in $NZ and by 8% in $A.
This was achieved through disciplined balance sheet growth,
well-managed margins and improved efficiency.
For Westpac Retail & Business Banking, the highlight of the
year was the completion and roll-out to customers of
Westpac Live, our sector-leading online/mobile platform. In
St.George all of our brands contributed, and our Bank of
Melbourne expansion in particular, continues to be a great
success story. For Westpac NZ, the highlight was our
alliance with Air New Zealand to offer Airpoints to
customers, which has seen significant growth in our
customer base.
Cash earnings for Westpac Institutional Bank (WIB) were
12% lower than full year 2014. While WIB achieved good
growth in target areas, it faced some significant headwinds
this year. These included an accounting change for
derivative adjustments which reduced pre-tax earnings by
$122 million, and lower margins from high levels of
global liquidity.
WIB is the premier institutional banking franchise in the
country. Despite the headwinds, it generates good returns
overall and provides significant value to both our retail
banking and wealth businesses. However, the division
operates in international markets and is more impacted by
global developments. The most obvious example has been
the impact of ongoing quantitative easing adopted by a
number of international central banks, which has artificially
increased global liquidity and driven down margins on
institutional lending. This can be seen in WIB’s 15 basis
point decline in margins over the year.
In wealth, we have a genuine comparative advantage in the
way we make it more convenient for customers to manage
their banking and wealth needs. In 2015, BT Financial Group
continued to grow, although this growth was tempered by
the partial sale of the division’s active fund manager BTIM
and higher catastrophe insurance claims.
Our investment in BTIM has been very successful, but we
don’t see our competitive advantage coming from active
funds management: it’s a highly competitive activity and
clients rightly want investment recommendations that avoid
conflicts of interest. Our sell-down therefore allowed us to
release capital, while allowing us to continue to work closely
with BTIM to manufacture innovative products that meet
client investment needs.
Through the year we also finalised the sale of three Pacific
Island businesses in Samoa, Tonga and the Cook Islands.
The sale of our business in the Solomon Islands was
Chief Executive Officer’s report
of Westpac’s Vanuatu operations has not yet proceeded.
The decision was driven by our desire to reduce risk of
operating in these small but challenging markets, with the
purchaser (the Bank of South Pacific) being based in the
region and therefore having a better long-term appetite and
skillset in managing these challenges. Westpac will continue
to operate in Fiji and Papua New Guinea, which are both
larger markets where we have been operating successfully
for some time.
Asset quality continues to improve
Asset quality was a highlight for the year, continuing its
improving trend. Stressed assets to total committed
exposures is a key measure we watch closely; that ratio has
fallen again this year to 0.99% and is down from a peak of
3.20% in the middle of the GFC. At the same time, impaired
assets declined 19% while the provision coverage against
impaired assets was steady at 46%.
Looking more closely at the consumer portfolio, mortgage
delinquencies are little changed over the year. The trends in
unsecured lending are similar.
There has been much discussion around the slowdown in
mining and the potential for an increase in bad debts. This is
an area we're watching closely and includes businesses
directly affected by lower commodity prices as well as those
companies supporting the industry across a broader range
of sectors.
Westpac has been underweight the mining and mining
services sectors for some time and while we expect
conditions to get worse before they get better, we are
confident with the high quality of our portfolio. Where we do
have exposures, they are largely to the higher-quality names
that have efficient operating costs. That said, further losses
are likely and we have put aside additional provisions in our
economic overlays just in case, but the size of those losses
is not expected to be material.
Housing has also continued to be a hotly discussed topic
through the year with price rises leading some
commentators to claim that we are in the midst of a housing
bubble. There is no doubt housing prices are strong in some
markets, but we do not subscribe to the view that we are in
a bubble.
That’s because we believe the economics of Australian
housing are sound. We are seeing genuine demand for
housing that has consistently exceeded supply from both
investors and owner-occupiers. It is only recently that we
have seen an increase in building activity to help
match demand.
In addition, and perhaps more importantly, there has been
no easing in credit standards across the industry. By that I
mean we continue to lend to those people who have the
capacity to repay, and the standards by which we measure
that capacity have not relaxed—in fact we tightened our
lending criteria in a number of areas this year.
So overall we see the housing market as rational, with sound
fundamentals.
Of course, that does not mean we will not see stress in
selected pockets. The housing market will always remain a
local proposition, and we continue to monitor our exposures
10
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
11
including at Melbourne’s Collins Street, Brisbane’s Eagle
opportunities in investor housing slowed we increased our
Street and Sydney’s Barangaroo and Kogarah. Among those
focus on owner-occupied lending, and this has contributed to
employees already in the new workspaces we’ve already
a strong uplift in applications and approvals in the latter
portfolio of brands. Our other divisions – BT Financial Group,
Westpac Institutional Bank, and New Zealand remain
largely unchanged.
seen dramatic improvements across key measures of
months of the year.
productivity, flexibility, and absenteeism.
Business lending has shown some ‘green shoots’ in recent
We also believe a workforce that embraces diversity–those
months and after a period of relatively subdued activity we
from different cultural backgrounds, different ages, genders,
experienced solid growth. For the last year much of that
abilities and sexual orientation—allows us to tap a deeper
growth was in areas such as infrastructure and commercial
talent pool and gives us greater insight to respond creatively
property, although more recently we are seeing a broader
to the needs of our diverse customer base.
In 2015 we took further action on a number of these
priorities. This year the proportion of leadership roles held by
women rose to 46%, up from 44% last year. And initiatives
pickup in commercial activity. This has been especially
strong in SME, where our new ‘Connect’ model of video
conferencing is supporting our bankers and customers
where there is improving confidence to invest and grow.
to deliver our Reconciliation Action Plan have put us well on
We have also continued to experience good growth in
track to attract an additional 500 Aboriginal or Torres Strait
equipment financing, thanks in part to our acquisition of
Islander people to our organisation by 2017. We’re proud of
Lloyd’s Australian operations last year. This has been a very
these outcomes, but we have significant work to do to keep
successful acquisition for us which continues to perform
up momentum and create true inclusion.
ahead of expectations.
An important milestone this year was the completion of a
Non-interest income was little changed over the year
new Enterprise Agreement with the Finance Sector Union
although the underlying trends are positive, particularly in
that creates substantial benefits for employees, the business
wealth management. A good example was the 8% increase
and customers. The new agreement, which replaces 19
in Funds Under Administration (FUA), where we continue to
complex instruments with one set of innovative, customer-
lead the market on platforms and have seen continuing
focused terms, represents a market-leading package to help
positive flows. However, these gains were offset by a lower
attract and retain the right people.
With that background on our strategy and priorities, let me
now turn to our financial performance this year.
2015: A solid financial performance
Our 2015 result can be best summarised as one of
disciplined growth, well-managed margins, continued
investment and a strengthening of all elements of
the franchise.
Cash earnings, our preferred measure of performance was
up 3% to $7,820 million for the 2015 financial year with cash
earnings per share up 2% to 249.5 cents. Our return on
equity was a solid 15.8% and remains above our 15% target.
On a reported basis Westpac's net profit of $8,012 million
was 6% higher. The stronger growth in reported profit
compared to cash earnings was due to a small number of
large infrequent items that are included in reported profit but
which were excluded from the calculation of cash earnings.
These items included $665 million after tax gain on the
partial sale of BTIM and $64 million of tax benefits
associated with the acquisition of Lloyds Australia. These
were partially offset by changes in the accounting of
technology investment spending which contributed to a
$354 million (post tax) write-down of capitalised
technology costs.
Operating income for the group was up by 4% from a 7%
increase in lending, a 4% increase in customer deposits and
flat net interest margins.
contribution from trading income and some severe storms
which increased claims and reduced insurance income.
Expenses increased 5% over the year, with most of that
increase due to investment related costs, including the
reconfiguration and upgrade of our branches and launching
a new online capability in both Australia and New Zealand.
These investments represent a deliberate commitment to the
future of our franchise, and were partially offset by
productivity benefits in our existing operations of around
$239million.
Our expense to income ratio for the year was 42%, a little
higher than 2014 but still ranking us as the most efficient
bank in Australia, and one of the more efficient
banks globally.
Impairment charges (or bad debts) were $103 million higher
over the year with the increase due to lower write-backs,
higher write-offs and the growth in our book.
To be clear, the rise in impairments is in the context of a
portfolio that has been well managed and is in good shape,
rather than from a deterioration in asset quality.
Over recent years we have been successful in assisting
stressed businesses to improve their financial position. This
has meant we have been able to write back provisions that
we had previously set aside for loss. However, there is a
limited pool of such stressed assets, and as the proportion of
stressed companies has declined, so too have the write-
backs—leading to a net increase in impairments charge.
The increase in lending was mostly due to an increase in
Divisional Performance
Australian mortgages of 7%, which was broadly in line with
To support our service strategy, we made changes during
growth in the system. Within housing, the investor category
the year to our organisational structure. This has led to the
has seen much attention over the year, particularly following
creation of two new divisions: Consumer Bank, with
the introduction of a regulatory cap on growth of 10% per
accountability for the service and support of retail banking
annum. We responded by tightening our lending criteria and
customers; and the Commercial & Business Bank, to
adjusting our pricing on investment loans, and our growth
has now eased below the 10% limit. At the same time, as
support the needs of commercial and small business
customers. These divisions will continue to support our
Given the restructure occurred in the latter half of the year
we reported our 2015 performance using the previous
operating structure; the new structure will apply to our
2016 reporting.
Our retail and business banking divisions represent 69% of
our business and were the real drivers of performance this
year. Westpac Retail & Business Banking increased cash
earnings by 8%, St.George Banking Group increased cash
earnings by 7% and our New Zealand business increased
cash earnings by 6% in $NZ and by 8% in $A.
This was achieved through disciplined balance sheet growth,
well-managed margins and improved efficiency.
For Westpac Retail & Business Banking, the highlight of the
year was the completion and roll-out to customers of
Westpac Live, our sector-leading online/mobile platform. In
St.George all of our brands contributed, and our Bank of
Melbourne expansion in particular, continues to be a great
success story. For Westpac NZ, the highlight was our
alliance with Air New Zealand to offer Airpoints to
customers, which has seen significant growth in our
customer base.
Cash earnings for Westpac Institutional Bank (WIB) were
12% lower than full year 2014. While WIB achieved good
growth in target areas, it faced some significant headwinds
this year. These included an accounting change for
derivative adjustments which reduced pre-tax earnings by
$122 million, and lower margins from high levels of
global liquidity.
WIB is the premier institutional banking franchise in the
country. Despite the headwinds, it generates good returns
overall and provides significant value to both our retail
banking and wealth businesses. However, the division
operates in international markets and is more impacted by
global developments. The most obvious example has been
the impact of ongoing quantitative easing adopted by a
number of international central banks, which has artificially
increased global liquidity and driven down margins on
institutional lending. This can be seen in WIB’s 15 basis
point decline in margins over the year.
In wealth, we have a genuine comparative advantage in the
way we make it more convenient for customers to manage
their banking and wealth needs. In 2015, BT Financial Group
continued to grow, although this growth was tempered by
the partial sale of the division’s active fund manager BTIM
and higher catastrophe insurance claims.
Our investment in BTIM has been very successful, but we
don’t see our competitive advantage coming from active
funds management: it’s a highly competitive activity and
clients rightly want investment recommendations that avoid
conflicts of interest. Our sell-down therefore allowed us to
release capital, while allowing us to continue to work closely
with BTIM to manufacture innovative products that meet
client investment needs.
Through the year we also finalised the sale of three Pacific
Island businesses in Samoa, Tonga and the Cook Islands.
The sale of our business in the Solomon Islands was
Chief Executive Officer’s report
completed on 30th of October 2015 while the proposed sale
of Westpac’s Vanuatu operations has not yet proceeded.
The decision was driven by our desire to reduce risk of
operating in these small but challenging markets, with the
purchaser (the Bank of South Pacific) being based in the
region and therefore having a better long-term appetite and
skillset in managing these challenges. Westpac will continue
to operate in Fiji and Papua New Guinea, which are both
larger markets where we have been operating successfully
for some time.
Asset quality continues to improve
Asset quality was a highlight for the year, continuing its
improving trend. Stressed assets to total committed
exposures is a key measure we watch closely; that ratio has
fallen again this year to 0.99% and is down from a peak of
3.20% in the middle of the GFC. At the same time, impaired
assets declined 19% while the provision coverage against
impaired assets was steady at 46%.
Looking more closely at the consumer portfolio, mortgage
delinquencies are little changed over the year. The trends in
unsecured lending are similar.
There has been much discussion around the slowdown in
mining and the potential for an increase in bad debts. This is
an area we're watching closely and includes businesses
directly affected by lower commodity prices as well as those
companies supporting the industry across a broader range
of sectors.
Westpac has been underweight the mining and mining
services sectors for some time and while we expect
conditions to get worse before they get better, we are
confident with the high quality of our portfolio. Where we do
have exposures, they are largely to the higher-quality names
that have efficient operating costs. That said, further losses
are likely and we have put aside additional provisions in our
economic overlays just in case, but the size of those losses
is not expected to be material.
Housing has also continued to be a hotly discussed topic
through the year with price rises leading some
commentators to claim that we are in the midst of a housing
bubble. There is no doubt housing prices are strong in some
markets, but we do not subscribe to the view that we are in
a bubble.
That’s because we believe the economics of Australian
housing are sound. We are seeing genuine demand for
housing that has consistently exceeded supply from both
investors and owner-occupiers. It is only recently that we
have seen an increase in building activity to help
match demand.
In addition, and perhaps more importantly, there has been
no easing in credit standards across the industry. By that I
mean we continue to lend to those people who have the
capacity to repay, and the standards by which we measure
that capacity have not relaxed—in fact we tightened our
lending criteria in a number of areas this year.
So overall we see the housing market as rational, with sound
fundamentals.
Of course, that does not mean we will not see stress in
selected pockets. The housing market will always remain a
local proposition, and we continue to monitor our exposures
10
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
11
1
Chief Executive Officer’s report
Summary
On 8 April 2017, Westpac will be the first Australian
company to reach 200 years of age. As we look forward to
celebrating that important milestone, I believe we are well
positioned as we approach our third century of business.
Given all the changes going on in the economy and in the
banking industry, our focus on service and helping
customers achieve what’s important to them is the right
strategy for the times. At the same time, we remain
committed to getting the balance right between all of
our stakeholders.
Finally, I’d like to assure you as a shareholder that I and my
executive team are committed to building on the strong
foundation we’ve inherited. We will continue to run and grow
our business in a sustainable way that we trust will make
you proud of your association with Westpac and pleased
with your investment in our shares.
With warm regards,
BRIAN HARTZER
Chief Executive Officer
Westpac Group
at a local area-by-local area level (and sometimes a building
by building level). In addition, we recognise that housing
affordability continues to be an issue in the community.
Nevertheless we are not expecting a major
housing downturn.
Impact of changing regulation
One of the main challenges of the post-GFC environment
has been the increase in regulatory requirements and
oversight. We have seen this across both banking and
wealth, in our financial markets activities, and in the
requirements for how we manage the balance sheet,
including capital. The direct costs of these changes are
significant: In 2015 we spent $260 million on modifying our
systems in response to regulatory change, after spending
$340 million in 2014.
In response to new capital rules, by the end of this calendar
year Westpac will have raised the level of equity capital we
hold by almost $6 billion in less than 12 months. That’s a
significant increase, which lifts our internationally
comparable capital ratios well into the top quartile of
banks globally.
Most of that capital has been sourced from existing
shareholders, and I would like to especially thank you for
your support.
During the year, Westpac also implemented and reported
under new liquidity coverage ratio requirements, adding
further strength to our balance sheet. These requirements
are being introduced across the globe to improve the
resilience of banks to liquidity shocks. The goal is to ensure
we hold sufficient liquid assets to support potential cash
outflows in a stressed scenario, and we are required to
maintain a ratio of greater than 100%. At 30 September our
ratio was 121% and we held $136 billion in unencumbered
liquid assets.
against mortgages is increasing by over 50%. We took the
difficult decision that this had to be incorporated in our
pricing, which resulted in an increase on variable mortgage
interest rates of 15 to 20 basis points. As this increase does
not fully recover the economic cost of capital, we continue to
believe this was a fair balancing of costs between customers
and shareholders.
Looking to the future, we have sought to be as clear as
possible on our capital needs and implications for our
dividend policy. However, there is still some uncertainty over
how much capital banks globally will need to hold, as
regulators continue to review the system.
We expect the international regulator – the Basel Committee
on Banking Supervision – to deliver recommendations by
2016, following which our local regulator, APRA, will need to
decide how this may be applied to Australian banks. We
trust that any future changes to capital will be fully assessed
taking into consideration their ultimate impact on consumers,
the financial sector, and the economy as a whole.
Having already raised capital above our preferred range and
at the upper end of banks globally we feel well placed to
respond to any further change.
Sustainable future
I am confident the actions we are taking in line with our
strategic priorities are setting us on the right course to help
maintain solid returns, while positioning us well for
the future.
We recognise that much of our future value is dependent on
our ability to sustain our reputation and relationship with
customers and the wider community.
That’s why we take very seriously our approach to
sustainability overall, including our response to important
social and economic issues.
We fully support the notion that Australia’s banks need to be
‘unquestionably strong’ and that more capital and better
liquidity management are important steps to creating a
system more resilient to future global financial shocks.
In line with this approach, we made significant progress
against the goals of our 2017 Sustainability Strategy, the
details of which are in our supplementary 2015 Sustainability
Performance Report.
However, we recognise that strength comes at a cost, which
is ultimately borne by customers and shareholders.
What is often forgotten in the public debate on this issue is
that our capital overwhelmingly represents the savings,
retirement funds, and the superannuation balances of
individual Australians. Around 50% of our shares are held
directly by individuals and superannuation funds, with
approximately 30% held by Australian institutions whose role
is to manage the retirement savings of many more
Australians. So we have an obligation to ensure that we
obtain an appropriate return on that capital.
And so in raising incremental capital, we have sought to
apportion the increased cost in a way that strikes a fair
balance between customers and shareholders.
As part of this, many shareholders will be aware that we
needed to slow the pace of our dividend increases to one
cent per half. Similarly, our return on equity has eased over
the year as the amount of equity has increased.
Much of the higher capital requirements relates to
mortgages; specifically, the capital we will need to hold
At the core of this strategy is our goal to make a significant
positive impact on our communities. We estimate the value
of the financial backing and banking services we provide to
initiatives and projects that create positive societal outcomes
is around $124 billion. This includes lending aimed at
growing the stock of social and affordable housing, and
more than $6 billion driving growth in the CleanTech and
environmental service sector.
Through this backing, we are playing a vital role in mobilising
finance to help address the big issues that face our
communities, such as climate change and financial
resilience. This complements our ongoing commitment to
responsible lending and finance.
12
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
13
Chief Executive Officer’s report
Summary
On 8 April 2017, Westpac will be the first Australian
company to reach 200 years of age. As we look forward to
celebrating that important milestone, I believe we are well
positioned as we approach our third century of business.
Given all the changes going on in the economy and in the
banking industry, our focus on service and helping
customers achieve what’s important to them is the right
strategy for the times. At the same time, we remain
committed to getting the balance right between all of
our stakeholders.
Finally, I’d like to assure you as a shareholder that I and my
executive team are committed to building on the strong
foundation we’ve inherited. We will continue to run and grow
our business in a sustainable way that we trust will make
you proud of your association with Westpac and pleased
with your investment in our shares.
With warm regards,
BRIAN HARTZER
Chief Executive Officer
Westpac Group
at a local area-by-local area level (and sometimes a building
against mortgages is increasing by over 50%. We took the
by building level). In addition, we recognise that housing
affordability continues to be an issue in the community.
Nevertheless we are not expecting a major
housing downturn.
Impact of changing regulation
One of the main challenges of the post-GFC environment
has been the increase in regulatory requirements and
oversight. We have seen this across both banking and
wealth, in our financial markets activities, and in the
requirements for how we manage the balance sheet,
including capital. The direct costs of these changes are
significant: In 2015 we spent $260 million on modifying our
systems in response to regulatory change, after spending
$340 million in 2014.
In response to new capital rules, by the end of this calendar
year Westpac will have raised the level of equity capital we
hold by almost $6 billion in less than 12 months. That’s a
significant increase, which lifts our internationally
comparable capital ratios well into the top quartile of
banks globally.
Most of that capital has been sourced from existing
shareholders, and I would like to especially thank you for
your support.
difficult decision that this had to be incorporated in our
pricing, which resulted in an increase on variable mortgage
interest rates of 15 to 20 basis points. As this increase does
not fully recover the economic cost of capital, we continue to
believe this was a fair balancing of costs between customers
and shareholders.
Looking to the future, we have sought to be as clear as
possible on our capital needs and implications for our
dividend policy. However, there is still some uncertainty over
how much capital banks globally will need to hold, as
regulators continue to review the system.
We expect the international regulator – the Basel Committee
on Banking Supervision – to deliver recommendations by
2016, following which our local regulator, APRA, will need to
decide how this may be applied to Australian banks. We
trust that any future changes to capital will be fully assessed
taking into consideration their ultimate impact on consumers,
the financial sector, and the economy as a whole.
Having already raised capital above our preferred range and
at the upper end of banks globally we feel well placed to
respond to any further change.
Sustainable future
I am confident the actions we are taking in line with our
During the year, Westpac also implemented and reported
strategic priorities are setting us on the right course to help
under new liquidity coverage ratio requirements, adding
maintain solid returns, while positioning us well for
further strength to our balance sheet. These requirements
the future.
are being introduced across the globe to improve the
resilience of banks to liquidity shocks. The goal is to ensure
we hold sufficient liquid assets to support potential cash
outflows in a stressed scenario, and we are required to
maintain a ratio of greater than 100%. At 30 September our
ratio was 121% and we held $136 billion in unencumbered
liquid assets.
We recognise that much of our future value is dependent on
our ability to sustain our reputation and relationship with
customers and the wider community.
That’s why we take very seriously our approach to
sustainability overall, including our response to important
social and economic issues.
We fully support the notion that Australia’s banks need to be
‘unquestionably strong’ and that more capital and better
liquidity management are important steps to creating a
system more resilient to future global financial shocks.
In line with this approach, we made significant progress
against the goals of our 2017 Sustainability Strategy, the
details of which are in our supplementary 2015 Sustainability
Performance Report.
However, we recognise that strength comes at a cost, which
is ultimately borne by customers and shareholders.
What is often forgotten in the public debate on this issue is
that our capital overwhelmingly represents the savings,
retirement funds, and the superannuation balances of
individual Australians. Around 50% of our shares are held
directly by individuals and superannuation funds, with
approximately 30% held by Australian institutions whose role
is to manage the retirement savings of many more
Australians. So we have an obligation to ensure that we
obtain an appropriate return on that capital.
And so in raising incremental capital, we have sought to
apportion the increased cost in a way that strikes a fair
balance between customers and shareholders.
As part of this, many shareholders will be aware that we
needed to slow the pace of our dividend increases to one
cent per half. Similarly, our return on equity has eased over
the year as the amount of equity has increased.
Much of the higher capital requirements relates to
mortgages; specifically, the capital we will need to hold
At the core of this strategy is our goal to make a significant
positive impact on our communities. We estimate the value
of the financial backing and banking services we provide to
initiatives and projects that create positive societal outcomes
is around $124 billion. This includes lending aimed at
growing the stock of social and affordable housing, and
more than $6 billion driving growth in the CleanTech and
environmental service sector.
Through this backing, we are playing a vital role in mobilising
finance to help address the big issues that face our
communities, such as climate change and financial
resilience. This complements our ongoing commitment to
responsible lending and finance.
12
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
13
1
Information on Westpac
Westpac is one of the four major banking organisations in
Australia and one of the largest banking organisations in
New Zealand. We provide a broad range of banking and
financial services in these markets, including consumer1,
business and institutional banking and wealth
management services.
We have branches, affiliates and controlled entities2
throughout Australia, New Zealand, Asia and the Pacific
region, and maintain branches and offices in some of the
key financial centres around the world3.
We were founded in 1817 and were the first bank
established in Australia. In 1850 we were incorporated as
the Bank of New South Wales by an Act of the
New South Wales Parliament. In 1982 we changed our
name to Westpac Banking Corporation following our merger
with the Commercial Bank of Australia. On 23 August 2002,
we were registered as a public company limited by shares
under the Australian Corporations Act 2001 (Cth)
(Corporations Act).
As at 30 September 2015, our market capitalisation was
$95 billion4 and we had total assets of $812 billion.
Business strategy
Westpac’s vision is ‘To be one of the world’s great service
companies, helping our customers, communities and people
to prosper and grow’.
Our strategy seeks to deliver on this vision by providing
superior returns for our shareholders, building deep and
enduring customer relationships, being a leader in the
community and being a place where the best people want
to work.
In delivering on our strategy we are focussed on our core
markets, including Australia and New Zealand, where we
provide a comprehensive range of financial products and
services that assist us in meeting the financial services
needs of our customers. With our strong position in these
markets, and over 13 million customers5, our focus is on
organic growth, growing customer numbers in our chosen
segments and building stronger and deeper
customer relationships.
A key element of this approach is our portfolio of financial
services brands, which enables us to appeal to a broader
range of customers, and provides us with the strategic
flexibility to offer solutions that better meet individual
customer needs.
1 A consumer is defined as a person that uses our products and
services. It does not include business entities.
2 Refer to Note 35 to the financial statements for a list of our material
controlled entities as at 30 September 2015.
3 Contact details for our head office, major businesses and offshore
locations can be found on the inside back cover.
4 Based on the closing share price of our ordinary shares on the ASX
as at 30 September 2015.
5 All customers with an active relationship (excludes channel only and
potential relationships) as at 30 September 2015.
Asia is an important market for us and we are progressively
building our presence and capability across the region to
better support Australian and New Zealand customers
operating, trading and transacting in the region, along with
Asian customers seeking financial solutions and services in
Australia and New Zealand.
While we continue to build the business, the financial
services environment remains challenging and has required
us to maintain focus on strengthening our financial position
while at the same time improving efficiency. This
strengthening has involved lifting the level and quality of our
capital, improving our funding and liquidity position and
maintaining a high level of asset quality and provisioning.
While we are currently one of the most efficient banks
globally, as measured by a cost to income ratio, we continue
to focus on ways to simplify our business to make it easier
for customers to do business with us and to make work more
enjoyable for our people. We believe that these
improvement efforts also contribute to reducing unit costs
that create capacity for further investment for growth.
As part of our service-focussed strategy, in 2015 we
embarked on a service revolution for our customers. This
program is a substantial step-up in our strategy seeking to:
provide a truly personal service for customers while better
anticipating their needs; put customers in control of their
finances; and innovate and simplify to reinvent the customer
experience. As part of our multi-year transformation, we
implemented a new operating structure to increase clarity of
accountability for transformation while simplifying and
speeding up decision making.
We also recognise that digitisation is occurring at an
accelerated pace and customer behaviours are changing.
The service revolution responds to these trends with the
support of digital technologies. This includes new services
that make banking available 24/7 such as smart ATMs and
our new online/mobile platform, Westpac Live. It extends to
new banking apps that provide greater flexibility for
customers to choose how to manage their finances, and it
includes using digitisation to simplify our processes to
provide a better customer experience. With market leading
front-end systems, we are now focussed on aligning our
technology architecture to our service strategy.
Sustainability is part of our strategy where we seek to
anticipate and shape the most pressing emerging social
issues where we have the skills and experience to make a
meaningful difference and drive business value. Our
approach seeks to make sustainability part of the way we do
business, embedded in our strategy, values, culture
and processes.
Supporting our customer focussed strategy is a strong set of
company-wide values, which are embedded in our culture.
These are:
delighting customers;
one team;
integrity;
courage; and
achievement.
Strategic priorities
Organisational structure
To meet the challenges of the current environment and
Our operations comprise five primary customer-facing
deliver on our strategy, we have established clear strategic
business divisions operating under multiple brands serving
Information on Westpac
acquire new customers by making it simpler, easier and
customers (businesses with facilities up to $150 million) in
priorities:
a) Performance discipline
to be the region’s best performing bank;
manage the business in a balanced way across
strength, growth, return and productivity;
maintain strong levels of capital, to meet the needs of all
our stakeholders and requirements of regulators;
continue to enhance our funding and liquidity position,
including ensuring a diversity of funding pools and
optimising the composition of customer deposits; and
maintain a high quality portfolio of assets, coupled with
strong provisioning.
b) Service leadership
all channels;
experiences; and
provide a seamless customer experience across
deepen relationships through context-based customer
better for people to bank with us.
c) Digital transformation
create a 21st century, digitised bank with multi-
brand capabilities;
simplify products and processes by digitising end-to-
end; and
drive efficiency opportunities from digitisation and
consolidation of systems.
d) Targeted growth
pursue growth opportunities; and
wealth and Asia.
e) Workforce revolution
focus on stronger growth in small to medium enterprise,
focus on a customer service, high performance
workforce and culture;
strengthen the skills of our people to better serve
customers and meet their complete financial needs;
empower our people to drive innovation, deliver new
and improved ways of working and be responsive
to change; and
continue to enhance the diversity of our workforce.
around 13 million customers. Although Westpac announced
in June 2015 that it would implement a new organisational
structure for its Australian retail and business banking
operations, up to 30 September 2015, the accounting and
financial performance continued to be reported (both
internally and externally) on the basis of the existing
structure. That structure is as follows:
Westpac Retail & Business Banking (Westpac RBB) is
responsible for sales and service to consumer, small-to-
medium enterprise (SME), commercial and agribusiness
customers (with turnover of up to $100 million) in Australia
under the Westpac brand. Activities are conducted through
Westpac RBB’s network of branches, third party distributors,
call centres, automatic teller machines (ATMs), EFTPOS
terminals, internet and mobile banking services, business
banking centres and specialised consumer and business
relationship managers. Support is provided by cash flow,
trade finance, transactional banking, financial markets,
property finance and wealth specialists.
St.George Banking Group (St.George) is responsible for
sales and service to consumer, SME and corporate
Australia under the St.George, BankSA, Bank of Melbourne
and RAMS brands. RAMS is a financial services group
specialising in mortgages and online deposits. Activities are
conducted through St.George’s network of branches, third-
party distributors, call centres, ATMs, EFTPOS terminals,
internet and mobile banking services, business banking
centres and specialised consumer and business relationship
managers. Support is provided by cash flow, trade finance,
transactional banking, automotive and equipment finance,
financial markets, property finance and wealth specialists.
BT Financial Group (BTFG) is Westpac’s Australian wealth
division. BTFG’s funds management operations include the
manufacturing and distribution of investment,
superannuation and retirement products, investment
platforms including BT Wrap and Asgard, private banking,
financial planning as well as equity capability and broking.
BTFG’s insurance solutions cover the manufacturing and
distribution of life, general and lenders mortgage insurance.
BTFG’s brands include Advance Asset Management,
Ascalon, Asgard, BT, BT Select, Licensee Select, Securitor
and the Advice, Private Banking and Insurance operations of
Bank of Melbourne, BankSA, St.George and Westpac. In
June 2015, Westpac announced the partial sale of its
interest in BT Investment Management (BTIM). Following
completion of the sale, Westpac’s holding in BTIM
decreased from 59.1% of BTIM’s issued capital to 31.0%.
Westpac Institutional Bank (WIB) delivers a broad range of
financial services to commercial, corporate, institutional and
government customers with connections to Australia and
New Zealand; this includes a growing customer base in
Asia. WIB operates through dedicated industry relationship
and specialist product teams, with expert knowledge in
transactional banking, financial and debt capital markets,
specialised capital, and alternative investment solutions.
Customers are supported through branches and subsidiaries
located in Australia, New Zealand, Asia, the United States
and the United Kingdom.
14
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
15
Information on Westpac
Westpac is one of the four major banking organisations in
Asia is an important market for us and we are progressively
Australia and one of the largest banking organisations in
New Zealand. We provide a broad range of banking and
financial services in these markets, including consumer1,
business and institutional banking and wealth
management services.
building our presence and capability across the region to
better support Australian and New Zealand customers
operating, trading and transacting in the region, along with
Asian customers seeking financial solutions and services in
Australia and New Zealand.
We have branches, affiliates and controlled entities2
While we continue to build the business, the financial
throughout Australia, New Zealand, Asia and the Pacific
services environment remains challenging and has required
region, and maintain branches and offices in some of the
us to maintain focus on strengthening our financial position
key financial centres around the world3.
We were founded in 1817 and were the first bank
established in Australia. In 1850 we were incorporated as
the Bank of New South Wales by an Act of the
while at the same time improving efficiency. This
strengthening has involved lifting the level and quality of our
capital, improving our funding and liquidity position and
maintaining a high level of asset quality and provisioning.
New South Wales Parliament. In 1982 we changed our
While we are currently one of the most efficient banks
name to Westpac Banking Corporation following our merger
globally, as measured by a cost to income ratio, we continue
with the Commercial Bank of Australia. On 23 August 2002,
to focus on ways to simplify our business to make it easier
we were registered as a public company limited by shares
for customers to do business with us and to make work more
under the Australian Corporations Act 2001 (Cth)
enjoyable for our people. We believe that these
(Corporations Act).
As at 30 September 2015, our market capitalisation was
$95 billion4 and we had total assets of $812 billion.
Business strategy
Westpac’s vision is ‘To be one of the world’s great service
companies, helping our customers, communities and people
to prosper and grow’.
Our strategy seeks to deliver on this vision by providing
superior returns for our shareholders, building deep and
enduring customer relationships, being a leader in the
community and being a place where the best people want
to work.
In delivering on our strategy we are focussed on our core
markets, including Australia and New Zealand, where we
provide a comprehensive range of financial products and
services that assist us in meeting the financial services
needs of our customers. With our strong position in these
markets, and over 13 million customers5, our focus is on
organic growth, growing customer numbers in our chosen
segments and building stronger and deeper
customer relationships.
A key element of this approach is our portfolio of financial
services brands, which enables us to appeal to a broader
range of customers, and provides us with the strategic
flexibility to offer solutions that better meet individual
customer needs.
improvement efforts also contribute to reducing unit costs
that create capacity for further investment for growth.
As part of our service-focussed strategy, in 2015 we
embarked on a service revolution for our customers. This
program is a substantial step-up in our strategy seeking to:
provide a truly personal service for customers while better
anticipating their needs; put customers in control of their
finances; and innovate and simplify to reinvent the customer
experience. As part of our multi-year transformation, we
implemented a new operating structure to increase clarity of
accountability for transformation while simplifying and
speeding up decision making.
We also recognise that digitisation is occurring at an
accelerated pace and customer behaviours are changing.
The service revolution responds to these trends with the
support of digital technologies. This includes new services
that make banking available 24/7 such as smart ATMs and
our new online/mobile platform, Westpac Live. It extends to
new banking apps that provide greater flexibility for
customers to choose how to manage their finances, and it
includes using digitisation to simplify our processes to
provide a better customer experience. With market leading
front-end systems, we are now focussed on aligning our
technology architecture to our service strategy.
Sustainability is part of our strategy where we seek to
anticipate and shape the most pressing emerging social
issues where we have the skills and experience to make a
meaningful difference and drive business value. Our
approach seeks to make sustainability part of the way we do
business, embedded in our strategy, values, culture
and processes.
Supporting our customer focussed strategy is a strong set of
company-wide values, which are embedded in our culture.
1 A consumer is defined as a person that uses our products and
services. It does not include business entities.
2 Refer to Note 35 to the financial statements for a list of our material
controlled entities as at 30 September 2015.
3 Contact details for our head office, major businesses and offshore
locations can be found on the inside back cover.
4 Based on the closing share price of our ordinary shares on the ASX
as at 30 September 2015.
5 All customers with an active relationship (excludes channel only and
potential relationships) as at 30 September 2015.
These are:
delighting customers;
one team;
integrity;
courage; and
achievement.
Strategic priorities
To meet the challenges of the current environment and
deliver on our strategy, we have established clear strategic
priorities:
a) Performance discipline
to be the region’s best performing bank;
manage the business in a balanced way across
strength, growth, return and productivity;
maintain strong levels of capital, to meet the needs of all
our stakeholders and requirements of regulators;
continue to enhance our funding and liquidity position,
including ensuring a diversity of funding pools and
optimising the composition of customer deposits; and
maintain a high quality portfolio of assets, coupled with
strong provisioning.
b) Service leadership
provide a seamless customer experience across
all channels;
deepen relationships through context-based customer
experiences; and
acquire new customers by making it simpler, easier and
better for people to bank with us.
c) Digital transformation
create a 21st century, digitised bank with multi-
brand capabilities;
simplify products and processes by digitising end-to-
end; and
drive efficiency opportunities from digitisation and
consolidation of systems.
d) Targeted growth
pursue growth opportunities; and
focus on stronger growth in small to medium enterprise,
wealth and Asia.
e) Workforce revolution
focus on a customer service, high performance
workforce and culture;
strengthen the skills of our people to better serve
customers and meet their complete financial needs;
empower our people to drive innovation, deliver new
and improved ways of working and be responsive
to change; and
continue to enhance the diversity of our workforce.
Information on Westpac
Organisational structure
Our operations comprise five primary customer-facing
business divisions operating under multiple brands serving
around 13 million customers. Although Westpac announced
in June 2015 that it would implement a new organisational
structure for its Australian retail and business banking
operations, up to 30 September 2015, the accounting and
financial performance continued to be reported (both
internally and externally) on the basis of the existing
structure. That structure is as follows:
Westpac Retail & Business Banking (Westpac RBB) is
responsible for sales and service to consumer, small-to-
medium enterprise (SME), commercial and agribusiness
customers (with turnover of up to $100 million) in Australia
under the Westpac brand. Activities are conducted through
Westpac RBB’s network of branches, third party distributors,
call centres, automatic teller machines (ATMs), EFTPOS
terminals, internet and mobile banking services, business
banking centres and specialised consumer and business
relationship managers. Support is provided by cash flow,
trade finance, transactional banking, financial markets,
property finance and wealth specialists.
St.George Banking Group (St.George) is responsible for
sales and service to consumer, SME and corporate
customers (businesses with facilities up to $150 million) in
Australia under the St.George, BankSA, Bank of Melbourne
and RAMS brands. RAMS is a financial services group
specialising in mortgages and online deposits. Activities are
conducted through St.George’s network of branches, third-
party distributors, call centres, ATMs, EFTPOS terminals,
internet and mobile banking services, business banking
centres and specialised consumer and business relationship
managers. Support is provided by cash flow, trade finance,
transactional banking, automotive and equipment finance,
financial markets, property finance and wealth specialists.
BT Financial Group (BTFG) is Westpac’s Australian wealth
division. BTFG’s funds management operations include the
manufacturing and distribution of investment,
superannuation and retirement products, investment
platforms including BT Wrap and Asgard, private banking,
financial planning as well as equity capability and broking.
BTFG’s insurance solutions cover the manufacturing and
distribution of life, general and lenders mortgage insurance.
BTFG’s brands include Advance Asset Management,
Ascalon, Asgard, BT, BT Select, Licensee Select, Securitor
and the Advice, Private Banking and Insurance operations of
Bank of Melbourne, BankSA, St.George and Westpac. In
June 2015, Westpac announced the partial sale of its
interest in BT Investment Management (BTIM). Following
completion of the sale, Westpac’s holding in BTIM
decreased from 59.1% of BTIM’s issued capital to 31.0%.
Westpac Institutional Bank (WIB) delivers a broad range of
financial services to commercial, corporate, institutional and
government customers with connections to Australia and
New Zealand; this includes a growing customer base in
Asia. WIB operates through dedicated industry relationship
and specialist product teams, with expert knowledge in
transactional banking, financial and debt capital markets,
specialised capital, and alternative investment solutions.
Customers are supported through branches and subsidiaries
located in Australia, New Zealand, Asia, the United States
and the United Kingdom.
14
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
15
1
Westpac New Zealand is responsible for the sales and
service of banking, wealth and insurance products for
consumers, business and institutional customers in
New Zealand. Westpac conducts its New Zealand banking
business through two banks in New Zealand:
Westpac New Zealand Limited, which is incorporated in
New Zealand; and
Westpac Banking Corporation (NZ Division), a branch of
Westpac, which is incorporated in Australia.
The division operates via an extensive network of branches
and ATMs across both the North and South Islands.
Business and institutional customers are also served
through relationship and specialist product teams. Banking
products are provided under the Westpac and WIB brands
while insurance and wealth products are provided under
Westpac Life and BT brands respectively.
Other divisions in the Group include:
Westpac Pacific, which provides banking services for
retail and business customers in three Pacific Island
Nations. Branches, ATMs, telephone banking and
internet banking channels are used to deliver business
activities in Fiji, Papua New Guinea (PNG) and
Vanuatu. In July 2015, Westpac announced that it had
sold its banking operations in Samoa, Cook Islands and
Tonga to the Bank of South Pacific Limited (BSP). On
30 October 2015, Westpac sold its banking operations
in the Solomon Islands to BSP. Westpac Pacific’s
financial products include personal savings, business
transactional accounts, personal and business lending
products, business services and a range of international
products;
Customer & Business Services, which encompasses
banking operations, customer contact centres, product,
marketing, compliance, legal and property services;
Group Technology, which comprises functions
responsible for technology strategy and architecture,
infrastructure and operations, applications development
and business integration;
Treasury, which is primarily focussed on the
management of the Group’s interest rate risk and
funding requirements; and
Core Support, which comprises those functions
performed centrally, including finance, risk and
human resources.
These businesses are described in more detail in Section 2,
including a summary of net profit and total assets by
business division, and management’s discussion and
analysis of business division performance.
Westpac Retail &
Business Banking
St.George Banking Group
Wealth
Institutional
Westpac
New Zealand
Inclusivity
Customer & Business Services
Group Technology
Core Support
For a description of the new organisational structure for Australian retail and business banking, see ‘Significant developments –
new organisational structure’.
Information on Westpac
Westpac’s approach to sustainability
Sustainability materiality
Across the Westpac Group, we believe in establishing a
As part of our annual materiality review we identify, prioritise
sustainable future for our operations and our stakeholders.
and define issues according to their impact on our
This view is embedded in our strategy, values, culture
and processes.
In practice, this means we seek to focus on anticipating and
responding to the most pressing emerging issues that we
believe will have a material impact on our customers,
employees, suppliers, shareholders and the communities in
which we operate, where we have the skills and experience
to make a meaningful difference.
Guiding our approach
The Board has responsibility for considering the social,
ethical and environmental impact of the Westpac Group’s
activities, setting standards and monitoring compliance with
Westpac’s sustainability policies and practices.
Our sustainability strategy is based upon the use of the
widely accepted global standard for Corporate Responsibility
and Sustainable Development, the AA1000 AccountAbility
Principles Standard (2008).
Our sustainability principles
key principles:
Inclusivity;
involving all stakeholders in developing our strategy -
evaluating all issues identified to determine the impact
they may have on our stakeholders and our operations -
Sustainability materiality; and
ensuring our decisions, actions and performance, as
well as our communication with stakeholders, are
responsive to the issues identified – Responsiveness.
stakeholders and our business. These issues are reviewed
externally and internally and are assessed by Ernst & Young
as part of their assurance. Material issues identified in 2015
include:
the need to respond to changing customer expectations;
the effect of digitisation on the way customers and
businesses interact and do business;
new regulatory requirements that are shaping the
financial services industry; and
the importance of understanding and managing
environmental, social and corporate governance risks
within our value chain.
For further detail, please see our online Annual Review and
Sustainability Report and Sustainability Performance Report.
Responsiveness
The issues identified during our materiality review directly
inform the development of our responses, objectives and
In addition to the sustainable business practices embedded
in our day to day activities (such as sustainable lending
practices, community investment and evolving the way we
interact with and serve our customers), we continue to track
our progress against the sustainability strategy, which
guides our efforts for 2013–2017.
As part of the strategy, we have set 10 measurable
objectives in three priority areas, which are to:
help improve the way people work and live, as our
society changes;
In line with AA1000, we have adopted the Standard’s three
performance measures.
Our approach to inclusivity during 2015 has included:
help find solutions to environmental challenges; and
continuing work to understand and address
help our customers to have a better relationship with
customer concerns;
our approach;
collaborating with key external stakeholders to inform
consulting with employees so as to better understand
the drivers of strong employee engagement;
bringing together our General Managers with internal
and external stakeholders to inform sustainability
priorities and targets;
ongoing monitoring of our reputation across a wide
range of mediums; and
working closely with numerous community organisations
through employee volunteering, workplace giving and
community support.
money, for a better life.
During 2015 we have updated the targets within our
sustainability strategy, reflecting stakeholder feedback,
to include:
additional metrics to provide a more complete picture of
our environmental performance, including a greenhouse
gas emissions target for retail and commercial property
and water and waste reduction targets;
a higher threshold for determining the green buildings
included in our target for lending and investment to the
CleanTech and environmental services sector, in line
with industry trends; and
a new target to recruit 500 additional Indigenous
Australians by 2017.
16
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
17
Westpac New Zealand is responsible for the sales and
service of banking, wealth and insurance products for
consumers, business and institutional customers in
New Zealand. Westpac conducts its New Zealand banking
business through two banks in New Zealand:
Westpac New Zealand Limited, which is incorporated in
New Zealand; and
Westpac Banking Corporation (NZ Division), a branch of
Westpac, which is incorporated in Australia.
The division operates via an extensive network of branches
and ATMs across both the North and South Islands.
Business and institutional customers are also served
through relationship and specialist product teams. Banking
products are provided under the Westpac and WIB brands
while insurance and wealth products are provided under
Westpac Life and BT brands respectively.
Other divisions in the Group include:
retail and business customers in three Pacific Island
Nations. Branches, ATMs, telephone banking and
internet banking channels are used to deliver business
activities in Fiji, Papua New Guinea (PNG) and
Vanuatu. In July 2015, Westpac announced that it had
sold its banking operations in Samoa, Cook Islands and
Tonga to the Bank of South Pacific Limited (BSP). On
30 October 2015, Westpac sold its banking operations
in the Solomon Islands to BSP. Westpac Pacific’s
financial products include personal savings, business
transactional accounts, personal and business lending
products, business services and a range of international
products;
Customer & Business Services, which encompasses
banking operations, customer contact centres, product,
marketing, compliance, legal and property services;
Group Technology, which comprises functions
responsible for technology strategy and architecture,
infrastructure and operations, applications development
and business integration;
Treasury, which is primarily focussed on the
management of the Group’s interest rate risk and
funding requirements; and
Core Support, which comprises those functions
performed centrally, including finance, risk and
These businesses are described in more detail in Section 2,
including a summary of net profit and total assets by
business division, and management’s discussion and
analysis of business division performance.
Westpac Pacific, which provides banking services for
human resources.
Westpac Retail &
Business Banking
St.George Banking Group
Wealth
Institutional
Westpac
New Zealand
Customer & Business Services
Group Technology
Core Support
For a description of the new organisational structure for Australian retail and business banking, see ‘Significant developments –
new organisational structure’.
Westpac’s approach to sustainability
Across the Westpac Group, we believe in establishing a
sustainable future for our operations and our stakeholders.
This view is embedded in our strategy, values, culture
and processes.
In practice, this means we seek to focus on anticipating and
responding to the most pressing emerging issues that we
believe will have a material impact on our customers,
employees, suppliers, shareholders and the communities in
which we operate, where we have the skills and experience
to make a meaningful difference.
Guiding our approach
The Board has responsibility for considering the social,
ethical and environmental impact of the Westpac Group’s
activities, setting standards and monitoring compliance with
Westpac’s sustainability policies and practices.
Our sustainability strategy is based upon the use of the
widely accepted global standard for Corporate Responsibility
and Sustainable Development, the AA1000 AccountAbility
Principles Standard (2008).
Our sustainability principles
In line with AA1000, we have adopted the Standard’s three
key principles:
involving all stakeholders in developing our strategy -
Inclusivity;
evaluating all issues identified to determine the impact
they may have on our stakeholders and our operations -
Sustainability materiality; and
ensuring our decisions, actions and performance, as
well as our communication with stakeholders, are
responsive to the issues identified – Responsiveness.
Inclusivity
Our approach to inclusivity during 2015 has included:
continuing work to understand and address
customer concerns;
collaborating with key external stakeholders to inform
our approach;
consulting with employees so as to better understand
the drivers of strong employee engagement;
bringing together our General Managers with internal
and external stakeholders to inform sustainability
priorities and targets;
ongoing monitoring of our reputation across a wide
range of mediums; and
working closely with numerous community organisations
through employee volunteering, workplace giving and
community support.
Information on Westpac
Sustainability materiality
As part of our annual materiality review we identify, prioritise
and define issues according to their impact on our
stakeholders and our business. These issues are reviewed
externally and internally and are assessed by Ernst & Young
as part of their assurance. Material issues identified in 2015
include:
the need to respond to changing customer expectations;
the effect of digitisation on the way customers and
businesses interact and do business;
new regulatory requirements that are shaping the
financial services industry; and
the importance of understanding and managing
environmental, social and corporate governance risks
within our value chain.
For further detail, please see our online Annual Review and
Sustainability Report and Sustainability Performance Report.
Responsiveness
The issues identified during our materiality review directly
inform the development of our responses, objectives and
performance measures.
In addition to the sustainable business practices embedded
in our day to day activities (such as sustainable lending
practices, community investment and evolving the way we
interact with and serve our customers), we continue to track
our progress against the sustainability strategy, which
guides our efforts for 2013–2017.
As part of the strategy, we have set 10 measurable
objectives in three priority areas, which are to:
help improve the way people work and live, as our
society changes;
help find solutions to environmental challenges; and
help our customers to have a better relationship with
money, for a better life.
During 2015 we have updated the targets within our
sustainability strategy, reflecting stakeholder feedback,
to include:
additional metrics to provide a more complete picture of
our environmental performance, including a greenhouse
gas emissions target for retail and commercial property
and water and waste reduction targets;
a higher threshold for determining the green buildings
included in our target for lending and investment to the
CleanTech and environmental services sector, in line
with industry trends; and
a new target to recruit 500 additional Indigenous
Australians by 2017.
16
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
17
1
Performance against sustainability objectives1
Objectives
Priority
Help improve
the way
people work
and live as our
society
changes
Ensure our
workforce is
representative of
the community.
Extend length and
quality of working
lives.
Help find
solutions to
environmental
challenges
Help
customers to
have a better
relationship
with money,
for a better life
Anticipate the future
product and service
needs of ageing
and culturally
diverse customers.
Provide products
and services to help
customers adapt to
environmental
challenges.
Increase lending
and investment in
CleanTech and
environmental
services.
Reduce our
environmental
footprint.
Ensure all our
customers have
access to the right
advice to achieve a
secure retirement.
Help our customers
meet their financial
goals in retirement.
Increase access to
financial services.
Increased women in leadership2 to 46%, up from 44% in 2014.
Full year 2015 performance
Recruited an additional 150 Indigenous Australians.
Participation of mature age workers (50+) is 20.8%, down from 20.9% one
year ago.
Employee mean retirement age has remained steady at 61.6 years. The Group
has continued to promote flexible working including training for people leaders
and the creation of online training and tools to support a gradual transition
to retirement.
A Wellbeing Policy was developed for the Group.
Launched BTFG’s ‘Changing the Face of Advice’ program in October 2014,
incorporating the Adviser View register with planner qualifications and
customer ratings. The program also covers higher minimum educational and
ethical standards for all BTFG planners and the launch of an Advice
Commitment customer charter. The intent of the program is to give Australians
access to better information on financial planning and planners.
Since 2013 launched five unique product/services, including the issuance of a
green bond in September 2015 to directly fund renewable and green building
projects in Australia.
Following the introduction of a higher threshold for green buildings in line with
industry trends, total TCE for the CleanTech and environmental services sector
is $6.1 billion, still ahead of our $6 billion target by 2017.
60.7% of total energy financing is directed to renewable energy generation
(including hydro, wind and solar).
Maintained carbon neutrality.
Achieved our power use effectiveness and energy efficiency targets of 1.7PUE
and 197kWh/m2 respectively.
Recycling rates in Sydney head offices improved to 61%, tracking ahead
of target.
Reached our stretch target of a 15% reduction in office paper two years ahead
of schedule.
1,588 customer facing employees hold an externally recognised wealth
accreditation, 90% against target.
The take-up of superannuation and retirement offers has been impacted by
regulatory changes affecting the industry, including the Future of Financial
Advice reforms. A new customer engagement and retention program
commenced during the year.
Met the Group’s 2015 target for Westpac Pacific with over 292,000 net basic
banking accounts. In-store transaction volumes were over 391,000 and mobile
banking activations over 58,000.
Help people gain
access to social and
affordable housing
and services.
Loaned more than $1.0 billion to the social and affordable housing sector as at
30 September 2015, up from $0.82 billion as at 30 September 2014.
Construction commenced on 275 new affordable homes as part of the Group’s
largest single community housing finance.
1 All results as at 30 September 2015 except environmental footprint which is as at 30 June 2015. Refer to www.westpac.com.au/sustainability for
glossary of terms and metric definitions.
2 Women in leadership refers to the proportion of women (permanent and maximum term) in people leadership roles or senior roles of influence as a
proportion of all leaders across the Group. It includes the Executive Team, General Managers, Senior Managers as direct reports to
General Managers and the next two levels of management. Excludes Westpac Pacific.
18
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
19
Five year non-financial summary1
Customer
Total customers (millions)2
Digitally active customers (millions)3
Branches
Branches with 24/7 capability (%)4
Number of ATMs
Smart ATMs (%)5
Net Promoter Score (NPS) Australia - consumer6
Net Promoter Score (NPS) Australia - business6
Net Promoter Score (NPS) NZ - consumer6
Change in consumer complaints (%) - Australia
Change in consumer complaints (%) - NZ
Products per customer7
Wealth customer penetration (%)8
Employees
Employee Voluntary Attrition (%)9
New Starter Retention (%)10
High Performer Retention (%)11
Lost Time Injury Frequency Rate (LTIFR)12
Women as a percentage of the total workforce (%)
Women in Leadership (%)13
Information on Westpac
2015
2014
2013
2012
2011
11.8
4.0
11.5
3.7
1,429
1,534
1,544
1,538
1,532
3,850
3,890
3,814
3,639
3,544
13.1
4.9
22
31
1.1
(0.7)
+5
(31)
(22)
2.98
19.7
10.6
85.3
95.0
0.8
59
46
12.8
4.7
15
24
0.9
1.2
+2
(27)
(19)
2.96
20.0
9.8
88.0
95.8
1.1
59
44
12.2
4.2
-
17
(2.4)
(5.3)
+8
(15)
(16)
3.00
18.7
9.8
86.7
95.7
1.5
60
42
(7.7)
(10.8)
+9
2.84
18.4
9.9
84.8
95.9
1.9
61
40
-
-
-
-
-
-
-
(7.7)
(7.0)
n/a3
-
-
-
-
-
17.0
11.5
84
95.3
2.5
61
38
-
-
-
Total core (permanent) full time equivalent staff (number at financial year end)
32,620
33,586
33,045
33,418
33,898
Environment
Total Scope 1 and 2 emissions - Aust and NZ (tonnes CO2-e)14
Total Scope 3 emissions - Aust and NZ (tonnes CO2-e)15
Paper Consumption - Aust and NZ (tonnes)16
173,437
175,855
180,862
183,937
184,124
67,959
73,871
85,013
91,855
57,163
4,857
5,334
5,762
Responsible lending and investment
Proportion of electricity generation financing in renewables including hydro - Aust and
NZ (%) 17
Electricity generation portfolio emissions intensity (tonnes CO2-e/MWh)18
Finance assessed under the Equator Principles - Group ($m)19
Responsible Investment Funds Under Management ($m)20
Social impact
Community investment ($m)21
Community investment as a percentage of pre-tax profits - Group (%)
Community investment as a percentage of pre-tax operating profit (cash earnings
basis)
Financial education (participants)22
Supply chain
Top suppliers self-assessed - Australia (%)23
Spend with Indigenous suppliers - Australia ($ million)24
61
0.38
1,065
15,017
59
0.41
851
-
55
0.44
268
-
52
45
1,140
383
116
1.04
217
2.02
131
1.33
133
1.50
155
1.82
1.02
1.99
1.28
1.41
1.72
60,342
49,812
32,577
36,182
42,109
100
1.2
100
-
98
-
94
-
92
-
Performance against sustainability objectives1
Priority
Objectives
Full year 2015 performance
Help improve
the way
people work
and live as our
Ensure our
workforce is
representative of
the community.
society
changes
Extend length and
quality of working
lives.
Help find
solutions to
environmental
challenges
Help
customers to
have a better
relationship
with money,
for a better life
Anticipate the future
product and service
needs of ageing
and culturally
diverse customers.
Provide products
and services to help
customers adapt to
environmental
challenges.
Increase lending
and investment in
CleanTech and
environmental
services.
Reduce our
environmental
footprint.
Ensure all our
customers have
access to the right
advice to achieve a
secure retirement.
Help our customers
meet their financial
goals in retirement.
Increase access to
financial services.
Increased women in leadership2 to 46%, up from 44% in 2014.
Recruited an additional 150 Indigenous Australians.
Participation of mature age workers (50+) is 20.8%, down from 20.9% one
year ago.
Employee mean retirement age has remained steady at 61.6 years. The Group
has continued to promote flexible working including training for people leaders
and the creation of online training and tools to support a gradual transition
to retirement.
A Wellbeing Policy was developed for the Group.
Launched BTFG’s ‘Changing the Face of Advice’ program in October 2014,
incorporating the Adviser View register with planner qualifications and
customer ratings. The program also covers higher minimum educational and
ethical standards for all BTFG planners and the launch of an Advice
Commitment customer charter. The intent of the program is to give Australians
access to better information on financial planning and planners.
Since 2013 launched five unique product/services, including the issuance of a
green bond in September 2015 to directly fund renewable and green building
projects in Australia.
Following the introduction of a higher threshold for green buildings in line with
industry trends, total TCE for the CleanTech and environmental services sector
is $6.1 billion, still ahead of our $6 billion target by 2017.
60.7% of total energy financing is directed to renewable energy generation
(including hydro, wind and solar).
Maintained carbon neutrality.
and 197kWh/m2 respectively.
Achieved our power use effectiveness and energy efficiency targets of 1.7PUE
Recycling rates in Sydney head offices improved to 61%, tracking ahead
Reached our stretch target of a 15% reduction in office paper two years ahead
of target.
of schedule.
1,588 customer facing employees hold an externally recognised wealth
accreditation, 90% against target.
The take-up of superannuation and retirement offers has been impacted by
regulatory changes affecting the industry, including the Future of Financial
Advice reforms. A new customer engagement and retention program
commenced during the year.
Met the Group’s 2015 target for Westpac Pacific with over 292,000 net basic
banking accounts. In-store transaction volumes were over 391,000 and mobile
banking activations over 58,000.
1 All results as at 30 September 2015 except environmental footprint which is as at 30 June 2015. Refer to www.westpac.com.au/sustainability for
glossary of terms and metric definitions.
2 Women in leadership refers to the proportion of women (permanent and maximum term) in people leadership roles or senior roles of influence as a
proportion of all leaders across the Group. It includes the Executive Team, General Managers, Senior Managers as direct reports to
General Managers and the next two levels of management. Excludes Westpac Pacific.
Five year non-financial summary1
Customer
Total customers (millions)2
Digitally active customers (millions)3
Branches
Branches with 24/7 capability (%)4
Number of ATMs
Smart ATMs (%)5
Net Promoter Score (NPS) Australia - consumer6
Net Promoter Score (NPS) Australia - business6
Net Promoter Score (NPS) NZ - consumer6
Change in consumer complaints (%) - Australia
Change in consumer complaints (%) - NZ
Products per customer7
Wealth customer penetration (%)8
Employees
Total core (permanent) full time equivalent staff (number at financial year end)
Employee Voluntary Attrition (%)9
New Starter Retention (%)10
High Performer Retention (%)11
Lost Time Injury Frequency Rate (LTIFR)12
Women as a percentage of the total workforce (%)
Women in Leadership (%)13
Environment
Total Scope 1 and 2 emissions - Aust and NZ (tonnes CO2-e)14
Total Scope 3 emissions - Aust and NZ (tonnes CO2-e)15
Paper Consumption - Aust and NZ (tonnes)16
Information on Westpac
2015
2014
2013
2012
2011
13.1
4.9
12.8
4.7
12.2
4.2
11.8
4.0
11.5
3.7
1,429
1,534
1,544
1,538
1,532
22
15
-
-
-
3,850
3,890
3,814
3,639
3,544
31
1.1
(0.7)
+5
(31)
(22)
2.98
19.7
24
0.9
1.2
+2
(27)
(19)
2.96
20.0
17
(2.4)
(5.3)
+8
(15)
(16)
3.00
18.7
-
(7.7)
(10.8)
+9
-
-
2.84
18.4
-
(7.7)
(7.0)
n/a3
-
-
-
17.0
32,620
33,586
33,045
33,418
33,898
10.6
85.3
95.0
0.8
59
46
9.8
88.0
95.8
1.1
59
44
9.8
86.7
95.7
1.5
60
42
9.9
84.8
95.9
1.9
61
40
11.5
84
95.3
2.5
61
38
173,437
175,855
180,862
183,937
184,124
67,959
73,871
85,013
91,855
57,163
4,857
5,334
5,762
-
-
Responsible lending and investment
Proportion of electricity generation financing in renewables including hydro - Aust and
NZ (%) 17
Electricity generation portfolio emissions intensity (tonnes CO2-e/MWh)18
Finance assessed under the Equator Principles - Group ($m)19
Responsible Investment Funds Under Management ($m)20
Social impact
Community investment ($m)21
Community investment as a percentage of pre-tax profits - Group (%)
61
0.38
1,065
15,017
59
0.41
851
-
55
0.44
268
-
52
-
1,140
-
116
1.04
217
2.02
131
1.33
133
1.50
45
-
383
-
155
1.82
Community investment as a percentage of pre-tax operating profit (cash earnings
basis)
Financial education (participants)22
1.02
1.99
1.28
1.41
1.72
60,342
49,812
32,577
36,182
42,109
Help people gain
access to social and
affordable housing
and services.
Loaned more than $1.0 billion to the social and affordable housing sector as at
30 September 2015, up from $0.82 billion as at 30 September 2014.
Construction commenced on 275 new affordable homes as part of the Group’s
largest single community housing finance.
Supply chain
Top suppliers self-assessed - Australia (%)23
Spend with Indigenous suppliers - Australia ($ million)24
100
1.2
100
-
98
-
94
-
92
-
18
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
19
1
1 All data represents Group performance as at 30 September 2015 unless otherwise stated.
2 All customers with an active relationship (excludes channel only and potential relationships).
3 Refers to the number of customers registered for online banking and who have signed in online within the last 90 days as at 30 September.
4 Branches with 24/7 capability allowing customers to self-serve (for cash deposits and withdrawals) via a range of devices.
5 ATMs with deposit taking functionality. Excludes old style envelope deposit machines.
6 Net Promoter Score (NPS) measures the net likelihood of recommendation to others of the customer’s main financial institution for retail or business
banking. Net Promoter ScoreSM is a trademark of Bain & Co Inc., Satmetrix Systems, Inc., and Mr Frederick Reichheld. For retail banking, using a
scale of 1 to 10 (1 means ‘very unlikely’ and 10 means ‘very likely’), the 1-6 raters (detractors) are deducted from the 9-10 raters (promoters). For
business banking, using a scale of 0 to 10 (0 means ‘extremely unlikely’ and 10 means ‘extremely likely’), the 0-6 raters (detractors) are deducted
from the 9-10 raters (promoters). NPS Consumer: Australia source - Roy Morgan Research, September 2011 – 2015, 6MMA. Westpac Group, Main
Financial Institution (as defined by the customer). Consumers aged 14 or over; NZ source - NZ Retail market monitor provided by Camorra Research.
NPS Business: Australia source: DBM Consultants Business Financial Services Monitor, September 2011 – 2015, 6MMA. Westpac Group, MFI
customers, all businesses.
7 Roy Morgan Research, Respondents aged 18+, 6 month rolling average, September 2015. Products Per Customer (PPC) results are based on the
total number of ‘Banking and Finance’ products from the ‘Institution Group’ held by a ‘Retail and Business Banking (RBB)’ customer. The figure is
calculated by dividing the total number of Banking and Finance products held by ‘Retail and Business Banking (RBB)’ customers at the Institution
Group by its total ‘Retail and Business Banking (RBB)’ number of customers.
8 Data based on Roy Morgan Research, Respondents aged 14+. 12 month average to September 2015. Wealth penetration is defined as the
proportion of Australians who have a Deposit or Transaction Account, Mortgage, Personal Lending or Major Card with a Banking Group and also
have Managed Investments, Superannuation or Insurance with the same Banking Group.
9 Employee Voluntary Attrition refers to the total voluntary separation of permanent employees over the 12 month average total permanent headcount
for the period (includes full time, part time and maximum term employees). 2015 data includes Westpac Pacific (excluded in prior years).
10 Voluntary New Starter retention over the 12 month rolling New Starter headcount for the period (includes full time and part time permanent
employees). Excludes Westpac Pacific.
11 Voluntary High Performer Retention over the 12 month rolling High Performer headcount for the period (includes full time, part time permanent and
maximum term employees). Excludes Westpac Pacific.
12 Lost Time Injury Frequency Rate (LTIFR) measures the number of Lost Time Injuries, defined as injuries or illnesses (based on workers
compensation claims accepted) resulting in an employee being unable to work for a full scheduled day (or shift) other than the day (or shift) on which
the injury occurred where work was a significant contributing factor, per one million hours worked in the rolling 12 months reported. Excludes
Westpac Pacific.
13 Women in Leadership refers to the proportion of women (permanent and maximum term employees) in people leadership roles or senior roles of
influence as a proportion of all leaders across the Group. Includes Executive Team, General Managers, Senior Managers as direct reports to General
Managers and the next two levels of management. 2015 data includes Westpac Pacific (not included in prior years).
14 Scope 1 greenhouse emissions are the release of greenhouse gases into the atmosphere as a direct result of Westpac’s Australian and New Zealand
banking operations. Scope 2 emissions are indirect greenhouse gas emissions from consumption of purchased electricity from Westpac’s Australian
and New Zealand banking operations. Australian data is prepared in accordance with the National Greenhouse and Energy Reporting Act 2007.
New Zealand data is prepared in accordance with the Guidance for Voluntary Corporate Greenhouse Gas Reporting published by the New Zealand
Ministry for the Environment. These definitions also align with the GHG protocol and ISO 14064
1 standard and are reported for the period 1 July to
30 June.
15 Scope 3 emissions are greenhouse gases emitted as a consequence of Westpac’s Australian and New Zealand banking operations but by another
facility. Australian data is prepared in accordance with the National Carbon Offset Standard. New Zealand data is prepared in accordance the
New Zealand Ministry for the Environment for GHG reporting. These definitions also align with the GHG protocol and ISO 14064
reported for the period 1 July to 30 June.
1 standard and are
‐
16 Total copy paper purchased (in tonnes) by the Westpac Group as reported by its suppliers.
17 Measured as the percentage of indirect and direct financing (TCE) to energy generation assets in the Australian and New Zealand electricity markets.
18 Data is based on the reported exposures to energy generation (AUD lending only). The average financed carbon intensity is calculated by weighting
‐
each loan (total committed exposures) by the carbon intensity of each company.
19 The Equator Principles are a voluntary set of standards for determining, assessing and managing social and environmental risk in project financing.
20 BTFG funds applying an environmental, social and governance (ESG integration) approach. Data prior to 2015 not available due to change in
reporting methodology.
21 This amount includes monetary contributions, time contributions, management costs and in-kind contributions comprising gifts and foregone
fee revenue. The 2014 figure includes Westpac’s $100 million contribution to the Westpac Bicentennial Foundation.
22 Refers to the number of attendees (employees, customers and general public) at financial education courses and who access training courses
offered by the Westpac Group. Excludes keynote presentations offered by the Davidson Institute.
23 Refers to suppliers in our top 80 by spend.
24 Annual spend with businesses that are 51% or more owned and operated by an Aboriginal or Torres Strait Islander person and certified with a
relevant member organisation.
20
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
21
Information on Westpac
Competition
The Westpac Group operates in a highly competitive
environment across the regions in which we do business.
We serve the banking, wealth and risk management needs
of customer segments from consumers to small businesses
through to large corporate and institutional clients. The
Westpac Group competes with other financial services
The New Zealand market is experiencing strong competition
as banks vie for new customers. Competition for deposits
remains intense and the home lending market is particularly
competitive on price and switching incentives.
Outlook1
The Australian economy had another year of below trend
growth as it continued to be buffeted by a slowdown in
industry players for customers, covering their transacting,
mining investment and a sharp fall in its terms of trade. At
saving, investing, protecting and borrowing needs with a
the same time, a cautious approach from households and
wide set of products and services. Our competitors range
businesses combined with governments seeking to reduce
from large global organisations with broad offerings to
debt, has further limited growth.
the type of customer served;
over the last year.
entities more focussed on specific regions or products. Our
competitors include financial services and advisory
companies such as banks, investment banks, credit unions,
building societies, mortgage originators, credit card issuers,
brokerage firms, fund and asset management companies,
insurance companies and internet-based financial services
providers. We operate in an environment where digital
innovation is changing the competitive landscape and there
are new competitors emerging from other sectors, including
retail, technology and telecommunications.
Our competitive position across customer segments,
products and geographies is determined by a variety of
factors. These factors include:
customer service quality and convenience;
the effectiveness of, and access to, distribution
channels;
brand reputation and preference;
the quality, range, innovation and pricing of products
and services offered;
digital and technology solutions; and
the talent and experience of our employees.
In Australia, we have seen competition for deposits continue
to be driven in part by clearer global regulatory requirements
for liquidity management and balance sheet composition.
Banks and other financial institutions also seek to achieve a
higher proportion of high quality deposit funding as credit
rating agencies and debt investors look for strong balance
sheet positions in their assessment of quality institutions.
Competition for lending is also expected to remain high. At
the same time, businesses and consumers are cautious
about the global outlook and continue to reduce debt. The
residential mortgage market continues to be highly
competitive, with market participants seeking to maintain or
expand their market share using price. This is expected to
continue. Serving business customers’ transaction and trade
financing needs has been at the centre of competitive
activity as customer expectations increase.
In our wealth business, we expect competition to increase as
financial institutions and industry funds move to capture a
greater share of this fast growing market, particularly in
superannuation (or pensions) and financial advice as the
market responds to regulatory changes.
The international outlook also softened over the year.
Growth in China has been slower than most expected at the
beginning of the year, and that slowdown has been a key
catalyst to the fall in global commodity prices. With excess
capacity in many industries, China’s growth rate seems set
to slow further next year. In contrast, the US economy has
lifted somewhat more quickly than anticipated with improved
growth prospects expected to carry through to next year.
Europe seems to have stabilised with a low, but
nevertheless positive, growth outlook.
Within Australia, the 2016 outlook is for a modest lift in the
real GDP growth rate back to trend which we now assess at
around 2.75%. That compares with growth of around 2.2%
The anticipated lift in the GDP growth rate reflects
expectations for some improvement in household spending
growth, non mining investment and exports. Partially
offsetting these factors is expected to be a further
contraction in mining investment and a smaller contribution
from residential construction as residential investment
peaks. These forecasts are predicated upon some further
weakness in the Australian dollar; ongoing record low
interest rates; and a stable year for Australia’s terms
of trade.
A bright spot will be the ongoing recovery in Australia’s net
exports of services which are benefitting from the more
competitive Australian dollar. These sectors, along with
health and professional services, are boosting jobs growth.
Lead indicators point to the unemployment rate initially
stabilising before drifting lower as economic
growth improves.
Price pressures are expected to remain benign with core
CPI inflation remaining well controlled and wages growth
subdued. This backdrop is likely to be consistent with
interest rates remaining around the current record lows.
Given this economic backdrop, financial system credit
growth is expected to remain around current levels although
there will be some modest rebalancing as property related
growth slows in favour of other forms of business borrowing.
Growth in funds management is expected to remain solid as
population growth and an ageing population continues to
direct more savings to superannuation in preparation
for retirement.
1 All data and opinions under ‘Outlook’ are generated by our internal
economists and management.
1 All data represents Group performance as at 30 September 2015 unless otherwise stated.
2 All customers with an active relationship (excludes channel only and potential relationships).
3 Refers to the number of customers registered for online banking and who have signed in online within the last 90 days as at 30 September.
4 Branches with 24/7 capability allowing customers to self-serve (for cash deposits and withdrawals) via a range of devices.
5 ATMs with deposit taking functionality. Excludes old style envelope deposit machines.
6 Net Promoter Score (NPS) measures the net likelihood of recommendation to others of the customer’s main financial institution for retail or business
banking. Net Promoter ScoreSM is a trademark of Bain & Co Inc., Satmetrix Systems, Inc., and Mr Frederick Reichheld. For retail banking, using a
scale of 1 to 10 (1 means ‘very unlikely’ and 10 means ‘very likely’), the 1-6 raters (detractors) are deducted from the 9-10 raters (promoters). For
business banking, using a scale of 0 to 10 (0 means ‘extremely unlikely’ and 10 means ‘extremely likely’), the 0-6 raters (detractors) are deducted
from the 9-10 raters (promoters). NPS Consumer: Australia source - Roy Morgan Research, September 2011 – 2015, 6MMA. Westpac Group, Main
Financial Institution (as defined by the customer). Consumers aged 14 or over; NZ source - NZ Retail market monitor provided by Camorra Research.
NPS Business: Australia source: DBM Consultants Business Financial Services Monitor, September 2011 – 2015, 6MMA. Westpac Group, MFI
customers, all businesses.
7 Roy Morgan Research, Respondents aged 18+, 6 month rolling average, September 2015. Products Per Customer (PPC) results are based on the
total number of ‘Banking and Finance’ products from the ‘Institution Group’ held by a ‘Retail and Business Banking (RBB)’ customer. The figure is
calculated by dividing the total number of Banking and Finance products held by ‘Retail and Business Banking (RBB)’ customers at the Institution
Group by its total ‘Retail and Business Banking (RBB)’ number of customers.
8 Data based on Roy Morgan Research, Respondents aged 14+. 12 month average to September 2015. Wealth penetration is defined as the
proportion of Australians who have a Deposit or Transaction Account, Mortgage, Personal Lending or Major Card with a Banking Group and also
have Managed Investments, Superannuation or Insurance with the same Banking Group.
9 Employee Voluntary Attrition refers to the total voluntary separation of permanent employees over the 12 month average total permanent headcount
for the period (includes full time, part time and maximum term employees). 2015 data includes Westpac Pacific (excluded in prior years).
10 Voluntary New Starter retention over the 12 month rolling New Starter headcount for the period (includes full time and part time permanent
11 Voluntary High Performer Retention over the 12 month rolling High Performer headcount for the period (includes full time, part time permanent and
employees). Excludes Westpac Pacific.
maximum term employees). Excludes Westpac Pacific.
12 Lost Time Injury Frequency Rate (LTIFR) measures the number of Lost Time Injuries, defined as injuries or illnesses (based on workers
compensation claims accepted) resulting in an employee being unable to work for a full scheduled day (or shift) other than the day (or shift) on which
the injury occurred where work was a significant contributing factor, per one million hours worked in the rolling 12 months reported. Excludes
Westpac Pacific.
13 Women in Leadership refers to the proportion of women (permanent and maximum term employees) in people leadership roles or senior roles of
influence as a proportion of all leaders across the Group. Includes Executive Team, General Managers, Senior Managers as direct reports to General
Managers and the next two levels of management. 2015 data includes Westpac Pacific (not included in prior years).
14 Scope 1 greenhouse emissions are the release of greenhouse gases into the atmosphere as a direct result of Westpac’s Australian and New Zealand
banking operations. Scope 2 emissions are indirect greenhouse gas emissions from consumption of purchased electricity from Westpac’s Australian
and New Zealand banking operations. Australian data is prepared in accordance with the National Greenhouse and Energy Reporting Act 2007.
New Zealand data is prepared in accordance with the Guidance for Voluntary Corporate Greenhouse Gas Reporting published by the New Zealand
Ministry for the Environment. These definitions also align with the GHG protocol and ISO 14064
1 standard and are reported for the period 1 July to
30 June.
15 Scope 3 emissions are greenhouse gases emitted as a consequence of Westpac’s Australian and New Zealand banking operations but by another
‐
facility. Australian data is prepared in accordance with the National Carbon Offset Standard. New Zealand data is prepared in accordance the
New Zealand Ministry for the Environment for GHG reporting. These definitions also align with the GHG protocol and ISO 14064
1 standard and are
reported for the period 1 July to 30 June.
16 Total copy paper purchased (in tonnes) by the Westpac Group as reported by its suppliers.
‐
17 Measured as the percentage of indirect and direct financing (TCE) to energy generation assets in the Australian and New Zealand electricity markets.
18 Data is based on the reported exposures to energy generation (AUD lending only). The average financed carbon intensity is calculated by weighting
each loan (total committed exposures) by the carbon intensity of each company.
19 The Equator Principles are a voluntary set of standards for determining, assessing and managing social and environmental risk in project financing.
20 BTFG funds applying an environmental, social and governance (ESG integration) approach. Data prior to 2015 not available due to change in
reporting methodology.
21 This amount includes monetary contributions, time contributions, management costs and in-kind contributions comprising gifts and foregone
fee revenue. The 2014 figure includes Westpac’s $100 million contribution to the Westpac Bicentennial Foundation.
22 Refers to the number of attendees (employees, customers and general public) at financial education courses and who access training courses
offered by the Westpac Group. Excludes keynote presentations offered by the Davidson Institute.
23 Refers to suppliers in our top 80 by spend.
relevant member organisation.
24 Annual spend with businesses that are 51% or more owned and operated by an Aboriginal or Torres Strait Islander person and certified with a
Competition
The Westpac Group operates in a highly competitive
environment across the regions in which we do business.
We serve the banking, wealth and risk management needs
of customer segments from consumers to small businesses
through to large corporate and institutional clients. The
Westpac Group competes with other financial services
industry players for customers, covering their transacting,
saving, investing, protecting and borrowing needs with a
wide set of products and services. Our competitors range
from large global organisations with broad offerings to
entities more focussed on specific regions or products. Our
competitors include financial services and advisory
companies such as banks, investment banks, credit unions,
building societies, mortgage originators, credit card issuers,
brokerage firms, fund and asset management companies,
insurance companies and internet-based financial services
providers. We operate in an environment where digital
innovation is changing the competitive landscape and there
are new competitors emerging from other sectors, including
retail, technology and telecommunications.
Our competitive position across customer segments,
products and geographies is determined by a variety of
factors. These factors include:
the type of customer served;
customer service quality and convenience;
the effectiveness of, and access to, distribution
channels;
brand reputation and preference;
the quality, range, innovation and pricing of products
and services offered;
digital and technology solutions; and
the talent and experience of our employees.
In Australia, we have seen competition for deposits continue
to be driven in part by clearer global regulatory requirements
for liquidity management and balance sheet composition.
Banks and other financial institutions also seek to achieve a
higher proportion of high quality deposit funding as credit
rating agencies and debt investors look for strong balance
sheet positions in their assessment of quality institutions.
Competition for lending is also expected to remain high. At
the same time, businesses and consumers are cautious
about the global outlook and continue to reduce debt. The
residential mortgage market continues to be highly
competitive, with market participants seeking to maintain or
expand their market share using price. This is expected to
continue. Serving business customers’ transaction and trade
financing needs has been at the centre of competitive
activity as customer expectations increase.
In our wealth business, we expect competition to increase as
financial institutions and industry funds move to capture a
greater share of this fast growing market, particularly in
superannuation (or pensions) and financial advice as the
market responds to regulatory changes.
Information on Westpac
The New Zealand market is experiencing strong competition
as banks vie for new customers. Competition for deposits
remains intense and the home lending market is particularly
competitive on price and switching incentives.
Outlook1
The Australian economy had another year of below trend
growth as it continued to be buffeted by a slowdown in
mining investment and a sharp fall in its terms of trade. At
the same time, a cautious approach from households and
businesses combined with governments seeking to reduce
debt, has further limited growth.
The international outlook also softened over the year.
Growth in China has been slower than most expected at the
beginning of the year, and that slowdown has been a key
catalyst to the fall in global commodity prices. With excess
capacity in many industries, China’s growth rate seems set
to slow further next year. In contrast, the US economy has
lifted somewhat more quickly than anticipated with improved
growth prospects expected to carry through to next year.
Europe seems to have stabilised with a low, but
nevertheless positive, growth outlook.
Within Australia, the 2016 outlook is for a modest lift in the
real GDP growth rate back to trend which we now assess at
around 2.75%. That compares with growth of around 2.2%
over the last year.
The anticipated lift in the GDP growth rate reflects
expectations for some improvement in household spending
growth, non mining investment and exports. Partially
offsetting these factors is expected to be a further
contraction in mining investment and a smaller contribution
from residential construction as residential investment
peaks. These forecasts are predicated upon some further
weakness in the Australian dollar; ongoing record low
interest rates; and a stable year for Australia’s terms
of trade.
A bright spot will be the ongoing recovery in Australia’s net
exports of services which are benefitting from the more
competitive Australian dollar. These sectors, along with
health and professional services, are boosting jobs growth.
Lead indicators point to the unemployment rate initially
stabilising before drifting lower as economic
growth improves.
Price pressures are expected to remain benign with core
CPI inflation remaining well controlled and wages growth
subdued. This backdrop is likely to be consistent with
interest rates remaining around the current record lows.
Given this economic backdrop, financial system credit
growth is expected to remain around current levels although
there will be some modest rebalancing as property related
growth slows in favour of other forms of business borrowing.
Growth in funds management is expected to remain solid as
population growth and an ageing population continues to
direct more savings to superannuation in preparation
for retirement.
1 All data and opinions under ‘Outlook’ are generated by our internal
economists and management.
20
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
21
1
For Westpac, our five strategic priorities will continue to be
our focus in the period ahead and assist in delivering on our
service revolution. These include:
maintaining our performance disciplines – continuing to
be prudent in the management of capital, seeking to
maintain our ROE above 15%, and strength in our
capital, funding and liquidity positions;
through service leadership, grow customer numbers by
1 million from 2015 to 2017 while also increasing the
number (on average) of products each customer holds;
digital transformation is utilising technology to materially
improve efficiency and reduce the Group’s cost to
income ratio to below 40% over the next 3 years;
wealth, small and medium business enterprises and
Asia continue to be our areas of targeted growth. These
include our investment in a new wealth platform, called
Panorama, and making business banking specialists
more accessible through video conferencing
technologies; and
through our workforce revolution priority, we are seeking
to build a stronger and more diverse workforce where
the best people want to work.
The financial services industry continues to be under
significant regulatory change. Globally this includes the
expected release of a revised capital framework by the
Basel Committee on Banking Supervision while locally we
also continue to expect further regulatory change. Given the
strength of our business, and our balance sheet, in both
absolute terms and relative to peers, we are well placed to
respond to any additional regulatory change.
Looking ahead, with our strong positioning, disciplined
growth and solid operating performance across all divisions,
combined with good progress on our strategic priorities,
Westpac believes it is well positioned to continue delivering
sustainable outcomes to shareholders.
Significant developments
Corporate significant developments
Appointment of new Chief Executive Officer
On 13 November 2014, Westpac announced the retirement
of Gail Kelly as Chief Executive Officer effective 1 February
2015. The Westpac Board appointed Brian Hartzer as the
Group’s CEO from 2 February 2015. Mr Hartzer was part of
the Group’s executive team and was formerly the Chief
Executive, Australian Financial Services, responsible for the
Westpac Group’s retail, business banking and
wealth businesses.
Inquiry into Australia’s Financial System
On 20 November 2013, the Federal Government formally
announced the appointment of Mr David Murray AO to head
an inquiry into Australia’s financial system (FSI).
The FSI’s terms of reference, announced on 20 December
2013, charged the FSI with examining how the financial
system could be positioned to best meet Australia’s evolving
needs and support Australia’s economic growth.
Recommendations were to be aimed at fostering an efficient,
competitive and flexible financial system, consistent with
financial stability, prudence, public confidence and capacity
to meet the needs of users.
The FSI’s Final Report made 44 recommendations relating
to a broad number of matters across the financial sector.
Westpac supported the majority of the recommendations
during the Government’s consultation process, which was
completed on 31 March 2015.
On 20 October 2015, the Government announced its formal
response to the FSI’s recommendations. The Government
endorsed the overwhelming majority of the
recommendations across the five key areas the FSI
considered: Resilience; Superannuation; Innovation;
Consumer Outcomes; and the Regulatory System.
The Government will establish a number of consultation
processes to consider detailed implementation. Westpac will
continue to actively contribute to these ongoing
consultations, which we expect to continue for a number
of years.
FSI’s recommendations on bank capital
The Government’s response endorsed APRA’s actions to
date in implementing the FSI’s capital-related
recommendations, and confirmed APRA’s responsibility for
the implementation of the remaining capital proposals.
To date, APRA has formally responded to two of the FSI’s
recommendations. On 13 July 2015 APRA released the
results of a study comparing the capital position of the
Australian major banks against a group of international
banking peers. The study was conducted by APRA in
response to Recommendation 1 of the FSI that proposed
Australian bank capital ratios should be in the top quartile of
global peers to demonstrate the banks are
‘unquestionably strong.’
APRA’s study confirmed that the Australian major banks are
well capitalised. Based on capital adequacy ratios as at 30
June 2014, the study found that the major banks would need
to increase their capital adequacy ratios by at least 200
basis points to be comfortably positioned in the top quartile
of their international peers over the medium to long term. In
response, Westpac is undertaking a fully underwritten, pro
rata accelerated renounceable entitlement offer to raise
approximately $3.5 billion of ordinary equity, which will add
approximately 100 basis points to Westpac’s Common
Equity Tier 1 (CET1) capital ratio. Earlier this year, Westpac
also completed a partial sale of its shareholding in BTIM,
which increased Westpac’s CET1 capital ratio by 15 basis
points. These developments are discussed in further
detail below.
On 20 July 2015, APRA announced an interim change to
how risk weighted assets (RWA) will be calculated on
Australian residential mortgages for banks that use the
Advanced Internal-Ratings Based (IRB) approach to credit
risk. This change was in response to Recommendation 2 of
the FSI regarding the differential in mortgage capital
requirements between Advanced IRB and Standardised
banks. The outcome of this change is expected to lead to
the ratio of mortgage RWA to mortgage exposures for the
Group increasing to approximately 25%, with an effective
date of 1 July 2016.
Further changes relevant to regulatory capital requirements
for Australian banks were also proposed by the FSI and are
likely to result from current international regulatory reviews
being undertaken by the Basel Committee on Banking
Information on Westpac
Supervision (BCBS) and the Financial Stability Board (FSB)
The proposed sale of Westpac’s Vanuatu operations has not
considering leverage ratios, risk weight models for Advanced
yet proceeded. Given the impact of Cyclone Pam in
and Standardised banks, and Total Loss Absorbing Capacity
Vanuatu, the Reserve Bank of Vanuatu decided that now is
(TLAC) for Global Systemically Important Banks (G-SIBs).
not the time for a change of ownership in the country’s
The final outcomes of these reviews remain uncertain.
banking sector.
APRA will be responsible for interpreting these international
developments to Australia’s circumstances and their final
impact will depend on APRA’s implementation.
Share entitlement offer
On 14 October 2015, Westpac announced it was
undertaking a fully underwritten, pro rata accelerated
Partial sale of BTIM
On 16 June 2015, Westpac announced its intention to
undertake a partial sale of its shareholding in BTIM by way
of an Institutional Offer and a Retail Offer. The fully-
underwritten Institutional Offer and Retail Offer resulted in
the sale of 55 million and 27 million BTIM shares
renounceable entitlement offer to raise approximately $3.5
respectively at a price of $8.20 a share. Following
billion of ordinary equity. The equity raised will add
completion of the sale, Westpac’s holding in BTIM
approximately 100 basis points to Westpac’s CET1 capital
decreased from 59.1% of BTIM’s issued capital to 31.0%
ratio and will place Westpac’s CET1 capital ratio within the
and Westpac’s CET1 capital ratio increased by 15
top quartile of banks globally, with a CET1 capital ratio of
over 14% on an internationally comparable basis1. The
capital raised responds to changes in mortgage risk weights
that will increase the amount of capital required to be held
against mortgages by more than 50%, with the increased
regulatory requirement to be applied from 1 July 2016. To
support the offer, Westpac also announced its unaudited
preliminary Full Year 2015 result.
Interim DRP and partial DRP Underwrite
On 4 May 2015, Westpac announced that it would satisfy the
dividend reinvestment plan (DRP) for the 2015 interim
dividend by issuing Westpac ordinary shares at a 1.5%
discount. Westpac also entered into an agreement to have
the DRP on the 2015 interim dividend partially underwritten.
Approximately $2 billion worth of Westpac ordinary shares
were issued under the DRP and the partial DRP underwrite,
which raised our CET1 capital ratio by 57 basis points.
Issue of Westpac Capital Notes 3
On 8 September 2015, Westpac, through its London branch,
issued approximately $1.32 billion of securities known as
Westpac Capital Notes 3, which qualify as Additional Tier 1
capital of Westpac under APRA’s capital
adequacy framework.
Changes to accounting for technology investment spending
At its Strategy Update on 7 September 2015, Westpac
announced that, in light of the Group’s revised technology
and digital strategy, the rapid changes in technology, and
evolving regulatory requirements, it was reviewing the
accounting approach applied to investment spending. On 6
October 2015, Westpac announced that this review had
been completed, resulting in various accounting changes.
The balance sheet impact of these changes has seen a
reduction in the technology assets balance of $505 million
(pre-tax) reported as an expense in the Full Year 2015
statutory results. This has been excluded from
cash earnings.
Sale of Westpac operations in four Pacific Island Nations
On 14 July 2015, Westpac announced the completion of the
sale of its banking operations in the Cook Islands, Samoa
and Tonga to BSP for $91 million. On 30 October 2015,
Westpac completed the sale of its banking operations in the
Solomon Islands for $23.6 million.
1 The basis of the internationally comparable CET1 capital ratio aligns
with the APRA study titled ‘International capital comparison study’
dated 13 July 2015.
basis points.
New organisational structure
On 10 June 2015, Westpac announced a new, simplified
organisational structure for its Australian retail and business
banking operations designed to accelerate the Group’s
customer focussed strategy. Under the new structure, two
new divisions have been created:
Consumer Bank – responsible for all consumer banking
products and services under the Westpac, St.George,
BankSA, Bank of Melbourne and RAMS brands; and
Commercial & Business Bank – responsible for serving
small and medium enterprises, commercial and agri-
business customers, as well as asset and equipment
finance. Specialist business bankers will continue to
operate under their respective brands.
Each of these new divisions will be responsible for improving
the end-to-end service experience of their respective
customer segments and will have dedicated product,
marketing and digital capabilities.
Litigation
Since 2011, Westpac has been served with three class
action proceedings brought on behalf of customers seeking
to recover exception fees paid by those customers. Similar
class actions have been commenced against several other
Australian banks. Westpac has agreed with the plaintiffs to
put the proceedings against Westpac on hold, pending
further developments in the litigation against one of those
other banks. In April 2015, the Full Court of the Federal
Court unanimously found all of the exception fees charged
by that other bank to be lawful. The plaintiffs are currently
appealing certain aspects of that judgment to the High Court
of Australia. The appeal is scheduled to be heard in
February 2016.
Tax developments
On 30 March 2015, the Australian Government released a
Tax Discussion Paper that considers all aspects of the
Australian tax system. It is intended to initiate debate on the
future of Australia’s tax system. A public consultation
process has commenced and is expected to continue over
the next 12-18 months. The Discussion Paper does question
the ongoing effectiveness of the dividend imputation system
but it does not contain any recommendations or details of
any proposed reforms. The impact of any changes to
Westpac, its shareholders and customers cannot be
22
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
23
For Westpac, our five strategic priorities will continue to be
The FSI’s Final Report made 44 recommendations relating
our focus in the period ahead and assist in delivering on our
to a broad number of matters across the financial sector.
through our workforce revolution priority, we are seeking
the implementation of the remaining capital proposals.
service revolution. These include:
maintaining our performance disciplines – continuing to
be prudent in the management of capital, seeking to
maintain our ROE above 15%, and strength in our
capital, funding and liquidity positions;
through service leadership, grow customer numbers by
1 million from 2015 to 2017 while also increasing the
number (on average) of products each customer holds;
digital transformation is utilising technology to materially
improve efficiency and reduce the Group’s cost to
income ratio to below 40% over the next 3 years;
wealth, small and medium business enterprises and
Asia continue to be our areas of targeted growth. These
include our investment in a new wealth platform, called
Panorama, and making business banking specialists
more accessible through video conferencing
technologies; and
to build a stronger and more diverse workforce where
the best people want to work.
The financial services industry continues to be under
significant regulatory change. Globally this includes the
expected release of a revised capital framework by the
Basel Committee on Banking Supervision while locally we
also continue to expect further regulatory change. Given the
strength of our business, and our balance sheet, in both
absolute terms and relative to peers, we are well placed to
respond to any additional regulatory change.
Looking ahead, with our strong positioning, disciplined
growth and solid operating performance across all divisions,
combined with good progress on our strategic priorities,
Westpac believes it is well positioned to continue delivering
sustainable outcomes to shareholders.
Significant developments
Corporate significant developments
Appointment of new Chief Executive Officer
On 13 November 2014, Westpac announced the retirement
of Gail Kelly as Chief Executive Officer effective 1 February
2015. The Westpac Board appointed Brian Hartzer as the
Group’s CEO from 2 February 2015. Mr Hartzer was part of
the Group’s executive team and was formerly the Chief
Executive, Australian Financial Services, responsible for the
Westpac Group’s retail, business banking and
wealth businesses.
Inquiry into Australia’s Financial System
On 20 November 2013, the Federal Government formally
announced the appointment of Mr David Murray AO to head
an inquiry into Australia’s financial system (FSI).
The FSI’s terms of reference, announced on 20 December
2013, charged the FSI with examining how the financial
system could be positioned to best meet Australia’s evolving
needs and support Australia’s economic growth.
Recommendations were to be aimed at fostering an efficient,
competitive and flexible financial system, consistent with
financial stability, prudence, public confidence and capacity
to meet the needs of users.
Westpac supported the majority of the recommendations
during the Government’s consultation process, which was
completed on 31 March 2015.
On 20 October 2015, the Government announced its formal
response to the FSI’s recommendations. The Government
endorsed the overwhelming majority of the
recommendations across the five key areas the FSI
considered: Resilience; Superannuation; Innovation;
Consumer Outcomes; and the Regulatory System.
The Government will establish a number of consultation
processes to consider detailed implementation. Westpac will
continue to actively contribute to these ongoing
consultations, which we expect to continue for a number
of years.
FSI’s recommendations on bank capital
The Government’s response endorsed APRA’s actions to
date in implementing the FSI’s capital-related
recommendations, and confirmed APRA’s responsibility for
To date, APRA has formally responded to two of the FSI’s
recommendations. On 13 July 2015 APRA released the
results of a study comparing the capital position of the
Australian major banks against a group of international
banking peers. The study was conducted by APRA in
response to Recommendation 1 of the FSI that proposed
Australian bank capital ratios should be in the top quartile of
global peers to demonstrate the banks are
‘unquestionably strong.’
APRA’s study confirmed that the Australian major banks are
well capitalised. Based on capital adequacy ratios as at 30
June 2014, the study found that the major banks would need
to increase their capital adequacy ratios by at least 200
basis points to be comfortably positioned in the top quartile
of their international peers over the medium to long term. In
response, Westpac is undertaking a fully underwritten, pro
rata accelerated renounceable entitlement offer to raise
approximately $3.5 billion of ordinary equity, which will add
approximately 100 basis points to Westpac’s Common
Equity Tier 1 (CET1) capital ratio. Earlier this year, Westpac
also completed a partial sale of its shareholding in BTIM,
which increased Westpac’s CET1 capital ratio by 15 basis
points. These developments are discussed in further
detail below.
On 20 July 2015, APRA announced an interim change to
how risk weighted assets (RWA) will be calculated on
Australian residential mortgages for banks that use the
Advanced Internal-Ratings Based (IRB) approach to credit
risk. This change was in response to Recommendation 2 of
the FSI regarding the differential in mortgage capital
requirements between Advanced IRB and Standardised
banks. The outcome of this change is expected to lead to
the ratio of mortgage RWA to mortgage exposures for the
Group increasing to approximately 25%, with an effective
date of 1 July 2016.
Further changes relevant to regulatory capital requirements
for Australian banks were also proposed by the FSI and are
likely to result from current international regulatory reviews
being undertaken by the Basel Committee on Banking
Supervision (BCBS) and the Financial Stability Board (FSB)
considering leverage ratios, risk weight models for Advanced
and Standardised banks, and Total Loss Absorbing Capacity
(TLAC) for Global Systemically Important Banks (G-SIBs).
The final outcomes of these reviews remain uncertain.
APRA will be responsible for interpreting these international
developments to Australia’s circumstances and their final
impact will depend on APRA’s implementation.
Share entitlement offer
On 14 October 2015, Westpac announced it was
undertaking a fully underwritten, pro rata accelerated
renounceable entitlement offer to raise approximately $3.5
billion of ordinary equity. The equity raised will add
approximately 100 basis points to Westpac’s CET1 capital
ratio and will place Westpac’s CET1 capital ratio within the
top quartile of banks globally, with a CET1 capital ratio of
over 14% on an internationally comparable basis1. The
capital raised responds to changes in mortgage risk weights
that will increase the amount of capital required to be held
against mortgages by more than 50%, with the increased
regulatory requirement to be applied from 1 July 2016. To
support the offer, Westpac also announced its unaudited
preliminary Full Year 2015 result.
Interim DRP and partial DRP Underwrite
On 4 May 2015, Westpac announced that it would satisfy the
dividend reinvestment plan (DRP) for the 2015 interim
dividend by issuing Westpac ordinary shares at a 1.5%
discount. Westpac also entered into an agreement to have
the DRP on the 2015 interim dividend partially underwritten.
Approximately $2 billion worth of Westpac ordinary shares
were issued under the DRP and the partial DRP underwrite,
which raised our CET1 capital ratio by 57 basis points.
Issue of Westpac Capital Notes 3
On 8 September 2015, Westpac, through its London branch,
issued approximately $1.32 billion of securities known as
Westpac Capital Notes 3, which qualify as Additional Tier 1
capital of Westpac under APRA’s capital
adequacy framework.
Changes to accounting for technology investment spending
At its Strategy Update on 7 September 2015, Westpac
announced that, in light of the Group’s revised technology
and digital strategy, the rapid changes in technology, and
evolving regulatory requirements, it was reviewing the
accounting approach applied to investment spending. On 6
October 2015, Westpac announced that this review had
been completed, resulting in various accounting changes.
The balance sheet impact of these changes has seen a
reduction in the technology assets balance of $505 million
(pre-tax) reported as an expense in the Full Year 2015
statutory results. This has been excluded from
cash earnings.
Sale of Westpac operations in four Pacific Island Nations
On 14 July 2015, Westpac announced the completion of the
sale of its banking operations in the Cook Islands, Samoa
and Tonga to BSP for $91 million. On 30 October 2015,
Westpac completed the sale of its banking operations in the
Solomon Islands for $23.6 million.
1 The basis of the internationally comparable CET1 capital ratio aligns
with the APRA study titled ‘International capital comparison study’
dated 13 July 2015.
Information on Westpac
The proposed sale of Westpac’s Vanuatu operations has not
yet proceeded. Given the impact of Cyclone Pam in
Vanuatu, the Reserve Bank of Vanuatu decided that now is
not the time for a change of ownership in the country’s
banking sector.
Partial sale of BTIM
On 16 June 2015, Westpac announced its intention to
undertake a partial sale of its shareholding in BTIM by way
of an Institutional Offer and a Retail Offer. The fully-
underwritten Institutional Offer and Retail Offer resulted in
the sale of 55 million and 27 million BTIM shares
respectively at a price of $8.20 a share. Following
completion of the sale, Westpac’s holding in BTIM
decreased from 59.1% of BTIM’s issued capital to 31.0%
and Westpac’s CET1 capital ratio increased by 15
basis points.
New organisational structure
On 10 June 2015, Westpac announced a new, simplified
organisational structure for its Australian retail and business
banking operations designed to accelerate the Group’s
customer focussed strategy. Under the new structure, two
new divisions have been created:
Consumer Bank – responsible for all consumer banking
products and services under the Westpac, St.George,
BankSA, Bank of Melbourne and RAMS brands; and
Commercial & Business Bank – responsible for serving
small and medium enterprises, commercial and agri-
business customers, as well as asset and equipment
finance. Specialist business bankers will continue to
operate under their respective brands.
Each of these new divisions will be responsible for improving
the end-to-end service experience of their respective
customer segments and will have dedicated product,
marketing and digital capabilities.
Litigation
Since 2011, Westpac has been served with three class
action proceedings brought on behalf of customers seeking
to recover exception fees paid by those customers. Similar
class actions have been commenced against several other
Australian banks. Westpac has agreed with the plaintiffs to
put the proceedings against Westpac on hold, pending
further developments in the litigation against one of those
other banks. In April 2015, the Full Court of the Federal
Court unanimously found all of the exception fees charged
by that other bank to be lawful. The plaintiffs are currently
appealing certain aspects of that judgment to the High Court
of Australia. The appeal is scheduled to be heard in
February 2016.
Tax developments
On 30 March 2015, the Australian Government released a
Tax Discussion Paper that considers all aspects of the
Australian tax system. It is intended to initiate debate on the
future of Australia’s tax system. A public consultation
process has commenced and is expected to continue over
the next 12-18 months. The Discussion Paper does question
the ongoing effectiveness of the dividend imputation system
but it does not contain any recommendations or details of
any proposed reforms. The impact of any changes to
Westpac, its shareholders and customers cannot be
22
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
23
1
determined until further details are released and any
changes to the law made.
Regulatory significant developments
Basel Committee on Banking Supervision
Regulatory reforms and significant developments arising in
relation to changes initiated by the BCBS and the
FSB include:
Global Systemically Important Financial Institutions (G-
SIFIs)
Each year in November the FSB publishes the list of
identified G-SIBs and specifies the higher capital
requirements proposed for each. These increased capital
requirements will be phased in from January 2016. Westpac
has not been named as a G-SIB. However the BCBS has
issued a framework for extending the SIFIs requirements to
domestic systemically important banks (D-SIBs).
Capital
In 2010, the BCBS outlined the Basel III capital framework
for banks globally as follows:
an increase in the minimum common equity requirement
from 2.0% to 4.5%;
an increase in the minimum Tier 1 capital requirement
from 4.0% to 6.0%;
a capital conservation buffer at 2.5%, to be met with
common equity; and
a countercyclical buffer of between 0% to 2.5% to be
met with common equity or other fully loss
absorbing capital.
APRA’s adoption of the framework has required Australian
Authorised Deposit-taking Institutions (ADIs) such as
Westpac to meet the above minimum capital requirements
from 1 January 2013 and the capital conservation buffer in
full from its introduction date of 1 January 2016. In
December 2013 APRA released its approach for
implementing a D-SIB framework in Australia. Westpac is
one of four Australian banks which APRA has identified as a
D-SIB. APRA has proposed that each D-SIB, including
Westpac, will have to meet a higher loss absorbency
requirement of 1% to be met by common equity. The 1%
requirement will be added to the capital conservation buffer
effectively increasing the buffer from 2.5% to 3.5%. The
countercyclical buffer is not currently required.
Westpac’s current capital levels are already above the
regulatory requirement that will apply from 1 January 2016
(including the 3.5% capital conservation buffer).
Further details of Westpac’s regulatory capital, leverage ratio
and liquidity coverage ratio disclosures as well as the full
terms and conditions of the regulatory capital instruments
can be accessed at www.westpac.com.au/about-
westpac/investor-centre/financial-information/regulatory-
disclosures.
Increased loss absorbency
In November 2014 the FSB issued a consultation paper for
enhancing the Total Loss Absorbing Capacity (TLAC) for G-
SIBs to operate alongside the Basel III capital requirements.
These proposals form part of the G20’s initiatives aimed at
‘Ending too-big-to-fail’ and ensuring that the resolution of a
failing G-SIFI can be carried out without causing systemic
disruption or resorting to taxpayer support. The FSB has
stated that the TLAC requirement would not be introduced
before 2019 and it is not known at this stage whether there
is any intention to extend the requirement beyond G-SIBs.
The FSI had recommended the implementation in Australia
of a framework for minimum loss absorbing and
recapitalisation capacity sufficient to facilitate the orderly
resolution of ADIs and minimise taxpayer support. In its
response to the FSI, the Government endorsed APRA to
implement the recommendation in line with emerging
international practice.
Reform of the risk-based capital framework
In December 2014, the BCBS released two consultation
papers on proposals for Capital Floors and proposed
revisions to the Standardised Approach for Credit Risk,
which puts forward possible amendments to the risk
weighted asset framework for capital. The measures are in
addition to ongoing consultation work of the BCBS on
reforms to capital treatment of operational risk and market
risk. In combination these reform measures are intended to
improve the consistency and comparability of bank capital
ratios. However, further clarity from BCBS is not expected
before the end of 2015 after which APRA will need to consult
on, and then finalise, the Australian standards. Until that
time, it is not possible to determine the impact on Westpac.
Leverage ratio
The Basel III capital framework also introduced a leverage
ratio requirement. The BCBS proposes that introducing a
simple, non-risk based leverage ratio requirement would act
as a credible supplementary measure to the risk-based
capital requirements. In January 2014, the BCBS published
an amended leverage ratio framework. In May 2015, APRA
released new disclosure requirements in relation to the
leverage ratio which will initially only apply to select ADIs,
including Westpac, and from 1 July 2015 required the
disclosure of the leverage ratio on a quarterly basis. The
proposed timetable for implementation of the leverage ratio
provides for testing and recalibration of the framework to
occur until 2017 and migration of the final standard to a Pillar
1 requirement from January 2018.
OECD Common Reporting Standard
The Organisation for Economic Cooperation and
Development (OECD) has developed Common Reporting
Standard (CRS) rules for the automatic exchange of
financial account information amongst OECD
member states.
CRS will require the Westpac Group to identify the tax
residency of all customers and to report the tax residency
and account details of non-resident customers to the
relevant authorities in jurisdictions in which the CRS rules
operate.
Subject to final legislation, it is currently intended that
Australian financial institutions can voluntarily implement the
rules from 1 January 2017, but will have to be compliant
from 1 January 2018. The rules could impose additional
costs and operational burdens on Westpac.
Certain countries (such as the United Kingdom and India)
will implement the rules with effect from 1 January 2016.
Westpac is implementing changes to its business operations
to comply with the CRS requirements in these countries from
accounts, or otherwise face 30% withholding tax on certain
1 January 2016.
OTC derivatives reform
The international regulatory reforms relating to over-the-
counter (OTC) derivatives continue to be implemented by
financial regulators across the globe.
In Australia, Westpac commenced reporting OTC derivatives
transactions to a Prescribed Repository in accordance with
the Derivative Transaction Rules (Reporting) 2013 on
1 October 2013. Westpac continues to work with ASIC and
industry associations in relation to the implementation of
these rules and the phase-in of requirements to other
industry participants.
On 8 September 2015, the Australian Government enacted
regulations imposing a central clearing mandate for
prescribed classes of interest rate derivatives denominated
in Australian Dollar, US Dollar, Euro, Japanese Yen and
British Pounds. This mandate is imposed on major domestic
and foreign banks that act as dealers in the Australian OTC
derivatives market. ASIC is currently consulting with industry
on final clearing rules and the expected compliance date
with the regulations is April 2016.
As a provisionally-registered Swap Dealer with the US
Commodity Futures Trading Commission (CFTC), Westpac
is subject to a range of entity-level and transaction-level
requirements pursuant to the Dodd-Frank Act.
Pursuant to the European Market Infrastructure Regulations
(EMIR) established by the European Securities and Markets
Authority (ESMA), from October 2014, Westpac is subject to
certain risk mitigation obligations in relation to OTC
Derivatives traded with European counterparties or through
its London Branch. Further, Westpac will be subject to a
central clearing mandate for certain interest rate derivatives
with European counterparties by April 2016.
Westpac is also subject to OTC derivatives trade reporting
regulations imposed by the Monetary Authority of Singapore
and various provincial financial regulators in Canada.
Westpac continues to monitor developments in response to
requirements imposed by international regulators. These
include regulations published by the CFTC and the
Securities and Exchange Commission under the Dodd-Frank
Act; by the ESMA and local European financial regulators
under the EMIR and Markets in Financial Instruments
Directive (MiFID II); and by various financial regulators in
Asia and Canada. Westpac also continues to monitor the
international response to the final policy framework for
establishing margin requirements for uncleared OTC
2 September 2013.
United States
Foreign Account Tax Compliance Act (FATCA)
Provisions commonly referred to as FATCA and related US
Treasury regulations generally require Foreign Financial
Institutions (FFIs), such as Westpac, to enter into an FFI
agreement (if they are not subject to the provisions of a
Model 1 Intergovernmental Agreement (IGA)) under which
they agree to identify and provide the US Internal Revenue
Service (IRS) with information on certain US connected
Information on Westpac
payments made to the FFI. In addition, FFIs that have
entered into an FFI agreement will be required to withhold
on certain payments made to FFIs that are neither party to
an FFI agreement nor subject to an IGA and certain account
holders that fail to provide prescribed information. The
Australian Government signed an IGA with the United States
on 28 April 2014, which came into force on 30 June 2014.
The Australian IGA, and any IGAs that may be concluded
between the US and other countries in which Westpac
conducts business, will relieve Westpac of the requirement
to withhold on payments to, or close, certain accounts, and
will provide certain other benefits.
Westpac has implemented changes to its business
operations to comply with the requirements of FATCA
across all jurisdictions in which it operates. Westpac has
entered into an FFI agreement with respect to its branches
and affiliated FFIs not located in countries that have entered
into an IGA. Compliance with FATCA will continue to give
rise to significant ongoing costs and operational burdens
for Westpac.
New Zealand
Zealand include:
Regulatory reforms and significant developments in New
Financial Markets Conduct Act (FMCA)
The FMCA overhauls New Zealand’s securities law regime
and impacts various aspects of Westpac New Zealand’s
business. It has introduced changes to product disclosure
and governance together with new licensing and registration
requirements as well as new fair dealing provisions. The use
of product disclosure statements is being implemented,
supported by an online register of other material
documentation. The FMCA was enacted in September 2013.
Most of its provisions, as well as new regulations setting out
the detail of the regime, came into force on 1 December
2014, subject to transitional provisions of up to two years.
The majority of the fair dealing requirements in the FMCA
came into force in April 2014.
Credit law reform/responsible lending
The Credit Contracts and Consumer Finance Amendment
Act 2014 received Royal Assent in June 2014 and came into
full effect in June 2015. The Act reformed the entire suite of
legislation that governs consumer credit contracts. It created
new responsible lending principles and provided for a
regulatory responsible lending code, which was issued in
March 2015. Consumer protections were also being
strengthened by changes to provisions on disclosure, fees,
hardship and ‘oppressive’ contracts.
The Consumer Law Reform Bill was passed in December
2013. The Bill amended six separate Acts, including the Fair
Trading Act. Among the amendments introduced into the
Fair Trading Act were prohibitions on unfair contract terms
and on making unsubstantiated representations about a
product or service and new provisions regulating uninvited
direct sales. The unfair contract terms provisions came into
force in March 2015. The unsubstantiated representations
prohibitions and uninvited direct sales provisions came into
effect in June 2014.
derivatives as published by the BCBS and the International
Consumer law reform
Organisation of Securities Commission (IOSCO) on
24
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
25
determined until further details are released and any
changes to the law made.
Regulatory significant developments
Basel Committee on Banking Supervision
Regulatory reforms and significant developments arising in
relation to changes initiated by the BCBS and the
FSB include:
SIFIs)
Global Systemically Important Financial Institutions (G-
Each year in November the FSB publishes the list of
identified G-SIBs and specifies the higher capital
requirements proposed for each. These increased capital
requirements will be phased in from January 2016. Westpac
has not been named as a G-SIB. However the BCBS has
issued a framework for extending the SIFIs requirements to
domestic systemically important banks (D-SIBs).
Capital
In 2010, the BCBS outlined the Basel III capital framework
for banks globally as follows:
an increase in the minimum common equity requirement
from 2.0% to 4.5%;
from 4.0% to 6.0%;
a countercyclical buffer of between 0% to 2.5% to be
met with common equity or other fully loss
absorbing capital.
APRA’s adoption of the framework has required Australian
Authorised Deposit-taking Institutions (ADIs) such as
Westpac to meet the above minimum capital requirements
from 1 January 2013 and the capital conservation buffer in
full from its introduction date of 1 January 2016. In
December 2013 APRA released its approach for
implementing a D-SIB framework in Australia. Westpac is
one of four Australian banks which APRA has identified as a
D-SIB. APRA has proposed that each D-SIB, including
Westpac, will have to meet a higher loss absorbency
requirement of 1% to be met by common equity. The 1%
requirement will be added to the capital conservation buffer
effectively increasing the buffer from 2.5% to 3.5%. The
countercyclical buffer is not currently required.
failing G-SIFI can be carried out without causing systemic
disruption or resorting to taxpayer support. The FSB has
stated that the TLAC requirement would not be introduced
before 2019 and it is not known at this stage whether there
is any intention to extend the requirement beyond G-SIBs.
The FSI had recommended the implementation in Australia
of a framework for minimum loss absorbing and
recapitalisation capacity sufficient to facilitate the orderly
resolution of ADIs and minimise taxpayer support. In its
response to the FSI, the Government endorsed APRA to
implement the recommendation in line with emerging
international practice.
Reform of the risk-based capital framework
In December 2014, the BCBS released two consultation
papers on proposals for Capital Floors and proposed
revisions to the Standardised Approach for Credit Risk,
which puts forward possible amendments to the risk
weighted asset framework for capital. The measures are in
addition to ongoing consultation work of the BCBS on
reforms to capital treatment of operational risk and market
risk. In combination these reform measures are intended to
improve the consistency and comparability of bank capital
ratios. However, further clarity from BCBS is not expected
on, and then finalise, the Australian standards. Until that
time, it is not possible to determine the impact on Westpac.
The Basel III capital framework also introduced a leverage
ratio requirement. The BCBS proposes that introducing a
simple, non-risk based leverage ratio requirement would act
as a credible supplementary measure to the risk-based
capital requirements. In January 2014, the BCBS published
an amended leverage ratio framework. In May 2015, APRA
released new disclosure requirements in relation to the
leverage ratio which will initially only apply to select ADIs,
including Westpac, and from 1 July 2015 required the
disclosure of the leverage ratio on a quarterly basis. The
proposed timetable for implementation of the leverage ratio
provides for testing and recalibration of the framework to
occur until 2017 and migration of the final standard to a Pillar
1 requirement from January 2018.
OECD Common Reporting Standard
The Organisation for Economic Cooperation and
Development (OECD) has developed Common Reporting
Standard (CRS) rules for the automatic exchange of
a capital conservation buffer at 2.5%, to be met with
common equity; and
Leverage ratio
an increase in the minimum Tier 1 capital requirement
before the end of 2015 after which APRA will need to consult
Westpac’s current capital levels are already above the
financial account information amongst OECD
regulatory requirement that will apply from 1 January 2016
member states.
(including the 3.5% capital conservation buffer).
CRS will require the Westpac Group to identify the tax
Further details of Westpac’s regulatory capital, leverage ratio
residency of all customers and to report the tax residency
and liquidity coverage ratio disclosures as well as the full
terms and conditions of the regulatory capital instruments
can be accessed at www.westpac.com.au/about-
westpac/investor-centre/financial-information/regulatory-
disclosures.
Increased loss absorbency
In November 2014 the FSB issued a consultation paper for
enhancing the Total Loss Absorbing Capacity (TLAC) for G-
SIBs to operate alongside the Basel III capital requirements.
These proposals form part of the G20’s initiatives aimed at
‘Ending too-big-to-fail’ and ensuring that the resolution of a
and account details of non-resident customers to the
relevant authorities in jurisdictions in which the CRS rules
operate.
Subject to final legislation, it is currently intended that
Australian financial institutions can voluntarily implement the
rules from 1 January 2017, but will have to be compliant
from 1 January 2018. The rules could impose additional
costs and operational burdens on Westpac.
Certain countries (such as the United Kingdom and India)
will implement the rules with effect from 1 January 2016.
Westpac is implementing changes to its business operations
to comply with the CRS requirements in these countries from
1 January 2016.
OTC derivatives reform
The international regulatory reforms relating to over-the-
counter (OTC) derivatives continue to be implemented by
financial regulators across the globe.
In Australia, Westpac commenced reporting OTC derivatives
transactions to a Prescribed Repository in accordance with
the Derivative Transaction Rules (Reporting) 2013 on
1 October 2013. Westpac continues to work with ASIC and
industry associations in relation to the implementation of
these rules and the phase-in of requirements to other
industry participants.
On 8 September 2015, the Australian Government enacted
regulations imposing a central clearing mandate for
prescribed classes of interest rate derivatives denominated
in Australian Dollar, US Dollar, Euro, Japanese Yen and
British Pounds. This mandate is imposed on major domestic
and foreign banks that act as dealers in the Australian OTC
derivatives market. ASIC is currently consulting with industry
on final clearing rules and the expected compliance date
with the regulations is April 2016.
As a provisionally-registered Swap Dealer with the US
Commodity Futures Trading Commission (CFTC), Westpac
is subject to a range of entity-level and transaction-level
requirements pursuant to the Dodd-Frank Act.
Pursuant to the European Market Infrastructure Regulations
(EMIR) established by the European Securities and Markets
Authority (ESMA), from October 2014, Westpac is subject to
certain risk mitigation obligations in relation to OTC
Derivatives traded with European counterparties or through
its London Branch. Further, Westpac will be subject to a
central clearing mandate for certain interest rate derivatives
with European counterparties by April 2016.
Westpac is also subject to OTC derivatives trade reporting
regulations imposed by the Monetary Authority of Singapore
and various provincial financial regulators in Canada.
Westpac continues to monitor developments in response to
requirements imposed by international regulators. These
include regulations published by the CFTC and the
Securities and Exchange Commission under the Dodd-Frank
Act; by the ESMA and local European financial regulators
under the EMIR and Markets in Financial Instruments
Directive (MiFID II); and by various financial regulators in
Asia and Canada. Westpac also continues to monitor the
international response to the final policy framework for
establishing margin requirements for uncleared OTC
derivatives as published by the BCBS and the International
Organisation of Securities Commission (IOSCO) on
2 September 2013.
United States
Foreign Account Tax Compliance Act (FATCA)
Provisions commonly referred to as FATCA and related US
Treasury regulations generally require Foreign Financial
Institutions (FFIs), such as Westpac, to enter into an FFI
agreement (if they are not subject to the provisions of a
Model 1 Intergovernmental Agreement (IGA)) under which
they agree to identify and provide the US Internal Revenue
Service (IRS) with information on certain US connected
Information on Westpac
accounts, or otherwise face 30% withholding tax on certain
payments made to the FFI. In addition, FFIs that have
entered into an FFI agreement will be required to withhold
on certain payments made to FFIs that are neither party to
an FFI agreement nor subject to an IGA and certain account
holders that fail to provide prescribed information. The
Australian Government signed an IGA with the United States
on 28 April 2014, which came into force on 30 June 2014.
The Australian IGA, and any IGAs that may be concluded
between the US and other countries in which Westpac
conducts business, will relieve Westpac of the requirement
to withhold on payments to, or close, certain accounts, and
will provide certain other benefits.
Westpac has implemented changes to its business
operations to comply with the requirements of FATCA
across all jurisdictions in which it operates. Westpac has
entered into an FFI agreement with respect to its branches
and affiliated FFIs not located in countries that have entered
into an IGA. Compliance with FATCA will continue to give
rise to significant ongoing costs and operational burdens
for Westpac.
New Zealand
Regulatory reforms and significant developments in New
Zealand include:
Financial Markets Conduct Act (FMCA)
The FMCA overhauls New Zealand’s securities law regime
and impacts various aspects of Westpac New Zealand’s
business. It has introduced changes to product disclosure
and governance together with new licensing and registration
requirements as well as new fair dealing provisions. The use
of product disclosure statements is being implemented,
supported by an online register of other material
documentation. The FMCA was enacted in September 2013.
Most of its provisions, as well as new regulations setting out
the detail of the regime, came into force on 1 December
2014, subject to transitional provisions of up to two years.
The majority of the fair dealing requirements in the FMCA
came into force in April 2014.
Credit law reform/responsible lending
The Credit Contracts and Consumer Finance Amendment
Act 2014 received Royal Assent in June 2014 and came into
full effect in June 2015. The Act reformed the entire suite of
legislation that governs consumer credit contracts. It created
new responsible lending principles and provided for a
regulatory responsible lending code, which was issued in
March 2015. Consumer protections were also being
strengthened by changes to provisions on disclosure, fees,
hardship and ‘oppressive’ contracts.
Consumer law reform
The Consumer Law Reform Bill was passed in December
2013. The Bill amended six separate Acts, including the Fair
Trading Act. Among the amendments introduced into the
Fair Trading Act were prohibitions on unfair contract terms
and on making unsubstantiated representations about a
product or service and new provisions regulating uninvited
direct sales. The unfair contract terms provisions came into
force in March 2015. The unsubstantiated representations
prohibitions and uninvited direct sales provisions came into
effect in June 2014.
24
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
25
1
Reserve Bank of New Zealand (RBNZ) – housing review
stage two – residential property investors
The RBNZ has concluded stage two of its housing review
and is amending its Capital Adequacy Frameworks to
provide for a new asset class treatment for property investor
residential mortgage loans. The new classification, which
applies to all locally incorporated banks, will apply from 1
November 2015 for new lending. Banks will be required to
classify their existing residential loans by 31 October 2016.
The capital requirements for this lending will increase as a
higher risk weighting will apply than for owner occupied
residential mortgage lending.
RBNZ – New loan to value ratio (LVR) restrictions
Restrictions on high LVR lending are part of the RBNZ’s
macro-prudential policy framework and have been in place
since October 2013. In May 2015 the RBNZ announced that
in response to growing market risk from the Auckland
housing market it was proposing changes to its LVR policy.
From 1 November 2015 there will be a 5 percent limit on
property investor residential mortgage lending in the
Auckland region where the LVR is above 70 percent.
Restrictions on residential mortgage lending to owner
occupiers in Auckland will continue to be 10 percent where
the LVR exceeds 80 percent. For residential mortgage
lending in other parts of New Zealand the limit on lending
where the LVR exceeds 80 percent will be increased to 15
percent from 10 percent.
RBNZ – Review of outsourcing policy
In August 2015 the RBNZ released a consultation paper
proposing revisions to its Outsourcing Policy (BS11). The
RBNZ considers that the Outsourcing Policy is closely linked
to its Open Bank Resolution (OBR) Policy and the proposed
changes reflect this. In summary, the RBNZ is proposing to
broaden the functionality that a bank would need to continue
delivering in the event of statutory management and is
proposing three areas where outsourcing to related parties
would be prohibited. In this respect the RBNZ is seeking to
ensure that the bank has direct ownership and control over
certain data that would be required to enable the bank to
calculate its financial positions at the end of each business
day. In particular it must have its own SWIFT gateway and
licence for the processing of transactions, and it should be
able to undertake its regulatory reporting using its own data.
The RBNZ is also proposing that banks be required to notify
the RBNZ about proposals to outsource prior to an
agreement being entered into and that a notice of non-
objection be obtained in some or all instances. Submissions
close in December 2015.
Supervision and regulation
Australia
Within Australia we are subject to supervision and regulation
by six principal agencies: APRA; the Reserve Bank of
Australia (RBA); the Australian Securities and Investments
Commission (ASIC); the Australian Securities Exchange
(ASX); the Australian Competition and Consumer
Commission (ACCC); and the Australian Transaction
Reports and Analysis Centre (AUSTRAC).
APRA is the prudential regulator of the Australian financial
services industry. It oversees banks, credit unions, building
societies, general insurance and re-insurance companies,
friendly societies and most of the superannuation (pension)
industry. APRA’s role includes establishing and enforcing
prudential standards and practices designed to ensure that,
under all reasonable circumstances, financial promises
made by the institutions it supervises are met within a stable,
efficient and competitive financial system.
As an ADI, we report prudential information to APRA
including information in relation to capital adequacy, large
exposures, credit quality and liquidity. Our controlled entities
in Australia that are authorised insurers and trustees of
superannuation funds are also subject to the APRA
regulatory regime. Reporting is supplemented by
consultations, on-site inspections and targeted reviews. Our
external auditors also have an obligation to report on
compliance with certain statutory and regulatory banking
requirements and on any matters that in their opinion may
have the potential to materially prejudice the interests of
depositors and other stakeholders.
Australia’s risk-based capital adequacy guidelines are based
on the approach agreed upon by the BCBS. National
discretion is then applied to that approach which results in
Australia’s capital requirements being more stringent. Refer
to ‘Capital resources – Basel Capital Accord’ in Section 2.
The RBA is responsible for monetary policy, maintaining
financial system stability and promoting the safety and
efficiency of the payments system. The RBA is an active
participant in the financial markets, manages Australia’s
foreign reserves, issues Australian currency notes and
serves as banker to the Australian Government.
ASIC is the national regulator of Australian companies. Its
primary responsibility is to regulate and enforce company,
consumer credit, financial markets and financial services
laws that protect consumers, investors and creditors. With
respect to financial services, it promotes fairness and
transparency by providing consumer protection, using
regulatory powers to enforce laws relating to deposit-taking
activities, general insurance, life insurance, superannuation,
retirement savings accounts, securities (such as shares,
debentures and managed investments) and futures
contracts and financial advice. ASIC has responsibility for
supervising trading on Australia’s domestic licensed markets
and of trading participants.
The ASX operates Australia’s primary national market for
trading of securities issued by listed companies. Some of our
securities (including our ordinary shares) are listed on the
ASX and we therefore have obligations to comply with the
ASX Listing Rules, which have statutory backing under the
Corporations Act 2001. The ASX has responsibility for the
oversight of listed entities under the ASX Listing Rules and
for monitoring and enforcing compliance with the ASX
Operating Rules by its market, clearing and
settlement participants.
The ACCC is an independent statutory authority responsible
for the regulation and prohibition of anti-competitive and
unfair market practices and mergers and acquisitions in
Australia. Its broad objective is to administer the Competition
and Consumer Act 2010 and related legislation to bring
greater competitiveness, fair trading, consumer protection
and product safety to the Australian economy. The ACCC’s
role in consumer protection complements that of Australian
state and territory consumer affairs agencies that administer
the unfair trading legislation of their jurisdictions.
The Australian Government’s present policy, known as the
‘four pillars policy’, is that there should be no fewer than four
major banks to maintain appropriate levels of competition in
the banking sector. Under the Financial Sector
(Shareholding) Act 1998, the Australian Government’s
Treasurer must approve an entity acquiring a stake of more
than 15% in a financial sector company.
Proposals for foreign acquisitions of a stake in Australian
banks are subject to the Australian Government’s foreign
investment policy and, where required, approval by the
Australian Government under the Australian Foreign
Acquisitions and Takeovers Act 1975. For further details
refer to ‘Limitations affecting security holders’ in Section 4.
AUSTRAC oversees the compliance of Australian reporting
entities including Westpac, within the requirements under
the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 and the Financial Transaction Reports
Act 1988. These requirements include:
implementing programs for identifying and monitoring
customers, and for managing the risks of money
laundering and terrorism financing;
reporting suspicious matters, threshold transactions and
international funds transfer instructions; and
submitting an annual compliance report.
AUSTRAC provides financial information to state, territory
and Australian federal law enforcement, security, social
justice and revenue agencies, and certain
international counterparts.
New Zealand
The RBNZ is responsible for supervising New Zealand
registered banks. The New Zealand prudential supervision
regime requires that registered banks publish quarterly
disclosure statements, which contain information on financial
performance and risk positions as well as attestations by the
directors about the bank’s compliance with its conditions of
registration and certain other matters.
The FMA is New Zealand's financial conduct regulator. Its
main objective is to promote and facilitate the development
of fair, efficient, and transparent financial markets. Its
functions include promoting the confident and informed
participation of businesses, investors, and consumers in
those markets. The Financial Markets Conduct Act, which
was passed in 2013, resulted in the FMA having extensive
new responsibilities in the licensing and supervision of
various market participants as well as new enforcement
powers.
Information on Westpac
United States
Our New York branch is a US federally licensed branch and
therefore is subject to supervision, examination and
regulation by the US Office of the Comptroller of the
Currency, and the Board of Governors of the Federal
Reserve System (the US Federal Reserve) under the
US International Banking Act of 1978 (IBA) and
related regulations.
A US federal branch must maintain, with a US Federal
Reserve member bank, a capital equivalency deposit as
prescribed by the US Comptroller of the Currency, which is
at least equal to 5% of its total liabilities (including
acceptances, but excluding accrued expenses, and amounts
due and other liabilities to other branches, agencies, and
subsidiaries of the foreign bank).
In addition, a US federal branch is subject to periodic onsite
examination by the US Comptroller of the Currency. Such
examination may address risk management, operations,
asset quality, compliance with the record-keeping and
reporting, and any additional requirements prescribed by the
US Comptroller of the Currency from time to time.
A US federal branch of a foreign bank is, by virtue of the
IBA, subject to the receivership powers exercisable by the
US Comptroller of the Currency.
We are not a Financial Holding Company as defined in the
Gramm-Leach-Bliley Act of 1999.
Westpac and some of its affiliates are engaged in various
activities that are subject to regulation by other US federal
regulatory agencies including the US Securities & Exchange
Commission and the US Commodity Futures
Anti-money laundering regulation and
Trading Commission.
related requirements
Australia
Westpac has a Group-wide program to manage its
obligations under the Anti-Money Laundering and Counter-
Terrorism Financing Act 2006. We continue to actively
engage with the regulator, AUSTRAC, on our activities.
United States
The USA PATRIOT Act of 2001 requires US financial
institutions, including the US branches of foreign banks, to
take certain steps to prevent, detect and report individuals
and entities involved in international money laundering and
the financing of terrorism. The required actions include
verifying the identity of financial institutions and other
customers and counterparties, terminating correspondent
accounts for foreign ‘shell banks’ and obtaining information
about the owners of foreign bank clients and the identity of
the foreign bank’s agent for service of process in the US.
The anti-money laundering compliance requirements of the
USA PATRIOT Act include requirements to adopt and
implement an effective anti-money laundering program,
report suspicious transactions or activities, and implement
due diligence procedures for correspondent and other
customer accounts. Westpac’s New York branch and its
other US operations maintain an anti-money laundering
compliance program designed to address US
legal requirements.
26
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
27
Reserve Bank of New Zealand (RBNZ) – housing review
Supervision and regulation
stage two – residential property investors
The RBNZ has concluded stage two of its housing review
and is amending its Capital Adequacy Frameworks to
provide for a new asset class treatment for property investor
residential mortgage loans. The new classification, which
applies to all locally incorporated banks, will apply from 1
November 2015 for new lending. Banks will be required to
classify their existing residential loans by 31 October 2016.
The capital requirements for this lending will increase as a
higher risk weighting will apply than for owner occupied
residential mortgage lending.
RBNZ – New loan to value ratio (LVR) restrictions
Restrictions on high LVR lending are part of the RBNZ’s
macro-prudential policy framework and have been in place
since October 2013. In May 2015 the RBNZ announced that
in response to growing market risk from the Auckland
housing market it was proposing changes to its LVR policy.
From 1 November 2015 there will be a 5 percent limit on
property investor residential mortgage lending in the
Auckland region where the LVR is above 70 percent.
Restrictions on residential mortgage lending to owner
occupiers in Auckland will continue to be 10 percent where
the LVR exceeds 80 percent. For residential mortgage
lending in other parts of New Zealand the limit on lending
where the LVR exceeds 80 percent will be increased to 15
percent from 10 percent.
RBNZ – Review of outsourcing policy
In August 2015 the RBNZ released a consultation paper
proposing revisions to its Outsourcing Policy (BS11). The
RBNZ considers that the Outsourcing Policy is closely linked
to its Open Bank Resolution (OBR) Policy and the proposed
changes reflect this. In summary, the RBNZ is proposing to
broaden the functionality that a bank would need to continue
delivering in the event of statutory management and is
proposing three areas where outsourcing to related parties
would be prohibited. In this respect the RBNZ is seeking to
ensure that the bank has direct ownership and control over
certain data that would be required to enable the bank to
calculate its financial positions at the end of each business
day. In particular it must have its own SWIFT gateway and
licence for the processing of transactions, and it should be
able to undertake its regulatory reporting using its own data.
The RBNZ is also proposing that banks be required to notify
the RBNZ about proposals to outsource prior to an
agreement being entered into and that a notice of non-
objection be obtained in some or all instances. Submissions
close in December 2015.
Australia
Within Australia we are subject to supervision and regulation
by six principal agencies: APRA; the Reserve Bank of
Australia (RBA); the Australian Securities and Investments
Commission (ASIC); the Australian Securities Exchange
(ASX); the Australian Competition and Consumer
Commission (ACCC); and the Australian Transaction
Reports and Analysis Centre (AUSTRAC).
APRA is the prudential regulator of the Australian financial
services industry. It oversees banks, credit unions, building
societies, general insurance and re-insurance companies,
friendly societies and most of the superannuation (pension)
industry. APRA’s role includes establishing and enforcing
prudential standards and practices designed to ensure that,
under all reasonable circumstances, financial promises
made by the institutions it supervises are met within a stable,
efficient and competitive financial system.
As an ADI, we report prudential information to APRA
including information in relation to capital adequacy, large
exposures, credit quality and liquidity. Our controlled entities
in Australia that are authorised insurers and trustees of
superannuation funds are also subject to the APRA
regulatory regime. Reporting is supplemented by
consultations, on-site inspections and targeted reviews. Our
external auditors also have an obligation to report on
compliance with certain statutory and regulatory banking
requirements and on any matters that in their opinion may
have the potential to materially prejudice the interests of
depositors and other stakeholders.
Australia’s risk-based capital adequacy guidelines are based
on the approach agreed upon by the BCBS. National
discretion is then applied to that approach which results in
Australia’s capital requirements being more stringent. Refer
to ‘Capital resources – Basel Capital Accord’ in Section 2.
The RBA is responsible for monetary policy, maintaining
financial system stability and promoting the safety and
efficiency of the payments system. The RBA is an active
participant in the financial markets, manages Australia’s
foreign reserves, issues Australian currency notes and
serves as banker to the Australian Government.
ASIC is the national regulator of Australian companies. Its
primary responsibility is to regulate and enforce company,
consumer credit, financial markets and financial services
laws that protect consumers, investors and creditors. With
respect to financial services, it promotes fairness and
transparency by providing consumer protection, using
regulatory powers to enforce laws relating to deposit-taking
activities, general insurance, life insurance, superannuation,
retirement savings accounts, securities (such as shares,
debentures and managed investments) and futures
contracts and financial advice. ASIC has responsibility for
supervising trading on Australia’s domestic licensed markets
and of trading participants.
The ASX operates Australia’s primary national market for
trading of securities issued by listed companies. Some of our
securities (including our ordinary shares) are listed on the
ASX and we therefore have obligations to comply with the
ASX Listing Rules, which have statutory backing under the
Corporations Act 2001. The ASX has responsibility for the
oversight of listed entities under the ASX Listing Rules and
for monitoring and enforcing compliance with the ASX
Operating Rules by its market, clearing and
settlement participants.
The ACCC is an independent statutory authority responsible
for the regulation and prohibition of anti-competitive and
unfair market practices and mergers and acquisitions in
Australia. Its broad objective is to administer the Competition
and Consumer Act 2010 and related legislation to bring
greater competitiveness, fair trading, consumer protection
and product safety to the Australian economy. The ACCC’s
role in consumer protection complements that of Australian
state and territory consumer affairs agencies that administer
the unfair trading legislation of their jurisdictions.
The Australian Government’s present policy, known as the
‘four pillars policy’, is that there should be no fewer than four
major banks to maintain appropriate levels of competition in
the banking sector. Under the Financial Sector
(Shareholding) Act 1998, the Australian Government’s
Treasurer must approve an entity acquiring a stake of more
than 15% in a financial sector company.
Proposals for foreign acquisitions of a stake in Australian
banks are subject to the Australian Government’s foreign
investment policy and, where required, approval by the
Australian Government under the Australian Foreign
Acquisitions and Takeovers Act 1975. For further details
refer to ‘Limitations affecting security holders’ in Section 4.
AUSTRAC oversees the compliance of Australian reporting
entities including Westpac, within the requirements under
the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 and the Financial Transaction Reports
Act 1988. These requirements include:
implementing programs for identifying and monitoring
customers, and for managing the risks of money
laundering and terrorism financing;
reporting suspicious matters, threshold transactions and
international funds transfer instructions; and
submitting an annual compliance report.
AUSTRAC provides financial information to state, territory
and Australian federal law enforcement, security, social
justice and revenue agencies, and certain
international counterparts.
New Zealand
The RBNZ is responsible for supervising New Zealand
registered banks. The New Zealand prudential supervision
regime requires that registered banks publish quarterly
disclosure statements, which contain information on financial
performance and risk positions as well as attestations by the
directors about the bank’s compliance with its conditions of
registration and certain other matters.
The FMA is New Zealand's financial conduct regulator. Its
main objective is to promote and facilitate the development
of fair, efficient, and transparent financial markets. Its
functions include promoting the confident and informed
participation of businesses, investors, and consumers in
those markets. The Financial Markets Conduct Act, which
was passed in 2013, resulted in the FMA having extensive
new responsibilities in the licensing and supervision of
various market participants as well as new enforcement
powers.
Information on Westpac
United States
Our New York branch is a US federally licensed branch and
therefore is subject to supervision, examination and
regulation by the US Office of the Comptroller of the
Currency, and the Board of Governors of the Federal
Reserve System (the US Federal Reserve) under the
US International Banking Act of 1978 (IBA) and
related regulations.
A US federal branch must maintain, with a US Federal
Reserve member bank, a capital equivalency deposit as
prescribed by the US Comptroller of the Currency, which is
at least equal to 5% of its total liabilities (including
acceptances, but excluding accrued expenses, and amounts
due and other liabilities to other branches, agencies, and
subsidiaries of the foreign bank).
In addition, a US federal branch is subject to periodic onsite
examination by the US Comptroller of the Currency. Such
examination may address risk management, operations,
asset quality, compliance with the record-keeping and
reporting, and any additional requirements prescribed by the
US Comptroller of the Currency from time to time.
A US federal branch of a foreign bank is, by virtue of the
IBA, subject to the receivership powers exercisable by the
US Comptroller of the Currency.
We are not a Financial Holding Company as defined in the
Gramm-Leach-Bliley Act of 1999.
Westpac and some of its affiliates are engaged in various
activities that are subject to regulation by other US federal
regulatory agencies including the US Securities & Exchange
Commission and the US Commodity Futures
Trading Commission.
Anti-money laundering regulation and
related requirements
Australia
Westpac has a Group-wide program to manage its
obligations under the Anti-Money Laundering and Counter-
Terrorism Financing Act 2006. We continue to actively
engage with the regulator, AUSTRAC, on our activities.
United States
The USA PATRIOT Act of 2001 requires US financial
institutions, including the US branches of foreign banks, to
take certain steps to prevent, detect and report individuals
and entities involved in international money laundering and
the financing of terrorism. The required actions include
verifying the identity of financial institutions and other
customers and counterparties, terminating correspondent
accounts for foreign ‘shell banks’ and obtaining information
about the owners of foreign bank clients and the identity of
the foreign bank’s agent for service of process in the US.
The anti-money laundering compliance requirements of the
USA PATRIOT Act include requirements to adopt and
implement an effective anti-money laundering program,
report suspicious transactions or activities, and implement
due diligence procedures for correspondent and other
customer accounts. Westpac’s New York branch and its
other US operations maintain an anti-money laundering
compliance program designed to address US
legal requirements.
26
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
27
1
US economic and trade sanctions, as administered by the
Office of Foreign Assets Control (OFAC), prohibit or
significantly restrict US financial institutions, including the US
branches and operations of foreign banks, and other US
persons from doing business with certain persons, entities
and jurisdictions. Westpac’s New York branch and its other
US operations maintain compliance programs designed to
comply with OFAC sanctions programs, and Westpac has a
Group-wide program to ensure adequate compliance.
Legal proceedings
Our entities are defendants from time to time in legal
proceedings arising from the conduct of our business and
material legal proceedings, if any, are described in Note 31
to the financial statements and under ‘Significant
developments’ above. As appropriate, a provision has been
raised in respect of these proceedings and disclosed in the
financial statements.
Principal office
Our principal office is located at 275 Kent Street, Sydney,
New South Wales, 2000, Australia. Our telephone number
for calls within Australia is (+61) 2 9374 7113 and our
international telephone number is (+61) 2 9293 9270.
Corporate Governance Statement
Our approach to corporate governance is based on a set of
values and behaviours that underpin day-to-day activities,
provide transparency and fair dealing, and seek to protect
stakeholder interests.
This approach includes a commitment to excellence in
governance standards, which Westpac sees as fundamental
to the sustainability of our business and our performance. It
includes monitoring local and global developments in
corporate governance and assessing their implications.
We comply with the ASX Corporate Governance Principles
and Recommendations with 2014 amendments published by
the ASX Limited’s Corporate Governance Council.
Westpac’s 2015 Corporate Governance Statement and a
range of documents referred to in it are available on our
corporate governance website at
www.westpac.com.au/corpgov. This website contains copies
and summaries of charters, principles and policies referred
to in the Corporate Governance Statement.
Websites
Investor communications and information, including the
Westpac Group Annual Report 2015, Annual Review and
Sustainability Report 2015, 2015 Sustainability Performance
Report, investor discussion packs and presentations, can be
accessed at www.westpac.com.au/investorcentre
Directors’ report
30 September 2015.
1. Directors
Our Directors present their report together with the financial statements of the Group for the financial year ended
The names of the persons who have been Directors, or appointed as Directors, during the period since 1 October 2014 and up
to the date of this report are: Lindsay Philip Maxsted, Brian Charles Hartzer (Managing Director & Chief Executive Officer from
2 February 2015), Gail Patricia Kelly (retired as Managing Director & Chief Executive Officer on 1 February 2015), Elizabeth
Blomfield Bryan, Ewen Graham Wolseley Crouch, Catriona Alison Deans (Alison Deans), Craig William Dunn (Director from
1 June 2015), Robert George Elstone, Peter John Oswin Hawkins, Peter Ralph Marriott, and Ann Darlene Pickard (retired as
Director on 12 December 2014).
Particulars of the skills, experience, expertise and responsibilities of the Directors at the date of this report, including all
directorships of other listed companies held by a Director at any time in the past three years immediately before
30 September 2015 and the period for which each directorship has been held, are set out below.
Name: Lindsay Maxsted,
Other principal directorships:
Australia’s largest
DipBus (Gordon), FCA, FAICD
Managing Director of Align Capital
insolvency/workout/turnaround
Pty Ltd and Director of Baker IDI
engagements including Linter
Age: 61
Term of office: Director since
March 2008 and Chairman since
December 2011.
Holdings Limited.
Other interests: Nil.
Heart and Diabetes Institute
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Transurban Group (since March
2008, and Chairman since
August 2010), BHP Billiton
Limited (since March 2011) and
BHP Billiton plc (since March
2011).
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and expertise:
Lindsay was formerly a partner at
KPMG and was the CEO of that
firm from January 2001 to
December 2007. His principal area
of practice prior to his becoming
CEO was in the corporate recovery
field managing a number of
Name: Brian Hartzer,
Other interests: Nil.
BA, CFA
Age: 48
Term of office: Managing
Director & Chief Executive
Date of next scheduled
re-election: Not applicable.
Independent: No.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and expertise:
Director & Chief Executive Officer
in February 2015. Brian joined
Westpac as Chief Executive,
Australian Financial Services in
Officer since February 2015.
Brian was appointed Managing
Current directorships of listed
June 2012 encompassing Westpac
entities and dates of office:
Retail & Business Banking,
Nil.
Other principal directorships:
The Financial Markets
Foundation for Children and
Chairman of the Australian
Bankers’ Association
Incorporated.
St.George Banking Group and BT
Financial Group. Prior to joining
Westpac, Brian spent three years
in the UK as CEO for Retail,
Wealth and Ulster Bank at the
Royal Bank of Scotland Group.
Textiles (companies associated
with Abraham Goldberg), Bell
Publishing Group, Bond Brewing,
McEwans Hardware and Brashs.
He is also a former Director and
Chairman of the Victorian Public
Transport Corporation.
Westpac Board Committee
membership: Chairman of the
Board Nominations Committee.
Member of each of the Board
Audit and Board Risk &
Compliance Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Prior to that, he spent ten years
with Australia and New Zealand
Banking Group Limited (ANZ) in
Australia in a variety of roles,
including his final role as CEO,
Australia and Global Segment
Lead for Retail and Wealth.
Before joining ANZ, Brian spent
ten years as a financial services
consultant in New York, San
Francisco and Melbourne.
Westpac Board Committee
membership: Member of the
Board Technology Committee.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
28
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
29
US economic and trade sanctions, as administered by the
Office of Foreign Assets Control (OFAC), prohibit or
significantly restrict US financial institutions, including the US
branches and operations of foreign banks, and other US
persons from doing business with certain persons, entities
and jurisdictions. Westpac’s New York branch and its other
US operations maintain compliance programs designed to
comply with OFAC sanctions programs, and Westpac has a
Group-wide program to ensure adequate compliance.
Legal proceedings
Our entities are defendants from time to time in legal
proceedings arising from the conduct of our business and
material legal proceedings, if any, are described in Note 31
to the financial statements and under ‘Significant
developments’ above. As appropriate, a provision has been
raised in respect of these proceedings and disclosed in the
financial statements.
Principal office
Our principal office is located at 275 Kent Street, Sydney,
New South Wales, 2000, Australia. Our telephone number
for calls within Australia is (+61) 2 9374 7113 and our
international telephone number is (+61) 2 9293 9270.
Corporate Governance Statement
Our approach to corporate governance is based on a set of
values and behaviours that underpin day-to-day activities,
provide transparency and fair dealing, and seek to protect
stakeholder interests.
This approach includes a commitment to excellence in
governance standards, which Westpac sees as fundamental
to the sustainability of our business and our performance. It
includes monitoring local and global developments in
corporate governance and assessing their implications.
We comply with the ASX Corporate Governance Principles
and Recommendations with 2014 amendments published by
the ASX Limited’s Corporate Governance Council.
Westpac’s 2015 Corporate Governance Statement and a
range of documents referred to in it are available on our
corporate governance website at
www.westpac.com.au/corpgov. This website contains copies
and summaries of charters, principles and policies referred
to in the Corporate Governance Statement.
Websites
Investor communications and information, including the
Westpac Group Annual Report 2015, Annual Review and
Sustainability Report 2015, 2015 Sustainability Performance
Report, investor discussion packs and presentations, can be
accessed at www.westpac.com.au/investorcentre
Directors’ report
Our Directors present their report together with the financial statements of the Group for the financial year ended
30 September 2015.
1. Directors
The names of the persons who have been Directors, or appointed as Directors, during the period since 1 October 2014 and up
to the date of this report are: Lindsay Philip Maxsted, Brian Charles Hartzer (Managing Director & Chief Executive Officer from
2 February 2015), Gail Patricia Kelly (retired as Managing Director & Chief Executive Officer on 1 February 2015), Elizabeth
Blomfield Bryan, Ewen Graham Wolseley Crouch, Catriona Alison Deans (Alison Deans), Craig William Dunn (Director from
1 June 2015), Robert George Elstone, Peter John Oswin Hawkins, Peter Ralph Marriott, and Ann Darlene Pickard (retired as
Director on 12 December 2014).
Particulars of the skills, experience, expertise and responsibilities of the Directors at the date of this report, including all
directorships of other listed companies held by a Director at any time in the past three years immediately before
30 September 2015 and the period for which each directorship has been held, are set out below.
Name: Lindsay Maxsted,
DipBus (Gordon), FCA, FAICD
Age: 61
Term of office: Director since
March 2008 and Chairman since
December 2011.
Other principal directorships:
Managing Director of Align Capital
Pty Ltd and Director of Baker IDI
Heart and Diabetes Institute
Holdings Limited.
Other interests: Nil.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Transurban Group (since March
2008, and Chairman since
August 2010), BHP Billiton
Limited (since March 2011) and
BHP Billiton plc (since March
2011).
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and expertise:
Lindsay was formerly a partner at
KPMG and was the CEO of that
firm from January 2001 to
December 2007. His principal area
of practice prior to his becoming
CEO was in the corporate recovery
field managing a number of
Australia’s largest
insolvency/workout/turnaround
engagements including Linter
Textiles (companies associated
with Abraham Goldberg), Bell
Publishing Group, Bond Brewing,
McEwans Hardware and Brashs.
He is also a former Director and
Chairman of the Victorian Public
Transport Corporation.
Westpac Board Committee
membership: Chairman of the
Board Nominations Committee.
Member of each of the Board
Audit and Board Risk &
Compliance Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Name: Brian Hartzer,
BA, CFA
Age: 48
Term of office: Managing
Director & Chief Executive
Officer since February 2015.
Date of next scheduled
re-election: Not applicable.
Independent: No.
Current directorships of listed
entities and dates of office:
Nil.
Other principal directorships:
The Financial Markets
Foundation for Children and
Chairman of the Australian
Bankers’ Association
Incorporated.
Other interests: Nil.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and expertise:
Brian was appointed Managing
Director & Chief Executive Officer
in February 2015. Brian joined
Westpac as Chief Executive,
Australian Financial Services in
June 2012 encompassing Westpac
Retail & Business Banking,
St.George Banking Group and BT
Financial Group. Prior to joining
Westpac, Brian spent three years
in the UK as CEO for Retail,
Wealth and Ulster Bank at the
Royal Bank of Scotland Group.
Prior to that, he spent ten years
with Australia and New Zealand
Banking Group Limited (ANZ) in
Australia in a variety of roles,
including his final role as CEO,
Australia and Global Segment
Lead for Retail and Wealth.
Before joining ANZ, Brian spent
ten years as a financial services
consultant in New York, San
Francisco and Melbourne.
Westpac Board Committee
membership: Member of the
Board Technology Committee.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
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1
Name: Elizabeth Bryan AM,
BA (Econ.), MA (Econ.)
Other principal directorships:
Nil.
Age: 69
Term of office: Director since
November 2006.
Date of next scheduled
re-election: December 2015.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Caltex Australia Limited (since
July 2002, and Chairman since
October 2007), Insurance
Australia Group Limited (since
December 2014, and Deputy
Chairman since June 2015) and
Virgin Australia Holdings Limited
(Chairman since May 2015).
Other interests: Member of the
Takeovers Panel, ASIC Director
Advisory Panel and President of
YWCA NSW.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Elizabeth has wide
experience on the boards of
companies. Prior to becoming a
professional director she served
for six years as Managing
Director of Deutsche Asset
Management and its
predecessor organisation,
Name: Ewen Crouch AM,
BEc (Hons.), LLB, FAICD
Age: 59
Term of office: Director since
February 2013.
Date of next scheduled
re-election: December 2016.
Independent: Yes.
Current directorships of listed
entities and dates of office:
BlueScope Steel Limited (since
March 2013).
Other principal directorships:
Chairman of Mission Australia.
Other interests: Member of the
Commonwealth Remuneration
Tribunal, Law Committee of the
Australian Institute of Company
Directors, Corporations
Committee of the Law Council of
Australia and Board member of
the Sydney Symphony Orchestra
and Jawun.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Ewen is one of
Australia’s most accomplished
mergers and acquisitions
lawyers, having worked on some
of Australia’s most significant
transactions during his career as
a partner at Allens from July
1988 to January 2013. He served
as a member of that firm’s board
for eleven years including four
years as Chairman of Partners
as well as holding the following
roles whilst a partner: Co-Head
Mergers & Acquisitions and
Equity Capital Markets,
Executive Partner, Asian Offices
and Deputy Managing Partner.
Ewen was a member of the
Takeovers Panel between 2010
to 2015.
NSW State Superannuation
Investment and Management
Corporation.
Westpac Board Committee
membership: Chairman of the
Board Risk & Compliance
Committee. Member of each of
the Board Nominations and Board
Remuneration Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
In 2013, Ewen was awarded an
Order of Australia in recognition
of his significant service to the
law as a contributor to legal
professional organisations and
to the community.
Westpac Board Committee
membership: Chairman of the
Board Remuneration
Committee. Member of each of
the Board Nominations and
Board Risk & Compliance
Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Name: Alison Deans,
BA, MBA, GAICD
Other Westpac related entities
Independent Director of Social
directorships and dates of
Ventures Australia from
Term of office: Director since
Skills, experience and
Age: 47
April 2014.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
office: Nil.
expertise: Alison has more than
20 years’ experience in senior
management and strategy
consulting roles focussed on
e-commerce, media and financial
Current directorships of listed
services in Australia. During this
entities and dates of office:
time, Alison held a number of
Directors’ report
September 2007 to April 2013.
Alison was formerly appointed
by the Australian Government to
a Panel of Experts conducting
an independent cost-benefit
analysis and regulatory review
of the National Broadband
Network.
Westpac Board Committee
membership: Member of each
of the Board Risk & Compliance
Insurance Australia Group
Limited (since February 2013)
and Cochlear Limited (since
January 2015).
Other principal directorships:
kikki.K Holdings Pty Ltd.
Other interests: Nil.
senior executive roles including
as the CEO of eCorp Limited,
Hoyts Cinemas and eBay,
and Board Technology
Australia and New Zealand. Most
Committees.
recently, she was the CEO of the
technology-based investment
company netus Pty Ltd, which
was acquired by Fairfax Media
Limited in 2012. She was also an
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Name: Craig Dunn,
BCom, FCA
Age: 52
Term of office: Director since
June 2015.
Date of next scheduled
re-election: December 2015.
Independent: Yes.
Current directorships of listed
entities and dates of office: Nil.
Other principal directorships:
Financial Literacy Australia
Limited, The Australian Ballet
and Chairman of Stone and
Chalk Limited.
Other Westpac related entities
Forum, the Consumer and
directorships and dates of
Financial Literacy Taskforce and
office: Nil.
Skills, experience and
expertise: Craig has more than
20 years’ experience in financial
services, including as CEO of
a Panel member of the
Australian Government's
Financial System Inquiry.
Westpac Board Committee
membership: Member of each
AMP Limited from January 2008
of the Board Risk & Compliance
to December 2013. Craig was
and Board Remuneration
previously a Board member of
Committees.
the Australian Japanese
Business Cooperation
Committee, and former
Chairman of the Investment and
Financial Services Association
(now the Financial Services
Council). He was also a member
Directorships of other listed
entities over the past three
years and dates of office: AMP
Limited (January 2008 to
December 2013).
Other interests: Member of the
ASIC External Advisory Panel
of the Financial Services
Advisory Committee, the
and Consultant to King & Wood
Australian Financial Centre
Mallesons.
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Name: Elizabeth Bryan AM,
Other principal directorships:
NSW State Superannuation
Advisory Panel and President of
membership: Chairman of the
BA (Econ.), MA (Econ.)
Nil.
Age: 69
Term of office: Director since
November 2006.
Date of next scheduled
re-election: December 2015.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Caltex Australia Limited (since
July 2002, and Chairman since
October 2007), Insurance
Australia Group Limited (since
December 2014, and Deputy
Chairman since June 2015) and
Virgin Australia Holdings Limited
(Chairman since May 2015).
Other interests: Member of the
Takeovers Panel, ASIC Director
YWCA NSW.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Elizabeth has wide
experience on the boards of
companies. Prior to becoming a
professional director she served
for six years as Managing
Director of Deutsche Asset
Management and its
predecessor organisation,
Investment and Management
Corporation.
Westpac Board Committee
Board Risk & Compliance
Committee. Member of each of
the Board Nominations and Board
Remuneration Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Name: Ewen Crouch AM,
BEc (Hons.), LLB, FAICD
Age: 59
Term of office: Director since
February 2013.
Date of next scheduled
re-election: December 2016.
Independent: Yes.
Other Westpac related entities
In 2013, Ewen was awarded an
directorships and dates of
office: Nil.
Skills, experience and
expertise: Ewen is one of
Australia’s most accomplished
mergers and acquisitions
lawyers, having worked on some
of Australia’s most significant
Order of Australia in recognition
of his significant service to the
law as a contributor to legal
professional organisations and
to the community.
Westpac Board Committee
membership: Chairman of the
Board Remuneration
Current directorships of listed
entities and dates of office:
BlueScope Steel Limited (since
transactions during his career as
Committee. Member of each of
a partner at Allens from July
the Board Nominations and
1988 to January 2013. He served
Board Risk & Compliance
March 2013).
as a member of that firm’s board
Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Other principal directorships:
Chairman of Mission Australia.
Other interests: Member of the
Commonwealth Remuneration
Tribunal, Law Committee of the
Australian Institute of Company
Directors, Corporations
Committee of the Law Council of
Australia and Board member of
the Sydney Symphony Orchestra
and Jawun.
for eleven years including four
years as Chairman of Partners
as well as holding the following
roles whilst a partner: Co-Head
Mergers & Acquisitions and
Equity Capital Markets,
Executive Partner, Asian Offices
and Deputy Managing Partner.
Ewen was a member of the
Takeovers Panel between 2010
to 2015.
Name: Alison Deans,
BA, MBA, GAICD
Age: 47
Term of office: Director since
April 2014.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Insurance Australia Group
Limited (since February 2013)
and Cochlear Limited (since
January 2015).
Other principal directorships:
kikki.K Holdings Pty Ltd.
Other interests: Nil.
Name: Craig Dunn,
BCom, FCA
Age: 52
Term of office: Director since
June 2015.
Date of next scheduled
re-election: December 2015.
Independent: Yes.
Current directorships of listed
entities and dates of office: Nil.
Other principal directorships:
Financial Literacy Australia
Limited, The Australian Ballet
and Chairman of Stone and
Chalk Limited.
Other interests: Member of the
ASIC External Advisory Panel
and Consultant to King & Wood
Mallesons.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Alison has more than
20 years’ experience in senior
management and strategy
consulting roles focussed on
e-commerce, media and financial
services in Australia. During this
time, Alison held a number of
senior executive roles including
as the CEO of eCorp Limited,
Hoyts Cinemas and eBay,
Australia and New Zealand. Most
recently, she was the CEO of the
technology-based investment
company netus Pty Ltd, which
was acquired by Fairfax Media
Limited in 2012. She was also an
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Craig has more than
20 years’ experience in financial
services, including as CEO of
AMP Limited from January 2008
to December 2013. Craig was
previously a Board member of
the Australian Japanese
Business Cooperation
Committee, and former
Chairman of the Investment and
Financial Services Association
(now the Financial Services
Council). He was also a member
of the Financial Services
Advisory Committee, the
Australian Financial Centre
Directors’ report
Independent Director of Social
Ventures Australia from
September 2007 to April 2013.
Alison was formerly appointed
by the Australian Government to
a Panel of Experts conducting
an independent cost-benefit
analysis and regulatory review
of the National Broadband
Network.
Westpac Board Committee
membership: Member of each
of the Board Risk & Compliance
and Board Technology
Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Forum, the Consumer and
Financial Literacy Taskforce and
a Panel member of the
Australian Government's
Financial System Inquiry.
Westpac Board Committee
membership: Member of each
of the Board Risk & Compliance
and Board Remuneration
Committees.
Directorships of other listed
entities over the past three
years and dates of office: AMP
Limited (January 2008 to
December 2013).
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1
Directors’ report
Company Secretary
Our Company Secretaries as at 30 September 2015 are John Arthur and Tim Hartin.
John Arthur (LLB (Hons.)) was appointed Group Executive, Counsel & Secretariat and Company Secretary in December 2008.
In November 2011, John was appointed Chief Operating Officer and continues to hold the position of Senior Company
Secretary. Before that appointment, John was Managing Director & CEO of Investa Property Group until 2007. Previously, John
had been a partner at Freehills and Group General Counsel of Lend Lease Corporation Limited. He also served as Chairman of
legal firm Gilbert + Tobin and has had a distinguished career as legal partner, corporate executive and non-executive director.
Tim Hartin (LLB (Hons.)) was appointed Group Company Secretary in November 2011. Prior to his appointment, Tim was a
transactional lawyer at Henderson Boyd Jackson W.S. in Scotland and in London in Herbert Smith's corporate and corporate
finance division. Tim joined Gilbert + Tobin as a Consultant in 2004, where he provided corporate advisory services to ASX
listed companies. Tim joined Westpac in 2006 as Counsel, Corporate Core and most recently was the Head of Legal - Risk
Management & Workouts, Counsel & Secretariat.
2. Executive Team
As at 30 September 2015 our Executive Team was:
Name
Position
Managing Director & Chief Executive Officer
Deputy Chief Executive Officer
Chief Operating Officer
Chief Executive, Westpac Institutional Bank
Chief Executive Officer, BT Financial Group
Chief Information Officer
Chief Executive, Consumer Bank
Brian Hartzer
Philip Coffey
John Arthur
Lyn Cobley
Brad Cooper
David Curran
George Frazis
Peter King
David Lindberg
David McLean
Alexandra Holcomb
Chief Risk Officer
Chief Financial Officer
Chief Executive, Commercial & Business Bank
Chief Executive Officer, Westpac New Zealand Limited
Christine Parker
Group Executive, Human Resources, Corporate Affairs
Gary Thursby
Chief Strategy Officer
& Sustainability
There are no family relationships between or among any of our Directors or Executive Team members.
Year Joined
Year Appointed
Group
to Position
2012
1996
2008
2015
2007
2014
2009
1996
1994
2012
1999
2007
2008
2015
2014
2011
2015
2010
2014
2015
2014
2014
2015
2015
2011
2015
Name: Robert Elstone,
BA (Hons.), MA (Econ.), MCom
Age: 62
Term of office: Director since
February 2012.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office: Nil.
Other principal directorships:
University of Western Australia
Business School.
Other interests: Adjunct
Professor at the Business
Schools of the Universities of
Sydney and Western Australia.
Name: Peter Hawkins,
BCA (Hons.), SF Fin, FAIM,
ACA (NZ), FAICD
Age: 61
Term of office: Director since
December 2008.
Date of next scheduled
re-election: December 2015.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Mirvac Group (since January
2006) and MG Responsible
Entity Limited (since April 2015,
which is the responsible entity for
ASX listed MG Unit Trust).
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Robert has over
30 years’ experience in senior
management roles spanning
investment banking, corporate
finance, wholesale financial
markets and risk management.
From July 2006 to October 2011,
Robert was Managing Director
and CEO of ASX Limited.
Previously, he was Managing
Director and CEO of the Sydney
Futures Exchange from May
2000 to July 2006, and from
January 1995 to May 2000, he
was Finance Director of Pioneer
International.
Other principal directorships:
Liberty Financial Pty Ltd, Murray
Goulburn Co-operative Co.
Limited and Clayton Utz.
Other interests: Nil.
Other Westpac related entities
directorships and dates of
office: Member of the Bank of
Melbourne Advisory Board since
November 2010.
Skills, experience and
expertise: Peter’s career in the
banking and financial services
industry spans over 40 years in
Australia and overseas at both
the highest levels of
management and directorship of
major organisations. Peter has
Name: Peter Marriott,
BEc (Hons.), FCA
Age: 58
Term of office: Director since
June 2013.
Date of next scheduled
re-election: December 2016.
Independent: Yes.
Current directorships of listed
entities and dates of office:
ASX Limited (since July 2009).
Other principal directorships:
ASX Clearing Corporation
Limited, ASX Settlement
Corporation Limited and
Chairman of Austraclear Limited.
Other interests: Member of the
Review Panel & Policy Council of
the Banking & Finance Oath.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Peter has over
30 years’ experience in senior
management roles in the finance
industry encompassing
international banking, finance
and auditing. Peter joined
Australia and New Zealand
Banking Group Limited (ANZ) in
1993 and held the role of Chief
Financial Officer from July 1997
to May 2012. Prior to his career
Robert was a Non-executive
Director of the National Australia
Bank from September 2004 to
July 2006, an inaugural member
of the Board of Guardians of the
Future Fund, and former
Chairman of the Financial
Sector Advisory Council to the
Federal Treasurer.
Westpac Board Committee
membership: Member of each
of the Board Audit, Board
Remuneration and Board Risk &
Compliance Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
held various senior management
and directorship positions with
Australia and New Zealand
Banking Group Limited from 1971
to 2005. He was also previously a
Director of BHP (NZ) Steel
Limited, ING Australia Limited,
Esanda Finance Corporation and
Visa Inc.
Westpac Board Committee
membership: Chairman of the
Board Technology Committee.
Member of each of the Board
Audit, Board Nominations and
Board Risk & Compliance
Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
at ANZ, Peter was a banking and
finance, audit and consulting
partner at KPMG Peat Marwick.
Peter was formerly a Director of
ANZ National Bank Limited in
New Zealand and various ANZ
subsidiaries.
Westpac Board Committee
membership: Chairman of the
Board Audit Committee. Member
of each of the Board Nominations,
Board Risk & Compliance and
Board Technology Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
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33
Name: Robert Elstone,
Other Westpac related entities
Robert was a Non-executive
BA (Hons.), MA (Econ.), MCom
directorships and dates of
Company Secretary
Our Company Secretaries as at 30 September 2015 are John Arthur and Tim Hartin.
Directors’ report
John Arthur (LLB (Hons.)) was appointed Group Executive, Counsel & Secretariat and Company Secretary in December 2008.
In November 2011, John was appointed Chief Operating Officer and continues to hold the position of Senior Company
Secretary. Before that appointment, John was Managing Director & CEO of Investa Property Group until 2007. Previously, John
had been a partner at Freehills and Group General Counsel of Lend Lease Corporation Limited. He also served as Chairman of
legal firm Gilbert + Tobin and has had a distinguished career as legal partner, corporate executive and non-executive director.
Tim Hartin (LLB (Hons.)) was appointed Group Company Secretary in November 2011. Prior to his appointment, Tim was a
transactional lawyer at Henderson Boyd Jackson W.S. in Scotland and in London in Herbert Smith's corporate and corporate
finance division. Tim joined Gilbert + Tobin as a Consultant in 2004, where he provided corporate advisory services to ASX
listed companies. Tim joined Westpac in 2006 as Counsel, Corporate Core and most recently was the Head of Legal - Risk
Management & Workouts, Counsel & Secretariat.
2. Executive Team
As at 30 September 2015 our Executive Team was:
Name
Position
Brian Hartzer
Philip Coffey
John Arthur
Lyn Cobley
Brad Cooper
David Curran
George Frazis
Alexandra Holcomb
Peter King
David Lindberg
David McLean
Christine Parker
Gary Thursby
Managing Director & Chief Executive Officer
Deputy Chief Executive Officer
Chief Operating Officer
Chief Executive, Westpac Institutional Bank
Chief Executive Officer, BT Financial Group
Chief Information Officer
Chief Executive, Consumer Bank
Chief Risk Officer
Chief Financial Officer
Chief Executive, Commercial & Business Bank
Chief Executive Officer, Westpac New Zealand Limited
Group Executive, Human Resources, Corporate Affairs
& Sustainability
Chief Strategy Officer
Year Joined
Group
Year Appointed
to Position
2012
1996
2008
2015
2007
2014
2009
1996
1994
2012
1999
2007
2008
2015
2014
2011
2015
2010
2014
2015
2014
2014
2015
2015
2011
2015
There are no family relationships between or among any of our Directors or Executive Team members.
Age: 62
Term of office: Director since
February 2012.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office: Nil.
Other principal directorships:
University of Western Australia
Business School.
Other interests: Adjunct
Professor at the Business
office: Nil.
Skills, experience and
expertise: Robert has over
30 years’ experience in senior
management roles spanning
investment banking, corporate
finance, wholesale financial
Director of the National Australia
Bank from September 2004 to
July 2006, an inaugural member
of the Board of Guardians of the
Future Fund, and former
Chairman of the Financial
Sector Advisory Council to the
Federal Treasurer.
markets and risk management.
Westpac Board Committee
From July 2006 to October 2011,
membership: Member of each
Robert was Managing Director
of the Board Audit, Board
and CEO of ASX Limited.
Remuneration and Board Risk &
Previously, he was Managing
Compliance Committees.
Director and CEO of the Sydney
Futures Exchange from May
2000 to July 2006, and from
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Schools of the Universities of
January 1995 to May 2000, he
Sydney and Western Australia.
was Finance Director of Pioneer
International.
Name: Peter Hawkins,
Other principal directorships:
held various senior management
BCA (Hons.), SF Fin, FAIM,
Liberty Financial Pty Ltd, Murray
and directorship positions with
ACA (NZ), FAICD
Age: 61
Term of office: Director since
December 2008.
Date of next scheduled
re-election: December 2015.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Mirvac Group (since January
2006) and MG Responsible
Entity Limited (since April 2015,
which is the responsible entity for
ASX listed MG Unit Trust).
Name: Peter Marriott,
BEc (Hons.), FCA
Age: 58
Term of office: Director since
June 2013.
Date of next scheduled
re-election: December 2016.
Independent: Yes.
entities and dates of office:
ASX Limited (since July 2009).
Other principal directorships:
ASX Clearing Corporation
Limited, ASX Settlement
Corporation Limited and
Chairman of Austraclear Limited.
Goulburn Co-operative Co.
Limited and Clayton Utz.
Other interests: Nil.
Other Westpac related entities
directorships and dates of
office: Member of the Bank of
Melbourne Advisory Board since
November 2010.
Skills, experience and
expertise: Peter’s career in the
banking and financial services
industry spans over 40 years in
Australia and overseas at both
the highest levels of
management and directorship of
major organisations. Peter has
Australia and New Zealand
Banking Group Limited from 1971
to 2005. He was also previously a
Director of BHP (NZ) Steel
Limited, ING Australia Limited,
Esanda Finance Corporation and
Visa Inc.
Westpac Board Committee
membership: Chairman of the
Board Technology Committee.
Member of each of the Board
Audit, Board Nominations and
Board Risk & Compliance
Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Other interests: Member of the
at ANZ, Peter was a banking and
Review Panel & Policy Council of
finance, audit and consulting
the Banking & Finance Oath.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Peter has over
30 years’ experience in senior
industry encompassing
international banking, finance
and auditing. Peter joined
Australia and New Zealand
partner at KPMG Peat Marwick.
Peter was formerly a Director of
ANZ National Bank Limited in
New Zealand and various ANZ
subsidiaries.
Westpac Board Committee
membership: Chairman of the
Board Audit Committee. Member
of each of the Board Nominations,
Board Risk & Compliance and
Board Technology Committees.
Directorships of other listed
Banking Group Limited (ANZ) in
entities over the past three
1993 and held the role of Chief
years and dates of office: Nil.
Financial Officer from July 1997
to May 2012. Prior to his career
Current directorships of listed
management roles in the finance
32
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33
1
Brian Hartzer BA, CFA. Age 48
Managing Director & Chief Executive Officer
Brian was appointed Managing Director & Chief Executive Officer in February 2015. Brian joined Westpac
as Chief Executive, Australian Financial Services in June 2012 encompassing Westpac Retail & Business
Banking, St.George Banking Group and BT Financial Group.
Brian was appointed Chairman of the Australian Bankers' Association in February 2015. Prior to joining
Westpac, Brian spent three years in the UK as CEO for Retail, Wealth and Ulster Bank at the Royal Bank
of Scotland Group. Prior to that, he spent ten years with Australia and New Zealand Banking Group
Limited (ANZ) in Australia in a variety of roles, including his final role as CEO, Australia and Global
Segment Lead for Retail and Wealth. Before joining ANZ, Brian spent ten years as a financial services
consultant in New York, San Francisco and Melbourne.
Brian graduated from Princeton University with a degree in European History and is a Chartered Financial
Analyst.
Philip Coffey BEc (Hons.). Age 58
Deputy Chief Executive Officer
Philip was appointed Deputy Chief Executive Officer in April 2014 with responsibility for overseeing
Westpac’s contribution to the Federal Government’s Financial System Inquiry and supporting relationships
with key stakeholders including industry groups, regulators, customers and government. He is also
responsible for the Group’s strategy, mergers and acquisitions function. Prior to this appointment, Philip
held the role of Chief Financial Officer from December 2005. Previous to this, he was Group Executive,
Westpac Institutional Bank, having been appointed to that position in 2002. Philip first joined Westpac in
1996 as Head of Foreign Exchange.
Philip has extensive experience in financial markets, funds management and finance. He began his career
at the Reserve Bank of Australia before moving to Citicorp and AIDC Limited. He has also held roles in the
United Kingdom and New Zealand. Philip has an honours degree in Economics from the University of
Adelaide and has completed the Executive Programme at Stanford University Business School.
John Arthur LLB (Hons.). Age 60
Chief Operating Officer
John was appointed Chief Operating Officer in November 2011. He has responsibility for enterprise
investments, contact centres, procurement, analytics, banking operations, property, compliance, legal and
secretariat services. He joined Westpac as Group Executive, Counsel & Secretariat in December 2008.
Before that appointment, John was Managing Director & CEO of Investa Property Group.
Previously, John had been a partner at Freehills and Group General Counsel of Lend Lease Corporation
Limited. He also served as Chairman of legal firm Gilbert + Tobin and has had a distinguished career as a
legal partner, corporate executive and non-executive director.
Lyn Cobley BEc, SF FIN, GAICD. Age 52
Chief Executive, Westpac Institutional Bank
Lyn was appointed Chief Executive, Westpac Institutional Bank in September 2015. She has responsibility
for Westpac’s global relationships with corporate, institutional and government clients as well as all
products across financial and capital markets, transactional banking, structured finance and working
capital payments. In addition, Lyn oversees Hastings Funds Management, global treasury as well as
Westpac’s International and Pacific Island businesses.
Lyn has over 20 years' experience in financial services. Prior to joining Westpac, Lyn held a variety of
senior positions at the Commonwealth Bank of Australia (CBA) including serving as Group Treasurer from
2007 to 2013 and most recently as Executive General Manager, Retail Products & Third Party Banking.
She was also Head of Financial Institutions at Barclays Capital in Australia, held senior roles at Citibank in
Australia and Asia Pacific including Head of Securitisation and was CEO of Trading Room (a joint venture
between Macquarie Bank and Fairfax).
Lyn has a Bachelor of Economics from Macquarie University, is a Senior Fellow of the Financial Services
Institute of Australia and is a graduate of the Australian Institute of Company Directors.
Directors’ report
Brad Cooper DipBM, MBA. Age 53
Chief Executive Officer, BT Financial Group
Brad was appointed Chief Executive Officer, BT Financial Group in February 2010. Brad initially joined
Westpac in April 2007 as Chief Executive, Westpac New Zealand Limited and after successfully leading a
change program in that market, moved to the role of Group Chief Transformation Officer leading the
Westpac Group’s St.George merger implementation. Prior to joining Westpac, Brad was Chairman of
GE Capital Bank and CEO of GE Consumer Finance UK & Ireland. He drove GE's UK Six Sigma program
and was certified as a Quality Leader (Black Belt) in December 2002. He was promoted to CEO of
GE Consumer Finance UK in January 2003 and appointed Chairman of GE Capital Bank in April 2004.
David Curran BCom. Age 50
Chief Information Officer
David was appointed Chief Information Officer in September 2014. David joined Westpac in February 2014
as a consultant on the Group’s banking technology modernisation program. David has almost 30 years of
experience with proven expertise in IT and financial services and the implementation of large, complex
projects.
Before joining Westpac, David spent ten years in senior roles at the Commonwealth Bank of Australia
(CBA). Before joining CBA, he spent sixteen years at Accenture, where he was a partner, primarily
consulting on financial services.
George Frazis B Eng (Hons.), MBA (AGSM/Wharton). Age 51
Chief Executive, Consumer Bank
George was appointed Chief Executive, Consumer Bank in June 2015, responsible for managing the end
to end relationship with consumer customers. This includes all consumer distribution, digital, marketing,
transformation and banking products and services under the Westpac, St.George, BankSA, Bank of
Melbourne and RAMS brands.
Prior to this appointment, he was CEO, St.George Banking Group. George joined the Westpac Group in
March 2009 as Chief Executive, Westpac New Zealand Limited. George is highly experienced in the
financial services industry. He was formerly Group Executive General Manager at National Australia Bank.
Prior to that, George was a senior executive in Commonwealth Bank of Australia's Institutional Banking
Division and has also been a partner with the Boston Consulting Group and an officer in the Royal
Australian Air Force.
Alexandra Holcomb BA, MBA, MA. Age 54
Chief Risk Officer
Alexandra was appointed Chief Risk Officer in August 2014. As Westpac Group’s Chief Risk Officer,
Alexandra is responsible for risk management activities across the enterprise across all risk classes and
Westpac’s strategic risk objectives.
Since joining Westpac in 1996, Alexandra has held a number of senior positions including Group General
Manager, Group Strategy, M&A and Major Projects, Group Executive of Group Strategy, Head of Westpac
Institutional Bank Strategy, and most recently, Group General Manager of Global Transactional Services.
Prior to joining Westpac, Alexandra was a senior executive from 1992 to 1996 with Booz Allen & Hamilton
International where she specialised in international credit, working throughout the Asia Pacific region.
Before that, she worked with Chase Manhattan Bank in New York in private and business banking and
international credit audit. She also worked in project finance in Paris and New York for Banque Indosuez
and Barclays Bank respectively.
Alexandra is a Fellow of the Australian Institute of Company Directors and a Board member of Asia
Society Australia. She has an MBA in Finance and Multinational Management from the Wharton School of
Business and a Master of Arts in International Studies and French from the University of Pennsylvania.
She also holds a BA in English and Economics from Cornell University.
34
2015 Westpac Group Annual Report
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35
Brian Hartzer BA, CFA. Age 48
Managing Director & Chief Executive Officer
Brian was appointed Managing Director & Chief Executive Officer in February 2015. Brian joined Westpac
as Chief Executive, Australian Financial Services in June 2012 encompassing Westpac Retail & Business
Banking, St.George Banking Group and BT Financial Group.
Brian was appointed Chairman of the Australian Bankers' Association in February 2015. Prior to joining
Westpac, Brian spent three years in the UK as CEO for Retail, Wealth and Ulster Bank at the Royal Bank
of Scotland Group. Prior to that, he spent ten years with Australia and New Zealand Banking Group
Limited (ANZ) in Australia in a variety of roles, including his final role as CEO, Australia and Global
Segment Lead for Retail and Wealth. Before joining ANZ, Brian spent ten years as a financial services
consultant in New York, San Francisco and Melbourne.
Brian graduated from Princeton University with a degree in European History and is a Chartered Financial
Analyst.
Philip Coffey BEc (Hons.). Age 58
Deputy Chief Executive Officer
Philip was appointed Deputy Chief Executive Officer in April 2014 with responsibility for overseeing
Westpac’s contribution to the Federal Government’s Financial System Inquiry and supporting relationships
with key stakeholders including industry groups, regulators, customers and government. He is also
responsible for the Group’s strategy, mergers and acquisitions function. Prior to this appointment, Philip
held the role of Chief Financial Officer from December 2005. Previous to this, he was Group Executive,
Westpac Institutional Bank, having been appointed to that position in 2002. Philip first joined Westpac in
1996 as Head of Foreign Exchange.
Philip has extensive experience in financial markets, funds management and finance. He began his career
at the Reserve Bank of Australia before moving to Citicorp and AIDC Limited. He has also held roles in the
United Kingdom and New Zealand. Philip has an honours degree in Economics from the University of
Adelaide and has completed the Executive Programme at Stanford University Business School.
John Arthur LLB (Hons.). Age 60
Chief Operating Officer
John was appointed Chief Operating Officer in November 2011. He has responsibility for enterprise
investments, contact centres, procurement, analytics, banking operations, property, compliance, legal and
secretariat services. He joined Westpac as Group Executive, Counsel & Secretariat in December 2008.
Before that appointment, John was Managing Director & CEO of Investa Property Group.
Previously, John had been a partner at Freehills and Group General Counsel of Lend Lease Corporation
Limited. He also served as Chairman of legal firm Gilbert + Tobin and has had a distinguished career as a
legal partner, corporate executive and non-executive director.
Lyn Cobley BEc, SF FIN, GAICD. Age 52
Chief Executive, Westpac Institutional Bank
Lyn was appointed Chief Executive, Westpac Institutional Bank in September 2015. She has responsibility
for Westpac’s global relationships with corporate, institutional and government clients as well as all
products across financial and capital markets, transactional banking, structured finance and working
capital payments. In addition, Lyn oversees Hastings Funds Management, global treasury as well as
Westpac’s International and Pacific Island businesses.
Lyn has over 20 years' experience in financial services. Prior to joining Westpac, Lyn held a variety of
senior positions at the Commonwealth Bank of Australia (CBA) including serving as Group Treasurer from
2007 to 2013 and most recently as Executive General Manager, Retail Products & Third Party Banking.
She was also Head of Financial Institutions at Barclays Capital in Australia, held senior roles at Citibank in
Australia and Asia Pacific including Head of Securitisation and was CEO of Trading Room (a joint venture
between Macquarie Bank and Fairfax).
Lyn has a Bachelor of Economics from Macquarie University, is a Senior Fellow of the Financial Services
Institute of Australia and is a graduate of the Australian Institute of Company Directors.
Directors’ report
Brad Cooper DipBM, MBA. Age 53
Chief Executive Officer, BT Financial Group
Brad was appointed Chief Executive Officer, BT Financial Group in February 2010. Brad initially joined
Westpac in April 2007 as Chief Executive, Westpac New Zealand Limited and after successfully leading a
change program in that market, moved to the role of Group Chief Transformation Officer leading the
Westpac Group’s St.George merger implementation. Prior to joining Westpac, Brad was Chairman of
GE Capital Bank and CEO of GE Consumer Finance UK & Ireland. He drove GE's UK Six Sigma program
and was certified as a Quality Leader (Black Belt) in December 2002. He was promoted to CEO of
GE Consumer Finance UK in January 2003 and appointed Chairman of GE Capital Bank in April 2004.
David Curran BCom. Age 50
Chief Information Officer
David was appointed Chief Information Officer in September 2014. David joined Westpac in February 2014
as a consultant on the Group’s banking technology modernisation program. David has almost 30 years of
experience with proven expertise in IT and financial services and the implementation of large, complex
projects.
Before joining Westpac, David spent ten years in senior roles at the Commonwealth Bank of Australia
(CBA). Before joining CBA, he spent sixteen years at Accenture, where he was a partner, primarily
consulting on financial services.
George Frazis B Eng (Hons.), MBA (AGSM/Wharton). Age 51
Chief Executive, Consumer Bank
George was appointed Chief Executive, Consumer Bank in June 2015, responsible for managing the end
to end relationship with consumer customers. This includes all consumer distribution, digital, marketing,
transformation and banking products and services under the Westpac, St.George, BankSA, Bank of
Melbourne and RAMS brands.
Prior to this appointment, he was CEO, St.George Banking Group. George joined the Westpac Group in
March 2009 as Chief Executive, Westpac New Zealand Limited. George is highly experienced in the
financial services industry. He was formerly Group Executive General Manager at National Australia Bank.
Prior to that, George was a senior executive in Commonwealth Bank of Australia's Institutional Banking
Division and has also been a partner with the Boston Consulting Group and an officer in the Royal
Australian Air Force.
Alexandra Holcomb BA, MBA, MA. Age 54
Chief Risk Officer
Alexandra was appointed Chief Risk Officer in August 2014. As Westpac Group’s Chief Risk Officer,
Alexandra is responsible for risk management activities across the enterprise across all risk classes and
Westpac’s strategic risk objectives.
Since joining Westpac in 1996, Alexandra has held a number of senior positions including Group General
Manager, Group Strategy, M&A and Major Projects, Group Executive of Group Strategy, Head of Westpac
Institutional Bank Strategy, and most recently, Group General Manager of Global Transactional Services.
Prior to joining Westpac, Alexandra was a senior executive from 1992 to 1996 with Booz Allen & Hamilton
International where she specialised in international credit, working throughout the Asia Pacific region.
Before that, she worked with Chase Manhattan Bank in New York in private and business banking and
international credit audit. She also worked in project finance in Paris and New York for Banque Indosuez
and Barclays Bank respectively.
Alexandra is a Fellow of the Australian Institute of Company Directors and a Board member of Asia
Society Australia. She has an MBA in Finance and Multinational Management from the Wharton School of
Business and a Master of Arts in International Studies and French from the University of Pennsylvania.
She also holds a BA in English and Economics from Cornell University.
34
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
35
1
Peter King BEc, FCA. Age 45
Chief Financial Officer
Peter was appointed Chief Financial Officer in April 2014, with responsibility for Westpac’s Finance, Group
Audit, Tax, Treasury and Investor Relations functions. Prior to this appointment, Peter was the Deputy
Chief Financial Officer for three years.
Since joining Westpac in 1994, Peter has held senior finance positions across the Group, including in
Group Finance, Business and Consumer Banking, Business and Technology Services, Treasury and
Financial Markets.
Peter commenced his career at Deloitte Touché Tohmatsu. He has a Bachelor of Economics from Sydney
University and completed the Advanced Management Programme at INSEAD. He is a Fellow of the
Institute of Chartered Accountants.
David Lindberg HBA (Hons. Economics). Age 40
Chief Executive, Commercial & Business Bank
David was appointed Chief Executive, Commercial & Business Bank in June 2015, responsible for
managing the Group’s end to end relationships across small and medium enterprises, commercial and
agri-business customers as well as asset and equipment finance.
Prior to this appointment, David was Chief Product Officer, responsible for the Group’s retail and business
products across all brands, as well as overseeing the Group’s digital activities. Before joining Westpac in
2012, David was Executive General Manager, Cards, Payments & Retail Strategy at the Commonwealth
Bank of Australia. David was also formerly Managing Director, Strategy, Marketing & Customer
Segmentation at Australia and New Zealand Banking Group Limited and Managing Vice President and
Head of Australia for First Manhattan.
David McLean LLB (Hons.). Age 57
Chief Executive Officer, Westpac New Zealand Limited
David was appointed Chief Executive Officer, Westpac New Zealand Limited in February 2015. Since
joining Westpac in February 1999, David has held a number of senior roles including Head of Debt Capital
Markets New Zealand, General Manager, Private, Wealth and Insurance New Zealand and Head of
Westpac Institutional Bank New Zealand, and most recently, Managing Director of the Westpac New York
branch.
Before joining Westpac, David was Director, Capital Markets at Deutsche Morgan Grenfell since 1994,
where he was responsible for starting and developing a new debt capital markets origination business. He
also established the New Zealand branch of Deutsche Bank and was New Zealand Resident Branch
Manager. In 1988, David joined Southpac/National Bank as a Capital Markets Executive. Prior to this,
David worked as a lawyer in private practice and also served as in
1985. David is a Barrister & Solicitor of the High Court of New Zealand.
house counsel for NatWest NZ from
‐
Christine Parker BGDipBus (HRM). Age 55
Group Executive, Human Resources, Corporate Affairs & Sustainability
Christine was appointed Group Executive, Human Resources, Corporate Affairs & Sustainability in
October 2011, with responsibility for human resources strategy and management, including reward and
recognition, safety, learning and development, careers and talent, employee relations and employment
policy. She is also responsible for Corporate Affairs & Sustainability.
Prior to this appointment, she was Group General Manager, Human Resources, from March 2010, with
responsibilities across the entire Westpac Group. Prior to that, Christine was General Manager, Human
Resources, Westpac New Zealand Limited.
Prior to joining Westpac in 2007, Christine was Group Human Resources Director, Carter Holt Harvey, and
from 1999 to 2004, she was Director of Human Resources with Restaurant Brands New Zealand.
36
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
37
Directors’ report
Gary Thursby BEc, DipAcc, FCA. Age 53
Chief Strategy Officer
Gary was appointed Chief Strategy Officer in February 2015. Reporting to the Deputy Chief Executive
Officer, Gary is responsible for the development of the Group’s strategy, along with business
development and mergers and acquisitions. Gary first joined Westpac in 2008 and more recently was
Chief Financial Officer, Australian Financial Services, where his responsibilities included Westpac’s
Australian retail banking and wealth management businesses.
Gary has a wealth of financial services experience, having held a range of senior positions across a
number of financial institutions over the last 20 years. Prior to joining Westpac, he served as Chief
Financial Officer, Retail Bank at the Commonwealth Bank of Australia. Gary commenced his career at
Deloitte Touché Tohmatsu.
Gary has a Bachelor of Economics and a Post Graduate Diploma in Accounting from Flinders University
of South Australia and is a Fellow of the Institute of Chartered Accountants.
3. Report on the business
a) Principal activities
The principal activities of the Group during the financial year ended 30 September 2015 were the provision of financial services
including lending, deposit taking, payments services, investment portfolio management and advice, superannuation and funds
management, insurance services, leasing finance, general finance and foreign exchange services.
There have been no significant changes in the nature of the principal activities of the Group during 2015.
b) Operating and financial review
The net profit attributable to equity holders of Westpac for the financial year ended 30 September 2015 was $8,012 million, an
increase of $451 million or 6% compared to 2014. Key features of this result were:
-
-
a 9% increase in net operating income before operating expenses and impairment charges with:
net interest income of $14,267 million, an increase of $725 million or 5% compared to 2014, with loan growth of 7%,
customer deposit growth of 4% and stable margins; and
non-interest income of $7,375 million, an increase of $980 million or 15% compared to 2014, primarily due to the gain
on the partial sale of BTIM ($1,036 million). Excluding this item, non-interest income reduced $56 million or 1%, from
lower trading income and lower insurance income reflecting higher insurance claims;
operating expenses were $9,473 million, an increase of $926 million or 11% compared to 2014. This included $505 million
related to changes to accounting for technology investment spending. Excluding this item, operating expenses increased
$421 million or 5% primarily due to higher investment related costs, including increased software amortisation and foreign
currency translation impacts; and
impairment charges were $753 million, an increase of $103 million or 16% compared to 2014, mostly due to a reduced
benefit from credit quality improvements. Overall asset quality improved during the year with stressed exposures as a
percentage of total committed exposures reducing from 1.24% to 0.99%.
A review of the operations of the Group and its divisions and their results for the financial year ended 30 September 2015 is set
out in Section 2 of the Annual Report under the sections ‘Review of Group operations’ and ‘Divisional performance’, which form
Further information about our financial position and financial results is included in the financial statements in Section 3 of the
part of this report.
Annual Report, which form part of this report.
c) Dividends
Since 30 September 2015, Westpac has announced a final ordinary dividend of 94 cents per Westpac ordinary share, totalling
approximately $2,993 million for the year ended 30 September 2015 (2014 final ordinary dividend of 92 cents per Westpac
ordinary share, totalling approximately $2,860 million). The dividend will be fully franked and will be paid on 21 December 2015.
An interim ordinary dividend for the current financial year of 93 cents per Westpac ordinary share for the half year ended
31 March 2015, totalling $2,902 million, was paid as a fully franked dividend on 2 July 2015 (2014 interim ordinary dividend of
90 cents per Westpac ordinary share, totalling $2,798 million).
Peter King BEc, FCA. Age 45
Chief Financial Officer
Peter was appointed Chief Financial Officer in April 2014, with responsibility for Westpac’s Finance, Group
Audit, Tax, Treasury and Investor Relations functions. Prior to this appointment, Peter was the Deputy
Chief Financial Officer for three years.
Since joining Westpac in 1994, Peter has held senior finance positions across the Group, including in
Group Finance, Business and Consumer Banking, Business and Technology Services, Treasury and
Financial Markets.
Peter commenced his career at Deloitte Touché Tohmatsu. He has a Bachelor of Economics from Sydney
University and completed the Advanced Management Programme at INSEAD. He is a Fellow of the
Institute of Chartered Accountants.
David Lindberg HBA (Hons. Economics). Age 40
Chief Executive, Commercial & Business Bank
David was appointed Chief Executive, Commercial & Business Bank in June 2015, responsible for
managing the Group’s end to end relationships across small and medium enterprises, commercial and
agri-business customers as well as asset and equipment finance.
Prior to this appointment, David was Chief Product Officer, responsible for the Group’s retail and business
products across all brands, as well as overseeing the Group’s digital activities. Before joining Westpac in
2012, David was Executive General Manager, Cards, Payments & Retail Strategy at the Commonwealth
Bank of Australia. David was also formerly Managing Director, Strategy, Marketing & Customer
Segmentation at Australia and New Zealand Banking Group Limited and Managing Vice President and
Head of Australia for First Manhattan.
David McLean LLB (Hons.). Age 57
Chief Executive Officer, Westpac New Zealand Limited
David was appointed Chief Executive Officer, Westpac New Zealand Limited in February 2015. Since
joining Westpac in February 1999, David has held a number of senior roles including Head of Debt Capital
Markets New Zealand, General Manager, Private, Wealth and Insurance New Zealand and Head of
Westpac Institutional Bank New Zealand, and most recently, Managing Director of the Westpac New York
branch.
Before joining Westpac, David was Director, Capital Markets at Deutsche Morgan Grenfell since 1994,
where he was responsible for starting and developing a new debt capital markets origination business. He
also established the New Zealand branch of Deutsche Bank and was New Zealand Resident Branch
Manager. In 1988, David joined Southpac/National Bank as a Capital Markets Executive. Prior to this,
David worked as a lawyer in private practice and also served as in
house counsel for NatWest NZ from
1985. David is a Barrister & Solicitor of the High Court of New Zealand.
Christine Parker BGDipBus (HRM). Age 55
Group Executive, Human Resources, Corporate Affairs & Sustainability
‐
Christine was appointed Group Executive, Human Resources, Corporate Affairs & Sustainability in
October 2011, with responsibility for human resources strategy and management, including reward and
recognition, safety, learning and development, careers and talent, employee relations and employment
policy. She is also responsible for Corporate Affairs & Sustainability.
Prior to this appointment, she was Group General Manager, Human Resources, from March 2010, with
responsibilities across the entire Westpac Group. Prior to that, Christine was General Manager, Human
Resources, Westpac New Zealand Limited.
Prior to joining Westpac in 2007, Christine was Group Human Resources Director, Carter Holt Harvey, and
from 1999 to 2004, she was Director of Human Resources with Restaurant Brands New Zealand.
Directors’ report
Gary Thursby BEc, DipAcc, FCA. Age 53
Chief Strategy Officer
Gary was appointed Chief Strategy Officer in February 2015. Reporting to the Deputy Chief Executive
Officer, Gary is responsible for the development of the Group’s strategy, along with business
development and mergers and acquisitions. Gary first joined Westpac in 2008 and more recently was
Chief Financial Officer, Australian Financial Services, where his responsibilities included Westpac’s
Australian retail banking and wealth management businesses.
Gary has a wealth of financial services experience, having held a range of senior positions across a
number of financial institutions over the last 20 years. Prior to joining Westpac, he served as Chief
Financial Officer, Retail Bank at the Commonwealth Bank of Australia. Gary commenced his career at
Deloitte Touché Tohmatsu.
Gary has a Bachelor of Economics and a Post Graduate Diploma in Accounting from Flinders University
of South Australia and is a Fellow of the Institute of Chartered Accountants.
3. Report on the business
a) Principal activities
The principal activities of the Group during the financial year ended 30 September 2015 were the provision of financial services
including lending, deposit taking, payments services, investment portfolio management and advice, superannuation and funds
management, insurance services, leasing finance, general finance and foreign exchange services.
There have been no significant changes in the nature of the principal activities of the Group during 2015.
b) Operating and financial review
The net profit attributable to equity holders of Westpac for the financial year ended 30 September 2015 was $8,012 million, an
increase of $451 million or 6% compared to 2014. Key features of this result were:
a 9% increase in net operating income before operating expenses and impairment charges with:
-
-
net interest income of $14,267 million, an increase of $725 million or 5% compared to 2014, with loan growth of 7%,
customer deposit growth of 4% and stable margins; and
non-interest income of $7,375 million, an increase of $980 million or 15% compared to 2014, primarily due to the gain
on the partial sale of BTIM ($1,036 million). Excluding this item, non-interest income reduced $56 million or 1%, from
lower trading income and lower insurance income reflecting higher insurance claims;
operating expenses were $9,473 million, an increase of $926 million or 11% compared to 2014. This included $505 million
related to changes to accounting for technology investment spending. Excluding this item, operating expenses increased
$421 million or 5% primarily due to higher investment related costs, including increased software amortisation and foreign
currency translation impacts; and
impairment charges were $753 million, an increase of $103 million or 16% compared to 2014, mostly due to a reduced
benefit from credit quality improvements. Overall asset quality improved during the year with stressed exposures as a
percentage of total committed exposures reducing from 1.24% to 0.99%.
A review of the operations of the Group and its divisions and their results for the financial year ended 30 September 2015 is set
out in Section 2 of the Annual Report under the sections ‘Review of Group operations’ and ‘Divisional performance’, which form
part of this report.
Further information about our financial position and financial results is included in the financial statements in Section 3 of the
Annual Report, which form part of this report.
c) Dividends
Since 30 September 2015, Westpac has announced a final ordinary dividend of 94 cents per Westpac ordinary share, totalling
approximately $2,993 million for the year ended 30 September 2015 (2014 final ordinary dividend of 92 cents per Westpac
ordinary share, totalling approximately $2,860 million). The dividend will be fully franked and will be paid on 21 December 2015.
An interim ordinary dividend for the current financial year of 93 cents per Westpac ordinary share for the half year ended
31 March 2015, totalling $2,902 million, was paid as a fully franked dividend on 2 July 2015 (2014 interim ordinary dividend of
90 cents per Westpac ordinary share, totalling $2,798 million).
36
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
37
1
d) Significant changes in state of affairs and events during and since the end of the 2015 financial year
Significant changes in the state of affairs of the Group were:
the appointment of Brian Hartzer as Chief Executive Officer effective 2 February 2015;
Westpac’s fully underwritten, pro rata accelerated renounceable entitlement offer to raise approximately $3.5 billion of
ordinary equity;
Westpac Banking Corporation
Directors’ interests in Westpac and related bodies corporate as at 2 November 2015
Number of Relevant
Interests in Westpac
Ordinary Shares
Number of Westpac
Share Rights
Westpac
CPS
Directors’ report
the issue of approximately $2 billion worth of Westpac ordinary shares under the 2015 interim DRP and partial DRP
underwrite;
the issuance of approximately $1.32 billion of securities known as Westpac Capital Notes 3;
the sale of Westpac’s banking operations in the Solomon Islands, Cook Islands, Samoa and Tonga to the Bank of South
Pacific Limited for $114.6 million;
the partial sale of Westpac’s shareholding in BTIM (down from 59.1% to 31.0%);
the announcement of Westpac’s new operating structure on 10 June 2015;
the impact of various accounting changes, resulting in a reduction in the technology assets balance of $505 million (pre-
tax) reported as an expense in the Full Year 2015 statutory results; and
ongoing regulatory changes and developments, which have included changes to liquidity, capital, financial services,
taxation and other regulatory requirements.
For a discussion of these matters, please refer to ‘Significant developments’ in Section 1 of the Annual Report under
‘Information on Westpac’.
The Directors are not aware of any other matter or circumstance that has occurred since the end of the financial year that has
significantly affected or may significantly affect the operations of the Group, the results of these operations or the state of affairs
of the Group in subsequent financial years.
e) Business strategies, developments and expected results
Our business strategies, prospects and likely major developments in the Group’s operations in future financial years and the
expected results of those operations are discussed in Section 1 of the Annual Report under ‘Information on Westpac’, including
under ‘Outlook’ and ‘Significant developments’.
Further information on our business strategies and prospects for future financial years and likely developments in our
operations and the expected results of operations have not been included in this report because the Directors believe it would
be likely to result in unreasonable prejudice to us.
4. Directors’ interests
a) Directors’ interests in securities
The following particulars for each Director are set out in the Remuneration Report in Section 9 of the Directors’ report for the
year ended 30 September 2015 and in the tables below:
their relevant interests in our shares or the shares of any of our related bodies corporate;
their relevant interests in debentures of, or interests in, any registered managed investment scheme made available by us
or any of our related bodies corporate;
their rights or options over shares in, debentures of, or interests in, any registered managed investment scheme made
available by us or any of our related bodies corporate; and
any contracts:
-
-
to which the Director is a party or under which they are entitled to a benefit; and
that confer a right to call for or deliver shares in, debentures of, or interests in, any registered managed investment
scheme made available by us or any of our related bodies corporate.
Current Directors
Lindsay Maxsted
Brian Hartzer
Elizabeth Bryan
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
Peter Marriott
Former Directors
Gail Kelly
Ann Pickard
17,799
49,571 1
26,801
34,877 3
9,000
8,500
10,291
15,218 4
20,000
1,797,295 5
13,800 7
225,199 2
390,534 6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,370
1 Brian Hartzer’s interest in Westpac ordinary shares includes 12,075 restricted shares held under the Restricted Share Plan.
2 Share rights issued under the LTI Performance Plan.
3 Ewen Crouch and his related bodies corporate also hold relevant interests in 250 Westpac Capital Notes 2.
4 Peter Hawkins and his related bodies corporate also hold relevant interests in 1,433 Westpac Subordinated Notes and 850 Westpac Capital Notes 3.
5 Gail Kelly's interest in Westpac ordinary shares includes 85,667 restricted shares held under the CEO Restricted Share Plan. Figure displayed is as at
Gail Kelly's retirement date of 1 February 2015.
6 Share rights issued under the CEO Performance Plan and held as at Gail Kelly's retirement date of 1 February 2015.
7 Ann Pickard’s relevant interests arise through holding 13,800 Westpac American Depositary Shares (ADS). One ADS represents one Westpac fully
paid ordinary share. Figure displayed is as at Ann Pickard's retirement date of 12 December 2014.
Note: Certain subsidiaries of Westpac offer a range of registered schemes. The Directors from time to time invest in these schemes and are required to
provide a statement to the ASX when any of their interests in these schemes change. ASIC has exempted each Director from the obligation to notify the
ASX of a relevant interest in a security that is an interest in BT Cash Management Trust (ARSN 087 531 539), BT Premium Cash Fund (ARSN 089 299
730), Westpac Cash Management Trust (ARSN 088 187 928), BT Wholesale Managed Cash Fund (ARSN 088 832 491) or BT Wholesale Enhanced
Cash Fund (ARSN 088 863 469).
38
2015 Westpac Group Annual Report
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39
Significant changes in the state of affairs of the Group were:
the appointment of Brian Hartzer as Chief Executive Officer effective 2 February 2015;
Westpac’s fully underwritten, pro rata accelerated renounceable entitlement offer to raise approximately $3.5 billion of
the issue of approximately $2 billion worth of Westpac ordinary shares under the 2015 interim DRP and partial DRP
ordinary equity;
underwrite;
the issuance of approximately $1.32 billion of securities known as Westpac Capital Notes 3;
the sale of Westpac’s banking operations in the Solomon Islands, Cook Islands, Samoa and Tonga to the Bank of South
Pacific Limited for $114.6 million;
the partial sale of Westpac’s shareholding in BTIM (down from 59.1% to 31.0%);
the announcement of Westpac’s new operating structure on 10 June 2015;
the impact of various accounting changes, resulting in a reduction in the technology assets balance of $505 million (pre-
tax) reported as an expense in the Full Year 2015 statutory results; and
ongoing regulatory changes and developments, which have included changes to liquidity, capital, financial services,
taxation and other regulatory requirements.
For a discussion of these matters, please refer to ‘Significant developments’ in Section 1 of the Annual Report under
‘Information on Westpac’.
The Directors are not aware of any other matter or circumstance that has occurred since the end of the financial year that has
significantly affected or may significantly affect the operations of the Group, the results of these operations or the state of affairs
of the Group in subsequent financial years.
e) Business strategies, developments and expected results
Our business strategies, prospects and likely major developments in the Group’s operations in future financial years and the
expected results of those operations are discussed in Section 1 of the Annual Report under ‘Information on Westpac’, including
under ‘Outlook’ and ‘Significant developments’.
Further information on our business strategies and prospects for future financial years and likely developments in our
operations and the expected results of operations have not been included in this report because the Directors believe it would
be likely to result in unreasonable prejudice to us.
4. Directors’ interests
a) Directors’ interests in securities
The following particulars for each Director are set out in the Remuneration Report in Section 9 of the Directors’ report for the
year ended 30 September 2015 and in the tables below:
their relevant interests in our shares or the shares of any of our related bodies corporate;
their relevant interests in debentures of, or interests in, any registered managed investment scheme made available by us
or any of our related bodies corporate;
their rights or options over shares in, debentures of, or interests in, any registered managed investment scheme made
available by us or any of our related bodies corporate; and
any contracts:
-
-
to which the Director is a party or under which they are entitled to a benefit; and
that confer a right to call for or deliver shares in, debentures of, or interests in, any registered managed investment
scheme made available by us or any of our related bodies corporate.
d) Significant changes in state of affairs and events during and since the end of the 2015 financial year
Directors’ interests in Westpac and related bodies corporate as at 2 November 2015
Directors’ report
Westpac Banking Corporation
Current Directors
Lindsay Maxsted
Brian Hartzer
Elizabeth Bryan
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
Peter Marriott
Number of Relevant
Interests in Westpac
Ordinary Shares
Number of Westpac
Share Rights
Westpac
CPS
17,799
49,571 1
26,801
34,877 3
9,000
8,500
10,291
15,218 4
20,000
-
225,199 2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,370
-
Former Directors
Gail Kelly
Ann Pickard
1 Brian Hartzer’s interest in Westpac ordinary shares includes 12,075 restricted shares held under the Restricted Share Plan.
2 Share rights issued under the LTI Performance Plan.
3 Ewen Crouch and his related bodies corporate also hold relevant interests in 250 Westpac Capital Notes 2.
4 Peter Hawkins and his related bodies corporate also hold relevant interests in 1,433 Westpac Subordinated Notes and 850 Westpac Capital Notes 3.
5 Gail Kelly's interest in Westpac ordinary shares includes 85,667 restricted shares held under the CEO Restricted Share Plan. Figure displayed is as at
1,797,295 5
13,800 7
390,534 6
-
-
-
Gail Kelly's retirement date of 1 February 2015.
6 Share rights issued under the CEO Performance Plan and held as at Gail Kelly's retirement date of 1 February 2015.
7 Ann Pickard’s relevant interests arise through holding 13,800 Westpac American Depositary Shares (ADS). One ADS represents one Westpac fully
paid ordinary share. Figure displayed is as at Ann Pickard's retirement date of 12 December 2014.
Note: Certain subsidiaries of Westpac offer a range of registered schemes. The Directors from time to time invest in these schemes and are required to
provide a statement to the ASX when any of their interests in these schemes change. ASIC has exempted each Director from the obligation to notify the
ASX of a relevant interest in a security that is an interest in BT Cash Management Trust (ARSN 087 531 539), BT Premium Cash Fund (ARSN 089 299
730), Westpac Cash Management Trust (ARSN 088 187 928), BT Wholesale Managed Cash Fund (ARSN 088 832 491) or BT Wholesale Enhanced
Cash Fund (ARSN 088 863 469).
38
2015 Westpac Group Annual Report
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39
1
b) Indemnities and insurance
Under the Westpac Constitution, unless prohibited by statute, we indemnify each of the Directors and Company Secretaries of
Westpac and of each of our related bodies corporate (except related bodies corporate listed on a recognised stock exchange),
each employee of Westpac or our subsidiaries (except subsidiaries listed on a recognised stock exchange), and each person
acting as a responsible manager under an Australian Financial Services Licence of any of Westpac’s wholly-owned
subsidiaries against every liability incurred by each such person in their capacity as director, company secretary, employee or
responsible manager, as the case may be; and all legal costs incurred in defending or resisting (or otherwise in connection
with) proceedings, whether civil or criminal or of an administrative or investigatory nature, in which the person becomes
involved because of that capacity.
Each of the Directors named in this Directors’ report and each of the Company Secretaries of Westpac has the benefit of
this indemnity.
Consistent with shareholder approval at the 2000 Annual General Meeting, Westpac has entered into a Deed of Access and
Indemnity with each of the Directors, which includes indemnification in identical terms to that provided in the Westpac
Constitution.
Westpac also executed a deed poll in September 2009 providing indemnification equivalent to that provided under the Westpac
Constitution to individuals acting as:
statutory officers (other than as a director) of Westpac;
directors and other statutory officers of wholly-owned subsidiaries of Westpac; and
directors and statutory officers of other nominated companies as approved by Westpac in accordance with the terms of the
deed poll and Westpac’s Contractual Indemnity Policy.
Some employees of Westpac’s related bodies corporate and responsible managers of Westpac and its related bodies
corporate are also currently covered by a deed poll that was executed in November 2004, which is in similar terms to the
September 2009 deed poll.
The Westpac Constitution also permits us, to the extent permitted by law, to pay or agree to pay premiums for contracts
insuring any person who is or has been a Director or Company Secretary of Westpac or any of its related bodies corporate
against liability incurred by that person in that capacity, including a liability for legal costs, unless:
we are forbidden by statute to pay or agree to pay the premium; or
the contract would, if we paid the premium, be made void by statute.
Under the September 2009 deed poll, Westpac also agrees to provide directors’ and officers’ insurance to Directors of Westpac
and Directors of Westpac’s wholly-owned subsidiaries.
For the year ended 30 September 2015, the Group has insurance cover in respect of the amounts which we may have to pay
under the indemnities set out above. That cover is subject to the terms and conditions of the relevant insurance, including but
not limited to the limit of indemnity provided by the insurance. The insurance policies prohibit disclosure of the premium payable
and the nature of the liabilities covered.
c) Options and share rights outstanding
As at the date of this report there are 747,152 share options outstanding and 4,489,400 share rights outstanding in relation to
Westpac ordinary shares. The expiry date of the share options range between 20 December 2015 and 1 October 2018 and the
weighted average exercise price is $26.73. The latest dates for exercise of the share rights range between 20 December 2015
and 1 May 2026.
Holders of outstanding share options and share rights in relation to Westpac ordinary shares do not have any rights under the
share options and share rights to participate in any share issue or interest of Westpac or any other body corporate.
d) Proceedings on behalf of Westpac
No application has been made and no proceedings have been brought or intervened in, on behalf of Westpac under section
237 of the Corporations Act.
5. Environmental disclosure
6. Rounding of amounts
As part of our 2017 Sustainability Strategy we have set
Westpac is an entity to which ASIC Class Order 98/100
targets for our environmental performance. The Westpac
dated 10 July 1998, relating to the rounding of amounts in
Group’s environmental framework starts with ‘Our Principles
Directors’ report and financial reports, applies. Pursuant to
for Doing Business’, which outline our broad environmental
this Class Order, amounts in this Directors’ report and the
Directors’ report
accompanying financial report have been rounded to the
nearest million dollars, unless indicated to the contrary.
7. Political expenditure
In line with Westpac policy, no cash donations were made to
political parties during the financial year ended
30 September 2015. The expenditure reflected in the table
below relates to payment for participation in legitimate
political activities where they were assessed to be of direct
business relevance to Westpac. Such activities include
business observer programs attached to annual party
conferences, policy dialogue forums and other political
functions such as speeches and events with industry
participants.
Australia
Political expenditure, year ended 30 September 2015
Amount
69,550
84,895
$1
-
154,445
Australian Labor Party
Liberal Party of Australia
National Party of Australia
Total
levels.
New Zealand
1 Represents aggregate amount at both Federal and State/Territory
There was no expenditure on political activities in New
Zealand for the year ended 30 September 2015. In line with
Westpac policy, no cash donations were made to political
parties in New Zealand during the year.
principles. This framework includes:
our Westpac Group Environment Policy, which has
been in place since 1992;
our Sustainable Supply Chain Management Framework;
our Sustainability Risk Management Framework; and
public reporting of our environmental performance. We
also participate in a number of voluntary initiatives
including the Dow Jones Sustainability Index, CDP1, the
Equator Principles, the Principles for Responsible
Investment, the United Nations Global Compact and the
Banking Environment Initiative’s Soft Commodities
Compact.
The National Greenhouse and Energy Reporting Act 2007
(Cth) (National Greenhouse Act) came into effect in July
2008. The Group reports on greenhouse gas emissions,
energy consumption and production under the National
Greenhouse Act for the period 1 July through 30 June
each year.
The Group was previously subject to the reporting
requirements of the Energy Efficiency Opportunities Act
2006 (Cth) (EEO Act). The Commonwealth Government
repealed the EEO Act, effective from 29 June 2014.
Accordingly, all obligations and activities under the EEO
Program, including reporting requirements, have ceased.2
Our operations are not subject to any other particular and
significant environmental regulation under any law of the
Commonwealth of Australia or of any State or Territory of
Australia. We may, however, become subject to
environmental regulation as a result of our lending activities
in the ordinary course of business and we have policies in
place to ensure that this potential risk is addressed as part of
our normal processes.
We have not incurred any liability (including for rectification
costs) under any environmental legislation.
Further details on our environmental performance, including
information on our climate change approach, details of our
emissions profile and environmental footprint, and progress
against our environmental targets and carbon neutral
program are available on our website at
www.westpac.com.au/about-westpac/sustainability-and-
community.
1 Formerly known as the Carbon Disclosure Project.
2 Westpac implemented energy efficiency opportunities which are
expected to result in estimated energy savings of 28,154GJ, carbon
savings of 7,112tCO2e and cost savings of $977,063 per year.
Westpac also participated in the voluntary NSW Energy Saving
Scheme and earned over $195,498 through the sale of 14,816
Energy Savings Certificates.
40
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
41
this indemnity.
Constitution.
b) Indemnities and insurance
Under the Westpac Constitution, unless prohibited by statute, we indemnify each of the Directors and Company Secretaries of
Westpac and of each of our related bodies corporate (except related bodies corporate listed on a recognised stock exchange),
each employee of Westpac or our subsidiaries (except subsidiaries listed on a recognised stock exchange), and each person
acting as a responsible manager under an Australian Financial Services Licence of any of Westpac’s wholly-owned
subsidiaries against every liability incurred by each such person in their capacity as director, company secretary, employee or
responsible manager, as the case may be; and all legal costs incurred in defending or resisting (or otherwise in connection
with) proceedings, whether civil or criminal or of an administrative or investigatory nature, in which the person becomes
involved because of that capacity.
Each of the Directors named in this Directors’ report and each of the Company Secretaries of Westpac has the benefit of
Consistent with shareholder approval at the 2000 Annual General Meeting, Westpac has entered into a Deed of Access and
Indemnity with each of the Directors, which includes indemnification in identical terms to that provided in the Westpac
Westpac also executed a deed poll in September 2009 providing indemnification equivalent to that provided under the Westpac
Constitution to individuals acting as:
statutory officers (other than as a director) of Westpac;
directors and other statutory officers of wholly-owned subsidiaries of Westpac; and
directors and statutory officers of other nominated companies as approved by Westpac in accordance with the terms of the
deed poll and Westpac’s Contractual Indemnity Policy.
Some employees of Westpac’s related bodies corporate and responsible managers of Westpac and its related bodies
corporate are also currently covered by a deed poll that was executed in November 2004, which is in similar terms to the
September 2009 deed poll.
The Westpac Constitution also permits us, to the extent permitted by law, to pay or agree to pay premiums for contracts
insuring any person who is or has been a Director or Company Secretary of Westpac or any of its related bodies corporate
against liability incurred by that person in that capacity, including a liability for legal costs, unless:
we are forbidden by statute to pay or agree to pay the premium; or
the contract would, if we paid the premium, be made void by statute.
Under the September 2009 deed poll, Westpac also agrees to provide directors’ and officers’ insurance to Directors of Westpac
and Directors of Westpac’s wholly-owned subsidiaries.
For the year ended 30 September 2015, the Group has insurance cover in respect of the amounts which we may have to pay
under the indemnities set out above. That cover is subject to the terms and conditions of the relevant insurance, including but
not limited to the limit of indemnity provided by the insurance. The insurance policies prohibit disclosure of the premium payable
and the nature of the liabilities covered.
c) Options and share rights outstanding
As at the date of this report there are 747,152 share options outstanding and 4,489,400 share rights outstanding in relation to
Westpac ordinary shares. The expiry date of the share options range between 20 December 2015 and 1 October 2018 and the
weighted average exercise price is $26.73. The latest dates for exercise of the share rights range between 20 December 2015
and 1 May 2026.
Holders of outstanding share options and share rights in relation to Westpac ordinary shares do not have any rights under the
share options and share rights to participate in any share issue or interest of Westpac or any other body corporate.
d) Proceedings on behalf of Westpac
237 of the Corporations Act.
No application has been made and no proceedings have been brought or intervened in, on behalf of Westpac under section
5. Environmental disclosure
6. Rounding of amounts
Directors’ report
Westpac is an entity to which ASIC Class Order 98/100
dated 10 July 1998, relating to the rounding of amounts in
Directors’ report and financial reports, applies. Pursuant to
this Class Order, amounts in this Directors’ report and the
accompanying financial report have been rounded to the
nearest million dollars, unless indicated to the contrary.
7. Political expenditure
In line with Westpac policy, no cash donations were made to
political parties during the financial year ended
30 September 2015. The expenditure reflected in the table
below relates to payment for participation in legitimate
political activities where they were assessed to be of direct
business relevance to Westpac. Such activities include
business observer programs attached to annual party
conferences, policy dialogue forums and other political
functions such as speeches and events with industry
participants.
Political expenditure, year ended 30 September 2015
Australia
Australian Labor Party
Liberal Party of Australia
National Party of Australia
Total
1 Represents aggregate amount at both Federal and State/Territory
Amount
$1
69,550
84,895
-
154,445
levels.
New Zealand
There was no expenditure on political activities in New
Zealand for the year ended 30 September 2015. In line with
Westpac policy, no cash donations were made to political
parties in New Zealand during the year.
As part of our 2017 Sustainability Strategy we have set
targets for our environmental performance. The Westpac
Group’s environmental framework starts with ‘Our Principles
for Doing Business’, which outline our broad environmental
principles. This framework includes:
our Westpac Group Environment Policy, which has
been in place since 1992;
our Sustainable Supply Chain Management Framework;
our Sustainability Risk Management Framework; and
public reporting of our environmental performance. We
also participate in a number of voluntary initiatives
including the Dow Jones Sustainability Index, CDP1, the
Equator Principles, the Principles for Responsible
Investment, the United Nations Global Compact and the
Banking Environment Initiative’s Soft Commodities
Compact.
The National Greenhouse and Energy Reporting Act 2007
(Cth) (National Greenhouse Act) came into effect in July
2008. The Group reports on greenhouse gas emissions,
energy consumption and production under the National
Greenhouse Act for the period 1 July through 30 June
each year.
The Group was previously subject to the reporting
requirements of the Energy Efficiency Opportunities Act
2006 (Cth) (EEO Act). The Commonwealth Government
repealed the EEO Act, effective from 29 June 2014.
Accordingly, all obligations and activities under the EEO
Program, including reporting requirements, have ceased.2
Our operations are not subject to any other particular and
significant environmental regulation under any law of the
Commonwealth of Australia or of any State or Territory of
Australia. We may, however, become subject to
environmental regulation as a result of our lending activities
in the ordinary course of business and we have policies in
place to ensure that this potential risk is addressed as part of
our normal processes.
We have not incurred any liability (including for rectification
costs) under any environmental legislation.
Further details on our environmental performance, including
information on our climate change approach, details of our
emissions profile and environmental footprint, and progress
against our environmental targets and carbon neutral
program are available on our website at
www.westpac.com.au/about-westpac/sustainability-and-
community.
1 Formerly known as the Carbon Disclosure Project.
2 Westpac implemented energy efficiency opportunities which are
expected to result in estimated energy savings of 28,154GJ, carbon
savings of 7,112tCO2e and cost savings of $977,063 per year.
Westpac also participated in the voluntary NSW Energy Saving
Scheme and earned over $195,498 through the sale of 14,816
Energy Savings Certificates.
40
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
41
1
8. Directors’ meetings
Each Director attended the following meetings of the Board and Committees of the Board during the financial year ended
30 September 2015:
Introduction from the Chairman of the Board Remuneration Committee
Notes
Board
Audit
Committee
Risk & Compliance Committee
Nominations
Committee
Remuneration
Committee
Technology
Committee
We are pleased to present Westpac’s 2015 Remuneration Report (Report).
Number of meetings
held during the year
Director
Lindsay Maxsted
Brian Hartzer
Gail Kelly
Elizabeth Bryan
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
Peter Marriott
Ann Pickard
1
2
3
4
5
6
7
8
9
10
11
A
10
6
4
10
10
10
3
10
10
10
4
B
10
6
3
10
10
10
3
9
10
10
4
C
-
-
1
-
-
-
-
1
-
-
-
A
4
-
-
-
-
-
-
4
4
4
-
B
4
-
-
-
-
-
-
4
4
4
-
A
4
-
-
4
4
4
1
4
4
4
1
B
4
-
-
4
4
3
1
4
4
4
1
C
-
-
-
-
-
1
-
-
-
-
-
A
4
-
-
4
4
-
-
1
4
3
-
B
4
-
-
4
4
-
-
1
4
3
-
A
-
-
-
5
5
-
1
5
-
-
2
B
-
-
-
5
5
-
1
5
-
-
2
A
-
2
1
-
-
3
-
-
3
3
-
B
-
2
1
-
-
3
-
-
3
3
-
This table shows membership of standing Committees of the Board. From time to time the Board may form other committees or
request Directors to undertake specific extra duties.
A - Meetings eligible to attend as a member B - Meetings attended as a member C – Leave of absence granted
Unless otherwise stated, each Director has been a member, or the Chairman, of the relevant Committee for the whole of the
period from 1 October 2014.
1 Chairman of the Board Nominations Committee. Member of the Board Audit Committee and the Board Risk & Compliance
Committee.
2 Brian Hartzer was appointed Managing Director & Chief Executive Officer on 2 February 2015. Member of the Board
the deferred component of the Short-Term Incentive (STI) increased from 40% to 50% deferred over two years and as a
Technology Committee from 13 February 2015.
3 Gail Kelly retired as Managing Director & Chief Executive Officer and member of the Board Technology Committee on
1 February 2015.
4 Chairman of the Board Risk & Compliance Committee. Member of the Board Nominations Committee and the Board
Remuneration Committee.
5 Chairman of the Board Remuneration Committee. Member of the Board Nominations Committee and the Board Risk &
vesting period.
Compliance Committee.
6 Member of the Board Risk & Compliance Committee and the Board Technology Committee.
7 Craig Dunn was appointed as a Director on 1 June 2015. Member of the Board Remuneration Committee and Board Risk &
Compliance Committee from 5 June 2015.
8 Chairman of the Board Audit Committee, and member of the Board Nominations Committee, until 31 December 2014.
Member of the Board Remuneration Committee, the Board Risk & Compliance Committee, and from 1 January 2015, a
member of the Board Audit Committee.
9 Chairman of the Board Technology Committee. Member of the Board Audit Committee, the Board Nominations Committee
and the Board Risk & Compliance Committee.
10 Chairman of the Board Audit Committee from 1 January 2015. Member of the Board Audit Committee until 31 December
2014. Member of the Board Risk & Compliance Committee, the Board Technology Committee, and from 13 February 2015,
a member of the Board Nominations Committee.
11 Ann Pickard retired from the Board and its Committees on 12 December 2014.
Ewen Crouch
Chairman – Board Remuneration Committee
Directors’ report
9. Remuneration Report
Dear Shareholder,
2015 Remuneration outcomes
Each year, the Board assesses a number of factors when determining remuneration outcomes. In addition to approved
scoreboards including financial performance, the Committee assesses elements such as result quality, performance drivers,
the operating environment and accounting changes or adjustments. This year, the outcomes also recognise the smooth
transition to the new CEO and management’s contribution in the context of significant regulatory change.
It is against this framework that the short and long-term incentive outcomes have been determined.
The 2012 Long-Term Incentive (LTI) grant qualified for 36% vesting this year reflecting our performance against the hurdles
established in 2012. In particular:
Westpac’s LTI plan Total Shareholder Return (TSR) over the last three years was 62.5%. While ranking second amongst
the four major Australian banks, this was a 30th percentile outcome against the designated peer group. As this outcome
was below the 50th percentile vesting threshold, none of the 2012 TSR hurdled rights vested.
Westpac’s Cash Earnings per Share (EPS) growth over the last three years totalled 15.56%, which was above the vesting
threshold of 12.8% (4.1% compound annual growth), but below the maximum of 19.1% (6% compound annual growth).
Accordingly, 72% of the 2012 EPS performance tranche vested.
Executive changes
Brian Hartzer commenced as CEO on 2 February 2015 and there were a number of changes in executive appointments during
the year. These included the appointment of Lyn Cobley as Chief Executive, Westpac Institutional Bank and David McLean as
CEO of Westpac New Zealand after acting in the role. David Lindberg also joined the Executive Team with his appointment as
Chief Executive, Commercial & Business Bank while George Frazis was appointed Chief Executive, Consumer Bank.
Consistent with prior commitments by the Board, all of the new Group Executives, including the CEO, had starting
remuneration levels below those of the prior incumbents, applying the Group pay mix.
Remuneration frameworks
The revised remuneration framework outlined in last year’s Report was implemented in 2015:
result the cash component of STI paid to our Group Executives has reduced; and
the prospective approach to LTI allocations introduced, with an extended vesting period of four years.
The value of LTI share rights for our executives in Section 6.2 also increased as a consequence of the new 2015 LTI grant,
though the values remain ‘at risk’ and subject to meeting both TSR and EPS based performance hurdles over a four year
We are confident that that our remuneration framework is well positioned to attract and retain the highest quality executives and
provide remuneration outcomes which reflect our business performance and sustained outcomes in the interests of
our shareholders.
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2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
43
8. Directors’ meetings
30 September 2015:
Each Director attended the following meetings of the Board and Committees of the Board during the financial year ended
9. Remuneration Report
Introduction from the Chairman of the Board Remuneration Committee
Notes
Board
Committee
Risk & Compliance Committee
Committee
Committee
Committee
We are pleased to present Westpac’s 2015 Remuneration Report (Report).
Audit
Nominations
Remuneration
Technology
Dear Shareholder,
Directors’ report
Number of meetings
held during the year
Director
Lindsay Maxsted
Brian Hartzer
Gail Kelly
Elizabeth Bryan
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
Peter Marriott
Ann Pickard
1
2
3
4
5
6
7
8
9
10
11
A
10
6
4
10
10
10
3
10
10
10
4
B
10
6
3
10
10
10
3
9
10
10
4
C
1
-
-
-
-
-
-
-
-
-
1
A
4
-
-
-
-
-
-
4
4
4
-
B
4
-
-
-
-
-
-
4
4
4
-
A
4
-
-
4
4
4
1
4
4
4
1
B
4
-
-
4
4
3
1
4
4
4
1
C
1
-
-
-
-
-
-
-
-
-
-
A
4
-
-
4
4
-
-
1
4
3
-
B
4
-
-
4
4
-
-
1
4
3
-
A
-
-
-
5
5
-
1
5
-
-
2
B
-
-
-
5
5
-
1
5
-
-
2
A
-
2
1
3
-
-
-
-
3
3
-
B
-
2
1
3
-
-
-
-
3
3
-
This table shows membership of standing Committees of the Board. From time to time the Board may form other committees or
request Directors to undertake specific extra duties.
A - Meetings eligible to attend as a member B - Meetings attended as a member C – Leave of absence granted
Unless otherwise stated, each Director has been a member, or the Chairman, of the relevant Committee for the whole of the
period from 1 October 2014.
Committee.
1 February 2015.
Remuneration Committee.
Compliance Committee.
1 Chairman of the Board Nominations Committee. Member of the Board Audit Committee and the Board Risk & Compliance
2 Brian Hartzer was appointed Managing Director & Chief Executive Officer on 2 February 2015. Member of the Board
Technology Committee from 13 February 2015.
3 Gail Kelly retired as Managing Director & Chief Executive Officer and member of the Board Technology Committee on
4 Chairman of the Board Risk & Compliance Committee. Member of the Board Nominations Committee and the Board
5 Chairman of the Board Remuneration Committee. Member of the Board Nominations Committee and the Board Risk &
6 Member of the Board Risk & Compliance Committee and the Board Technology Committee.
7 Craig Dunn was appointed as a Director on 1 June 2015. Member of the Board Remuneration Committee and Board Risk &
Compliance Committee from 5 June 2015.
8 Chairman of the Board Audit Committee, and member of the Board Nominations Committee, until 31 December 2014.
Member of the Board Remuneration Committee, the Board Risk & Compliance Committee, and from 1 January 2015, a
9 Chairman of the Board Technology Committee. Member of the Board Audit Committee, the Board Nominations Committee
member of the Board Audit Committee.
and the Board Risk & Compliance Committee.
10 Chairman of the Board Audit Committee from 1 January 2015. Member of the Board Audit Committee until 31 December
2014. Member of the Board Risk & Compliance Committee, the Board Technology Committee, and from 13 February 2015,
a member of the Board Nominations Committee.
11 Ann Pickard retired from the Board and its Committees on 12 December 2014.
2015 Remuneration outcomes
Each year, the Board assesses a number of factors when determining remuneration outcomes. In addition to approved
scoreboards including financial performance, the Committee assesses elements such as result quality, performance drivers,
the operating environment and accounting changes or adjustments. This year, the outcomes also recognise the smooth
transition to the new CEO and management’s contribution in the context of significant regulatory change.
It is against this framework that the short and long-term incentive outcomes have been determined.
The 2012 Long-Term Incentive (LTI) grant qualified for 36% vesting this year reflecting our performance against the hurdles
established in 2012. In particular:
Westpac’s LTI plan Total Shareholder Return (TSR) over the last three years was 62.5%. While ranking second amongst
the four major Australian banks, this was a 30th percentile outcome against the designated peer group. As this outcome
was below the 50th percentile vesting threshold, none of the 2012 TSR hurdled rights vested.
Westpac’s Cash Earnings per Share (EPS) growth over the last three years totalled 15.56%, which was above the vesting
threshold of 12.8% (4.1% compound annual growth), but below the maximum of 19.1% (6% compound annual growth).
Accordingly, 72% of the 2012 EPS performance tranche vested.
Executive changes
Brian Hartzer commenced as CEO on 2 February 2015 and there were a number of changes in executive appointments during
the year. These included the appointment of Lyn Cobley as Chief Executive, Westpac Institutional Bank and David McLean as
CEO of Westpac New Zealand after acting in the role. David Lindberg also joined the Executive Team with his appointment as
Chief Executive, Commercial & Business Bank while George Frazis was appointed Chief Executive, Consumer Bank.
Consistent with prior commitments by the Board, all of the new Group Executives, including the CEO, had starting
remuneration levels below those of the prior incumbents, applying the Group pay mix.
Remuneration frameworks
The revised remuneration framework outlined in last year’s Report was implemented in 2015:
the deferred component of the Short-Term Incentive (STI) increased from 40% to 50% deferred over two years and as a
result the cash component of STI paid to our Group Executives has reduced; and
the prospective approach to LTI allocations introduced, with an extended vesting period of four years.
The value of LTI share rights for our executives in Section 6.2 also increased as a consequence of the new 2015 LTI grant,
though the values remain ‘at risk’ and subject to meeting both TSR and EPS based performance hurdles over a four year
vesting period.
We are confident that that our remuneration framework is well positioned to attract and retain the highest quality executives and
provide remuneration outcomes which reflect our business performance and sustained outcomes in the interests of
our shareholders.
Ewen Crouch
Chairman – Board Remuneration Committee
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43
1
Directors’ report
Approval of remuneration decisions
We follow a strict process of ‘two-up’ approval for all remuneration decisions. This means that remuneration is approved by the
next most senior person above the employee’s manager. This concept is also reflected in our requirement for the Board, based
on recommendations from the Remuneration Committee, to approve performance outcomes and remuneration for:
the CEO and Group Executives; and
other executives who report directly to the CEO, other persons whose activities in the Board’s opinion affect the financial
soundness of the Group and any other person specified by the Australian Prudential Regulation Authority.
Any significant remuneration arrangements that fall outside the Group Remuneration Policy are referred to the Remuneration
Committee for review and approval.
Shareholding requirements and hedging policy
To further align their interests with those of shareholders, the CEO and Group Executives are expected to build and maintain a
substantial Westpac shareholding within five years of being appointed to their role. For the CEO, the value of that shareholding
is expected to be no less than five times his annual fixed package. For Group Executives, the expected minimum is a value of
$1.2 million.
unvested securities.
Participants in the Group’s equity plans are forbidden from entering either directly or indirectly into hedging arrangements for
unvested securities in their STI and LTI equity awards. No financial products of any kind may be used to mitigate the risk
associated with these equity instruments. Any attempt to hedge these securities makes them subject to forfeiture. These
restrictions have been in place for some time and satisfy the requirements of the Corporations Act which prohibit hedging of
1. Governance and risk management
This section details the Group’s approach to governance
and risk management as they relate to remuneration.
1.1. Governance
The Group’s remuneration policies and practices strive to
fairly and responsibly reward employees, having regard to
performance, the Group’s risk management framework, the
law and high standards of governance.
The role of the Board is to provide strategic guidance for the
Group and effective oversight of management. In this way,
the Board is accountable to shareholders for performance.
As part of this role, the Board has overall responsibility
for remuneration.
The Remuneration Committee supports the Board. Its
primary function is to assist the Board to fulfil its
responsibilities to shareholders with regard to remuneration.
The Remuneration Committee monitors the remuneration
policies and practices of the Group, external remuneration
practices, market expectations and regulatory requirements
in Australia and internationally. The Committee’s purpose,
responsibilities and duties are outlined in the Charter which
is available on the Group’s website.
All Board Committee Charters are reviewed every two years.
The Board Remuneration Committee Charter was last
reviewed and amended in May 2014.
Members of the Remuneration Committee during 2015
All members of the Remuneration Committee are
independent Non-executive Directors. During 2015, the
members were:
Ewen Crouch (Chairman);
Elizabeth Bryan;
Craig Dunn (member from 5 June 2015);
Robert Elstone; and
Ann Pickard (retired 12 December 2014).
Independent remuneration consultant
During 2015, the Board retained Guerdon Associates as its
independent consultant to provide specialist information on
executive remuneration and other Group remuneration
matters. These services are provided directly to the
Remuneration Committee which is independent of
management. The Chairman of the Remuneration
Committee oversees the engagement of, remuneration
arrangements for, and payment of, the
independent consultant.
Work undertaken by Guerdon Associates during 2015
included the provision of information relating to the
benchmarking of Non-executive Director, CEO and Group
Executive remuneration and analysis regarding the Group’s
Earnings per Share (EPS) LTI performance hurdle. No
remuneration recommendations, as prescribed under the
Corporations Act, were made by Guerdon Associates
in 2015.
Internal governance structure
The Westpac internal governance structure includes three
levels of Remuneration Oversight Committees (ROCs) which
focus on the appropriateness and consistency of
remuneration arrangements and outcomes within individual
functions and divisions and across the Group. The ROCs
support the Board Remuneration Committee by ensuring
that the Group-wide remuneration frameworks and
outcomes are consistent with the Group’s approved policy.
1.2. Risk management
We aim to integrate effective risk management into the
remuneration framework throughout the organisation. The
Chairman of the Board Risk & Compliance Committee is a
member of the Remuneration Committee, and members of
the Remuneration Committee are also members of the
Board Risk & Compliance Committee. In carrying out its
duties, the Remuneration Committee can access personnel
from risk and financial control, and engage external advisors
who are independent of management.
The Group’s remuneration strategy, executive remuneration
framework, policies and practices all reflect the sound risk
management that is fundamental to the way we operate. The
performance of each division within the Group is reviewed
and measured with reference to how risk is managed and
the results influence remuneration outcomes.
The executive total reward framework specifically includes
features to take account of risk.
Each year, the Board determines the size of the variable
reward pool which funds variable reward outcomes across
the Group. This is based on the Group’s performance for the
year and an assessment of how profit should be shared
among shareholders and employees and retained for
growth. The primary financial indicator used is economic
profit, which measures cash earnings adjusted for cost of
capital used in the business. Cash earnings, return on equity
(ROE), Cash EPS and dividends are also taken
into account.
STI outcomes are based on both financial and non-financial
measures, with the latter reflecting risk management
outcomes and progress on the implementation of the
Group’s strategy. Group economic profit, Group core
earnings growth and Group ROE accounted for 40% of the
CEO’s scoreboard for 2015. Similarly, Group Executive
scoreboards had 45% of their STI allocated based on Group
economic profit, divisional economic profit, divisional core
earnings growth and divisional expense management (Chief
Risk Officer 30%). A performance measure related to the
Board’s Risk Appetite Statement accounted for a further
10% of the CEO’s and Group Executives’ scoreboards. In
addition, the CEO and each Group Executive are assessed
on specific risk measures that may influence any
discretionary adjustment to the scoreboard. Ultimately, the
Board has 100% discretion over the STI outcome. We
believe this discretion is vital to balance a mechanistic
approach in determining performance and reward outcomes
and to enable previous decisions (either good or bad) to be
taken into account. This discretion may be exercised both up
and down.
44
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45
Directors’ report
Approval of remuneration decisions
We follow a strict process of ‘two-up’ approval for all remuneration decisions. This means that remuneration is approved by the
next most senior person above the employee’s manager. This concept is also reflected in our requirement for the Board, based
on recommendations from the Remuneration Committee, to approve performance outcomes and remuneration for:
the CEO and Group Executives; and
other executives who report directly to the CEO, other persons whose activities in the Board’s opinion affect the financial
soundness of the Group and any other person specified by the Australian Prudential Regulation Authority.
Any significant remuneration arrangements that fall outside the Group Remuneration Policy are referred to the Remuneration
Committee for review and approval.
Shareholding requirements and hedging policy
To further align their interests with those of shareholders, the CEO and Group Executives are expected to build and maintain a
substantial Westpac shareholding within five years of being appointed to their role. For the CEO, the value of that shareholding
is expected to be no less than five times his annual fixed package. For Group Executives, the expected minimum is a value of
$1.2 million.
Participants in the Group’s equity plans are forbidden from entering either directly or indirectly into hedging arrangements for
unvested securities in their STI and LTI equity awards. No financial products of any kind may be used to mitigate the risk
associated with these equity instruments. Any attempt to hedge these securities makes them subject to forfeiture. These
restrictions have been in place for some time and satisfy the requirements of the Corporations Act which prohibit hedging of
unvested securities.
1. Governance and risk management
This section details the Group’s approach to governance
and risk management as they relate to remuneration.
1.1. Governance
The Group’s remuneration policies and practices strive to
fairly and responsibly reward employees, having regard to
performance, the Group’s risk management framework, the
law and high standards of governance.
The role of the Board is to provide strategic guidance for the
Group and effective oversight of management. In this way,
the Board is accountable to shareholders for performance.
As part of this role, the Board has overall responsibility
for remuneration.
The Remuneration Committee supports the Board. Its
primary function is to assist the Board to fulfil its
responsibilities to shareholders with regard to remuneration.
The Remuneration Committee monitors the remuneration
policies and practices of the Group, external remuneration
practices, market expectations and regulatory requirements
in Australia and internationally. The Committee’s purpose,
responsibilities and duties are outlined in the Charter which
is available on the Group’s website.
All Board Committee Charters are reviewed every two years.
The Board Remuneration Committee Charter was last
reviewed and amended in May 2014.
Members of the Remuneration Committee during 2015
All members of the Remuneration Committee are
independent Non-executive Directors. During 2015, the
members were:
Ewen Crouch (Chairman);
Elizabeth Bryan;
Ann Pickard (retired 12 December 2014).
Independent remuneration consultant
During 2015, the Board retained Guerdon Associates as its
independent consultant to provide specialist information on
executive remuneration and other Group remuneration
matters. These services are provided directly to the
Remuneration Committee which is independent of
management. The Chairman of the Remuneration
Committee oversees the engagement of, remuneration
arrangements for, and payment of, the
independent consultant.
Work undertaken by Guerdon Associates during 2015
included the provision of information relating to the
benchmarking of Non-executive Director, CEO and Group
Executive remuneration and analysis regarding the Group’s
Earnings per Share (EPS) LTI performance hurdle. No
remuneration recommendations, as prescribed under the
Corporations Act, were made by Guerdon Associates
in 2015.
Internal governance structure
The Westpac internal governance structure includes three
levels of Remuneration Oversight Committees (ROCs) which
focus on the appropriateness and consistency of
remuneration arrangements and outcomes within individual
functions and divisions and across the Group. The ROCs
support the Board Remuneration Committee by ensuring
that the Group-wide remuneration frameworks and
outcomes are consistent with the Group’s approved policy.
1.2. Risk management
We aim to integrate effective risk management into the
remuneration framework throughout the organisation. The
Chairman of the Board Risk & Compliance Committee is a
member of the Remuneration Committee, and members of
the Remuneration Committee are also members of the
Board Risk & Compliance Committee. In carrying out its
duties, the Remuneration Committee can access personnel
from risk and financial control, and engage external advisors
who are independent of management.
The Group’s remuneration strategy, executive remuneration
framework, policies and practices all reflect the sound risk
management that is fundamental to the way we operate. The
performance of each division within the Group is reviewed
and measured with reference to how risk is managed and
the results influence remuneration outcomes.
The executive total reward framework specifically includes
features to take account of risk.
Each year, the Board determines the size of the variable
reward pool which funds variable reward outcomes across
the Group. This is based on the Group’s performance for the
year and an assessment of how profit should be shared
among shareholders and employees and retained for
growth. The primary financial indicator used is economic
profit, which measures cash earnings adjusted for cost of
capital used in the business. Cash earnings, return on equity
(ROE), Cash EPS and dividends are also taken
STI outcomes are based on both financial and non-financial
measures, with the latter reflecting risk management
outcomes and progress on the implementation of the
Group’s strategy. Group economic profit, Group core
earnings growth and Group ROE accounted for 40% of the
CEO’s scoreboard for 2015. Similarly, Group Executive
scoreboards had 45% of their STI allocated based on Group
economic profit, divisional economic profit, divisional core
earnings growth and divisional expense management (Chief
Risk Officer 30%). A performance measure related to the
Board’s Risk Appetite Statement accounted for a further
10% of the CEO’s and Group Executives’ scoreboards. In
addition, the CEO and each Group Executive are assessed
on specific risk measures that may influence any
discretionary adjustment to the scoreboard. Ultimately, the
Board has 100% discretion over the STI outcome. We
believe this discretion is vital to balance a mechanistic
approach in determining performance and reward outcomes
and to enable previous decisions (either good or bad) to be
taken into account. This discretion may be exercised both up
and down.
Craig Dunn (member from 5 June 2015);
Robert Elstone; and
into account.
44
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45
1
2. Key Management Personnel remuneration disclosed in this Report
3. Remuneration snapshot 2015
The remuneration of key management personnel (KMP) for the Group is disclosed in this Report. In 2015, KMP comprised
Non-executive Directors, the CEO and Group Executives who reported to the CEO and/or led significant parts of the business.
CEO and Group Executives
Name
Position
Term as KMP
Managing Director & Chief Executive Officer
Brian Hartzer1
Gail Kelly2
Managing Director & Chief Executive Officer
Managing Director & Chief Executive Officer
Group Executives
Philip Coffey
Deputy Chief Executive Officer
John Arthur
Lyn Cobley3
Chief Operating Officer
Chief Executive, Westpac Institutional Bank
Brad Cooper
Chief Executive Officer, BT Financial Group
David Curran
George Frazis4
Chief Information Officer
Chief Executive, Consumer Bank
Alexandra Holcomb Chief Risk Officer
Peter King
David Lindberg5
David McLean6
Christine Parker
Rob Whitfield7
Jason Yetton8
Chief Financial Officer
Chief Executive, Commercial & Business Bank
Chief Executive Officer, Westpac New Zealand Limited
Group Executive, Human Resources & Corporate Affairs
Full Year
Group Executive, Westpac Institutional Bank
Group Executive, Westpac Retail & Business Banking
Non-executive Directors
Name
Position
Lindsay Maxsted
Chairman
Elizabeth Bryan
Director
Ewen Crouch
Alison Deans
Craig Dunn9
Director
Director
Director
Robert Elstone
Director
Peter Hawkins
Director
Full Year
Part Year
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
Part Year
Part Year
Term as KMP
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
Full Year
Director
Peter Marriott
Ann Pickard10
1 Brian Hartzer was Chief Executive, Australian Financial Services (AFS) prior to his appointment as Managing Director & Chief Executive Officer on 2
Part Year
Full Year
Director
February 2015.
2 Gail Kelly retired as Managing Director & Chief Executive Officer on 1 February 2015.
3 Lyn Cobley was appointed Group Executive, Westpac Institutional Bank with effect from 7 September 2015.
4 George Frazis was Chief Executive Officer, St.George Banking Group prior to his appointment as Chief Executive, Consumer Bank on 10 June 2015.
5 David Lindberg was Chief Product Officer prior to his appointment as Chief Executive, Commercial & Business Bank on 10 June 2015.
6 David McLean was Acting Chief Executive Officer, Westpac New Zealand Limited prior to his appointment as Chief Executive Officer, Westpac New
Zealand Limited on 2 February 2015.
7 Rob Whitfield resigned effective 10 July 2015.
8 Jason Yetton ceased as Group Executive, Westpac Retail & Business Banking on 10 June 2015.
9 Craig Dunn was appointed on 1 June 2015.
10 Ann Pickard retired on 12 December 2014.
46
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47
Directors’ report
This section provides an overview of the Group’s remuneration arrangements during the 2015 financial year.
3.1. Remuneration strategy, principles and framework
Executive remuneration framework
The CEO and Group Executives are remunerated based on a Total Reward framework:
Westpac’s Remuneration Strategy
Motivate strong performance
Manage risk appropriately.
Link pay to shareholders’
interests.
Attract and retain high
performing executives.
against short-term and
long-term performance
measures.
Executive Total Reward Framework
Fixed Remuneration
(34%)
Comprises:
cash salary;
salary sacrificed items; and
employer superannuation
contributions in line with statutory
obligations.
At Risk Remuneration (Variable Reward)
(66%)
Short-term Incentive (STI)
Long-term Incentive (LTI)
34%
32%
Maximum opportunity = 150% of Target STI
Cash STI
Deferred STI
50% of Total STI
Restricted shares or
Comprises performance share
rights which vest over a
four-year period if performance
hurdles are achieved.
share rights
50% of Total STI
The target pay mix was adopted in 2012 and is being progressively implemented for existing Group Executives as their
remuneration increases. In 2015, Christine Parker and Jason Yetton received increases as their remuneration was significantly
below that of their peers and in competitor organisations. George Frazis also received a market aligned increase during 2015.
The Total Reward framework has three components and, in aggregate, is benchmarked against relevant financial services
competitors:
Fixed remuneration – takes into account the size and complexity of the role, individual responsibilities, experience, skills and
disclosed market-related pay levels within the financial services industry;
Short-term incentive (STI) – is determined based on an STI target set using similar principles to those used for fixed
remuneration, and on individual, divisional and Group performance objectives for the year. Performance is measured against
risk-adjusted financial targets and non-financial targets that support the Group’s strategy; and
Long-term incentive (LTI) – is designed to align the total remuneration of executives to the long-term performance of the Group
and the interests of shareholders. The amount of the award takes into account market benchmarks, individual performance
over time, succession potential and key skills.
4. Executive remuneration
4.1. Remuneration structure and policy
a) Fixed remuneration
Fixed remuneration comprises cash salary, salary sacrificed items and employer superannuation contributions.
The Group provides superannuation contributions in line with statutory obligations. Fixed remuneration is reviewed annually
taking into consideration:
role and accountabilities;
relevant market benchmarks within the financial services industry; and
the attraction, motivation and retention of key executives.
2. Key Management Personnel remuneration disclosed in this Report
3. Remuneration snapshot 2015
Directors’ report
The remuneration of key management personnel (KMP) for the Group is disclosed in this Report. In 2015, KMP comprised
Non-executive Directors, the CEO and Group Executives who reported to the CEO and/or led significant parts of the business.
CEO and Group Executives
Name
Position
Managing Director & Chief Executive Officer
Brian Hartzer1
Gail Kelly2
Group Executives
Managing Director & Chief Executive Officer
Managing Director & Chief Executive Officer
Philip Coffey
Deputy Chief Executive Officer
John Arthur
Lyn Cobley3
Chief Operating Officer
Chief Executive, Westpac Institutional Bank
Brad Cooper
Chief Executive Officer, BT Financial Group
David Curran
Chief Information Officer
George Frazis4
Chief Executive, Consumer Bank
Alexandra Holcomb Chief Risk Officer
Peter King
Chief Financial Officer
David Lindberg5
David McLean6
Rob Whitfield7
Jason Yetton8
Chief Executive, Commercial & Business Bank
Chief Executive Officer, Westpac New Zealand Limited
Group Executive, Westpac Institutional Bank
Group Executive, Westpac Retail & Business Banking
Christine Parker
Group Executive, Human Resources & Corporate Affairs
Full Year
Term as KMP
Full Year
Part Year
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
Part Year
Part Year
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
Part Year
Term as KMP
Non-executive Directors
Name
Position
Lindsay Maxsted
Chairman
Elizabeth Bryan
Director
Ewen Crouch
Alison Deans
Craig Dunn9
Director
Director
Director
Robert Elstone
Director
Peter Hawkins
Director
Peter Marriott
Ann Pickard10
Director
Director
February 2015.
1 Brian Hartzer was Chief Executive, Australian Financial Services (AFS) prior to his appointment as Managing Director & Chief Executive Officer on 2
2 Gail Kelly retired as Managing Director & Chief Executive Officer on 1 February 2015.
3 Lyn Cobley was appointed Group Executive, Westpac Institutional Bank with effect from 7 September 2015.
4 George Frazis was Chief Executive Officer, St.George Banking Group prior to his appointment as Chief Executive, Consumer Bank on 10 June 2015.
5 David Lindberg was Chief Product Officer prior to his appointment as Chief Executive, Commercial & Business Bank on 10 June 2015.
6 David McLean was Acting Chief Executive Officer, Westpac New Zealand Limited prior to his appointment as Chief Executive Officer, Westpac New
8 Jason Yetton ceased as Group Executive, Westpac Retail & Business Banking on 10 June 2015.
Zealand Limited on 2 February 2015.
7 Rob Whitfield resigned effective 10 July 2015.
9 Craig Dunn was appointed on 1 June 2015.
10 Ann Pickard retired on 12 December 2014.
This section provides an overview of the Group’s remuneration arrangements during the 2015 financial year.
3.1. Remuneration strategy, principles and framework
Executive remuneration framework
The CEO and Group Executives are remunerated based on a Total Reward framework:
Westpac’s Remuneration Strategy
Motivate strong performance
against short-term and
long-term performance
measures.
Manage risk appropriately.
Link pay to shareholders’
interests.
Attract and retain high
performing executives.
Executive Total Reward Framework
Fixed Remuneration
(34%)
Comprises:
cash salary;
salary sacrificed items; and
employer superannuation
contributions in line with statutory
obligations.
At Risk Remuneration (Variable Reward)
(66%)
Short-term Incentive (STI)
34%
Long-term Incentive (LTI)
32%
Maximum opportunity = 150% of Target STI
Cash STI
50% of Total STI
Deferred STI
Restricted shares or
share rights
50% of Total STI
Comprises performance share
rights which vest over a
four-year period if performance
hurdles are achieved.
The target pay mix was adopted in 2012 and is being progressively implemented for existing Group Executives as their
remuneration increases. In 2015, Christine Parker and Jason Yetton received increases as their remuneration was significantly
below that of their peers and in competitor organisations. George Frazis also received a market aligned increase during 2015.
The Total Reward framework has three components and, in aggregate, is benchmarked against relevant financial services
competitors:
Fixed remuneration – takes into account the size and complexity of the role, individual responsibilities, experience, skills and
disclosed market-related pay levels within the financial services industry;
Short-term incentive (STI) – is determined based on an STI target set using similar principles to those used for fixed
remuneration, and on individual, divisional and Group performance objectives for the year. Performance is measured against
risk-adjusted financial targets and non-financial targets that support the Group’s strategy; and
Long-term incentive (LTI) – is designed to align the total remuneration of executives to the long-term performance of the Group
and the interests of shareholders. The amount of the award takes into account market benchmarks, individual performance
over time, succession potential and key skills.
4. Executive remuneration
4.1. Remuneration structure and policy
a) Fixed remuneration
Fixed remuneration comprises cash salary, salary sacrificed items and employer superannuation contributions.
The Group provides superannuation contributions in line with statutory obligations. Fixed remuneration is reviewed annually
taking into consideration:
role and accountabilities;
relevant market benchmarks within the financial services industry; and
the attraction, motivation and retention of key executives.
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1
b) Short-Term Incentive (STI)
STI provides the opportunity for participants to earn cash and deferred equity incentives where specific outcomes have been
achieved in the financial year. The CEO and each Group Executive are assessed using a balanced scoreboard, combining both
annual financial and non-financial objectives which support the Group’s strategic goals.
STI targets
Brian Hartzer’s full year STI target opportunity for 2015 as CEO was set at $2,686,000. His actual STI target opportunity
reflects the part year as CEO and Chief Executive, AFS.
STI targets for Group Executives are set by the Remuneration Committee and approved by the Board at the beginning of each
performance year based on a range of factors including market competitiveness and the nature of each role. The STI targets
for the 2015 performance year did not increase for those Group Executives whose fixed remuneration was unchanged in 2015.
The STI awards for Group Executives are managed within the Group-wide variable reward pool.
STI outcomes are subject to both a quantitative and qualitative assessment, including a risk management overlay, which is
embedded in our scoreboard measurement process. The maximum STI opportunity is 150% of target. The Board has the
capacity to adjust STI outcomes (and reduce STI outcomes to zero if appropriate) in the assessment process.
STI structure 2015
The table below details how and when STI outcomes are delivered, and for deferred payments, the type of equity and the
instrument used:
STI Structure
The following diagram and table set out the key features of the 2015 LTI awards made in December 2014 to Group Executives
under the Westpac LTI Plan. No awards were made under the CEO Performance or LTI Plans in December 2014.
Cash STI
Deferred STI
Deferred STI Equity Delivered
50% of the
2015 STI
outcome will be
paid as cash in
December 2015.
50% of the 2015 STI outcome
will be deferred in the form of
restricted Westpac ordinary
shares or rights to ordinary
shares.
Vesting Details
Half of
deferred STI
will vest in
October 2016.
Half of
deferred STI
will vest in
October 2017.
Executive
Type of Equity
Equity Plan
CEO
Group
Executives in
Australia
Group
Executives
outside
Australia
Westpac
ordinary
shares1
CEO Restricted
Share Plan
Restricted
Share Plan
Westpac share
rights2
Westpac
Performance
Plan
1 Shares granted under the CEO Restricted Share Plan and the Restricted Share Plan rank equally with Westpac ordinary shares for dividends and
voting rights from the date they are granted. The Board has the discretion to satisfy vested share right grants and the allocation of subsequent shares
to participants, or the allocation of restricted shares under the deferred STI, by either the issue of new shares or on-market purchase of shares.
2 Rights to ordinary shares entitle the holder to Westpac ordinary shares at the time of vesting.
Directors’ report
By deferring a portion of the STI in the form of restricted equity, incentive payments are better aligned with the interests of
shareholders as the ultimate value of the deferred portion is tied to movements in share price over the restriction period. The
deferred STI awards are allocated as restricted shares and, as they recognise past performance and are not subject to further
performance conditions, attract dividends over the vesting period.
If an executive resigns or retires, or otherwise leaves the Group before his or her securities vest, the Board has discretion in
relation to how those securities are treated. If the executive leaves the Group to join another organisation, or is terminated for
cause, their securities are generally forfeited. In other circumstances, the Board may elect to allow the securities to remain on
foot for the balance of the relevant restriction period and then vest.
Securities are also subject to forfeiture at the Board’s discretion in the event of a material issue or financial mis-statement.
Details of deferred STI allocations granted in prior years, which have been exercised during the year ended
30 September 2015, are included in Section 6.4 of this Report.
c) Long-Term Incentive (LTI)
The CEO and Group Executives are also eligible for an LTI award.
LTI structure 2014
Report (page 62), and will vest in 2017.
LTI structure 2015
The LTI grants made for the 2014 remuneration period follow the format and performance hurdles detailed in the 2014 Annual
LTI Structure 2015
Performance Share Rights Granted
Composite TSR index
(50% of the allocation)
Cash EPS CAGR
(50% of the allocation)
4 year vesting period
4 year vesting period
Weighted Total Shareholder Return (TSR) – measured over a 4
Cash EPS Compound Annual Growth Rate (CAGR) – measured
year performance period and will vest on 30 September 2018.
as at 30 September 2017 and any rights capable of vesting will
vest on 30 September 2018.
Composite TSR index and vesting profile
As at 30 September 2018, the 4 year TSR performance of each of the index companies will be multiplied by its index weighting, and the
total of the 10 scores will comprise the composite index performance measure. If the Group’s TSR outcome over the same period equals
the composite TSR index, 50% will vest. The Group’s TSR outcome must exceed the composite index plus 21.551 for 100% to vest as
illustrated below. There is a single test and no re-testing.
The composite index
Company
ANZ Banking Group
Commonwealth Bank
National Australia Bank
AMP
Bank of Queensland
Bendigo and Adelaide Bank
Challenger
Macquarie Group
Perpetual
Suncorp Group
1 21.55 (5% average CAGR).
TSR weighting
TSR Index vesting
16.67%
16.67%
16.67%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
g
n
i
t
s
e
V
n
o
i
t
a
c
o
l
l
A
f
o
%
100
75
50
25
0
= Index Target Index Growth
WBC TSR Outcome
48
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
49
b) Short-Term Incentive (STI)
STI provides the opportunity for participants to earn cash and deferred equity incentives where specific outcomes have been
achieved in the financial year. The CEO and each Group Executive are assessed using a balanced scoreboard, combining both
annual financial and non-financial objectives which support the Group’s strategic goals.
STI targets
Brian Hartzer’s full year STI target opportunity for 2015 as CEO was set at $2,686,000. His actual STI target opportunity
reflects the part year as CEO and Chief Executive, AFS.
STI targets for Group Executives are set by the Remuneration Committee and approved by the Board at the beginning of each
performance year based on a range of factors including market competitiveness and the nature of each role. The STI targets
for the 2015 performance year did not increase for those Group Executives whose fixed remuneration was unchanged in 2015.
The STI awards for Group Executives are managed within the Group-wide variable reward pool.
STI outcomes are subject to both a quantitative and qualitative assessment, including a risk management overlay, which is
embedded in our scoreboard measurement process. The maximum STI opportunity is 150% of target. The Board has the
capacity to adjust STI outcomes (and reduce STI outcomes to zero if appropriate) in the assessment process.
The table below details how and when STI outcomes are delivered, and for deferred payments, the type of equity and the
STI structure 2015
instrument used:
Cash STI
50% of the
2015 STI
outcome will be
paid as cash in
December 2015.
STI Structure
Deferred STI
Deferred STI Equity Delivered
50% of the 2015 STI outcome
will be deferred in the form of
restricted Westpac ordinary
shares or rights to ordinary
shares.
Vesting Details
Half of
Half of
deferred STI
deferred STI
will vest in
will vest in
October 2016.
October 2017.
Executive
Type of Equity
Equity Plan
CEO
Group
Executives in
Australia
Group
Executives
outside
Australia
Westpac
ordinary
shares1
CEO Restricted
Share Plan
Restricted
Share Plan
Westpac share
Westpac
rights2
Performance
Plan
1 Shares granted under the CEO Restricted Share Plan and the Restricted Share Plan rank equally with Westpac ordinary shares for dividends and
voting rights from the date they are granted. The Board has the discretion to satisfy vested share right grants and the allocation of subsequent shares
to participants, or the allocation of restricted shares under the deferred STI, by either the issue of new shares or on-market purchase of shares.
2 Rights to ordinary shares entitle the holder to Westpac ordinary shares at the time of vesting.
Directors’ report
By deferring a portion of the STI in the form of restricted equity, incentive payments are better aligned with the interests of
shareholders as the ultimate value of the deferred portion is tied to movements in share price over the restriction period. The
deferred STI awards are allocated as restricted shares and, as they recognise past performance and are not subject to further
performance conditions, attract dividends over the vesting period.
If an executive resigns or retires, or otherwise leaves the Group before his or her securities vest, the Board has discretion in
relation to how those securities are treated. If the executive leaves the Group to join another organisation, or is terminated for
cause, their securities are generally forfeited. In other circumstances, the Board may elect to allow the securities to remain on
foot for the balance of the relevant restriction period and then vest.
Securities are also subject to forfeiture at the Board’s discretion in the event of a material issue or financial mis-statement.
Details of deferred STI allocations granted in prior years, which have been exercised during the year ended
30 September 2015, are included in Section 6.4 of this Report.
c) Long-Term Incentive (LTI)
The CEO and Group Executives are also eligible for an LTI award.
LTI structure 2014
The LTI grants made for the 2014 remuneration period follow the format and performance hurdles detailed in the 2014 Annual
Report (page 62), and will vest in 2017.
LTI structure 2015
The following diagram and table set out the key features of the 2015 LTI awards made in December 2014 to Group Executives
under the Westpac LTI Plan. No awards were made under the CEO Performance or LTI Plans in December 2014.
LTI Structure 2015
Performance Share Rights Granted
Composite TSR index
(50% of the allocation)
Cash EPS CAGR
(50% of the allocation)
4 year vesting period
4 year vesting period
Weighted Total Shareholder Return (TSR) – measured over a 4
year performance period and will vest on 30 September 2018.
Cash EPS Compound Annual Growth Rate (CAGR) – measured
as at 30 September 2017 and any rights capable of vesting will
vest on 30 September 2018.
Composite TSR index and vesting profile
As at 30 September 2018, the 4 year TSR performance of each of the index companies will be multiplied by its index weighting, and the
total of the 10 scores will comprise the composite index performance measure. If the Group’s TSR outcome over the same period equals
the composite TSR index, 50% will vest. The Group’s TSR outcome must exceed the composite index plus 21.551 for 100% to vest as
illustrated below. There is a single test and no re-testing.
The composite index
Company
ANZ Banking Group
Commonwealth Bank
National Australia Bank
AMP
Bank of Queensland
Bendigo and Adelaide Bank
Challenger
Macquarie Group
Perpetual
Suncorp Group
1 21.55 (5% average CAGR).
TSR weighting
16.67%
16.67%
16.67%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
g
n
i
t
s
e
V
n
o
i
t
a
c
o
l
l
A
f
o
%
TSR Index vesting
100
75
50
25
0
= Index Target Index Growth
WBC TSR Outcome
48
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
49
1
LTI award opportunities
Brian Hartzer did not receive any awards under the CEO LTI Plan related to his appointment as CEO. No awards were made
in 2015 to Gail Kelly (former CEO) under the CEO Performance Plan.
Group Executives receive annual LTI awards in the form of share rights under the Westpac LTI Plan. A share right is not a
Westpac share and does not attract the payment of dividends.
At the beginning of each year, the Board, advised by the Remuneration Committee, sets the dollar value of the LTI award target
for each Group Executive.
Westpac LTI Plan – Granted after 1 October 2014
Equity
instrument
Share rights – the Board has the discretion to satisfy vested grants and the allocation of subsequent shares
to participants by either the issue of new shares or the on-market purchase of shares, or as a cash payment.
One share right entitles the holder to one ordinary share at the time of vesting at a nil exercise cost.
Determining
the number of
securities
The number of share rights each individual receives is determined by dividing the dollar value of the LTI
award by the value of the share rights at the beginning of the performance assessment period (performance
period).
The value of share rights is determined by an independent valuer taking as a starting point the market price
of Westpac shares at grant, and utilising a Monte Carlo simulation pricing model, applying assumptions
based on expected life, volatility, risk-free interest rate and dividend yield associated with the securities and
the risk of forfeiture attributed to each performance hurdle. The value of a share right may be different for
TSR hurdled share rights than for EPS hurdled share rights.
Performance
hurdles
In December 2014 on the transition from a three to four year performance and vesting cycle, Group
Executives were allocated both the 2014 LTI allocation vesting in 2017 and the 2015 LTI allocation vesting in
2018. The LTI grants retain dual TSR and EPS hurdles which are detailed below.
The TSR data is averaged over the three months preceding the measurement date.
Together, the use of these two hurdles is intended to provide a balanced view of the Group’s overall
performance and provide strong alignment with shareholder interests.
The two hurdles operate independently.
2014 LTI Award
TSR
(50% of the allocation)
Cash EPS CAGR
(50% of the allocation)
Westpac’s TSR percentile ranking must equal or
exceed the 50th percentile of a defined group of
comparator companies (peer group) over the three
year performance period. The peer group is
comprised of the top 10 selected Australian
companies listed on the ASX in the financial services
sector.
The companies in the 2014 peer group for the
Westpac Reward Plan are:
AMP Limited;
ASX Limited;
Australia and New Zealand Banking Group
Limited;
Bendigo and Adelaide Bank Limited;
Commonwealth Bank of Australia;
Insurance Australia Group Limited;
Lend Lease Group;
Macquarie Group Limited;
National Australia Bank Limited; and
Suncorp Group Limited.
The Cash EPS CAGR measure focuses on growth
in cash earnings over a three year performance
period. A description of the process used to
determine cash earnings is provided at Note 2 to the
financial statements.
Westpac has a policy of not providing guidance to
the market. Accordingly, the Board will advise
specific Cash EPS targets and the Group’s
performance against target following the test date.
The Cash EPS targets were developed with the
assistance of an independent external advisor who
was provided access to Westpac’s long-term
business plan and analyst forecasts in regard to the
long-term performance of Westpac and its peers.
The EPS performance will be measured once at the
completion of the performance period. Westpac
shares will be allocated in satisfaction of vested
share rights at no cost to participants.
Directors’ report
Westpac LTI Plan – Granted after 1 October 2014
2015 LTI Award
TSR
(50% of the allocation)
Cash EPS CAGR
(50% of the allocation)
The Cash EPS CAGR measure as described for the
2014 grant is unchanged for the 2015 LTI award.
EPS rights which satisfy the EPS hurdle and qualify
for vesting at the completion of the three year
performance period will have a one year holding
lock applied and will vest at the completion of the
four year term from the commencement date.
Westpac’s TSR must equal the growth in the
composite index in order for 50% of the TSR tranche
to vest.
For 100% to vest, Westpac’s TSR must exceed the
growth of the composite index by 21.55 (i.e. average
5% compound annual growth over the four year
performance period).
The companies in the 2015 peer group for the
Westpac LTI Plan are:
AMP Limited;
Australia and New Zealand Banking Group
Limited;
Bendigo and Adelaide Bank Limited;
Bank of Queensland;
Challenger Limited;
Commonwealth Bank of Australia;
Macquarie Group Limited;
National Australia Bank Limited;
Perpetual Limited; and
Suncorp Group Limited.
of the composite index plus 21.55.
The TSR performance will be measured once at the
completion of the performance period. Westpac
shares will be allocated in satisfaction of vested
share rights at no cost to participants.
Targets are
set for stretch
performance
The Board considers the vesting profile as being
The expensed value of the December 2013, 2014
appropriate as 100% vesting will only occur where, in
and 2015 grants in Table 6.2 of this Report have
respect of the 2014 LTI award, Westpac is ranked
been discounted to 50%, reflecting the Board’s
third or better out of the total of 11 companies
current assessment of the probability of the
(including Westpac), and in respect of the 2015 LTI
threshold EPS hurdles being met and share rights
award, Westpac’s TSR equals or exceeds the growth
vesting over time.
Who
measures the
performance
hurdle
outcomes?
To ensure objectivity and external validation, TSR
The Cash EPS CAGR outcome will be determined
results are calculated by an independent external
by the Board based on the Cash EPS disclosed in
consultant and are provided to the Board or its
our results at the completion of the performance
delegate to review and determine vesting outcomes.
period. Under the relevant plan rules, the Board
Under the relevant plan rules, the Board may
may exercise discretion if in all prevailing
exercise discretion if in all prevailing circumstances
circumstances Directors think it is appropriate to do
Directors think it is appropriate to do so when
determining the ultimate vesting outcome.
so when determining the ultimate vesting outcome.
Early vesting
is possible in
limited cases
performance hurdles being met.
For awards made since 1 October 2009, unvested securities may vest before a test date if the executive is
no longer employed by the Group due to death or disability. In general, any such vesting is not subject to
No re-testing
There is no re-testing on awards made since 2011. Any securities remaining unvested after the nominated
measurement period including any holding lock period lapse immediately.
50
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
51
LTI award opportunities
Brian Hartzer did not receive any awards under the CEO LTI Plan related to his appointment as CEO. No awards were made
in 2015 to Gail Kelly (former CEO) under the CEO Performance Plan.
Group Executives receive annual LTI awards in the form of share rights under the Westpac LTI Plan. A share right is not a
Westpac share and does not attract the payment of dividends.
At the beginning of each year, the Board, advised by the Remuneration Committee, sets the dollar value of the LTI award target
for each Group Executive.
Westpac LTI Plan – Granted after 1 October 2014
Equity
instrument
Share rights – the Board has the discretion to satisfy vested grants and the allocation of subsequent shares
to participants by either the issue of new shares or the on-market purchase of shares, or as a cash payment.
One share right entitles the holder to one ordinary share at the time of vesting at a nil exercise cost.
Determining
the number of
securities
period).
The number of share rights each individual receives is determined by dividing the dollar value of the LTI
award by the value of the share rights at the beginning of the performance assessment period (performance
The value of share rights is determined by an independent valuer taking as a starting point the market price
of Westpac shares at grant, and utilising a Monte Carlo simulation pricing model, applying assumptions
based on expected life, volatility, risk-free interest rate and dividend yield associated with the securities and
the risk of forfeiture attributed to each performance hurdle. The value of a share right may be different for
TSR hurdled share rights than for EPS hurdled share rights.
Performance
hurdles
In December 2014 on the transition from a three to four year performance and vesting cycle, Group
Executives were allocated both the 2014 LTI allocation vesting in 2017 and the 2015 LTI allocation vesting in
2018. The LTI grants retain dual TSR and EPS hurdles which are detailed below.
The TSR data is averaged over the three months preceding the measurement date.
Together, the use of these two hurdles is intended to provide a balanced view of the Group’s overall
performance and provide strong alignment with shareholder interests.
The two hurdles operate independently.
2014 LTI Award
TSR
(50% of the allocation)
Cash EPS CAGR
(50% of the allocation)
Westpac’s TSR percentile ranking must equal or
The Cash EPS CAGR measure focuses on growth
exceed the 50th percentile of a defined group of
in cash earnings over a three year performance
comparator companies (peer group) over the three
period. A description of the process used to
year performance period. The peer group is
comprised of the top 10 selected Australian
companies listed on the ASX in the financial services
sector.
The companies in the 2014 peer group for the
Westpac Reward Plan are:
AMP Limited;
ASX Limited;
Limited;
Australia and New Zealand Banking Group
Bendigo and Adelaide Bank Limited;
Commonwealth Bank of Australia;
Insurance Australia Group Limited;
Lend Lease Group;
Macquarie Group Limited;
National Australia Bank Limited; and
Suncorp Group Limited.
determine cash earnings is provided at Note 2 to the
financial statements.
Westpac has a policy of not providing guidance to
the market. Accordingly, the Board will advise
specific Cash EPS targets and the Group’s
performance against target following the test date.
The Cash EPS targets were developed with the
assistance of an independent external advisor who
was provided access to Westpac’s long-term
business plan and analyst forecasts in regard to the
long-term performance of Westpac and its peers.
The EPS performance will be measured once at the
completion of the performance period. Westpac
shares will be allocated in satisfaction of vested
share rights at no cost to participants.
Directors’ report
Westpac LTI Plan – Granted after 1 October 2014
2015 LTI Award
TSR
(50% of the allocation)
Cash EPS CAGR
(50% of the allocation)
Westpac’s TSR must equal the growth in the
composite index in order for 50% of the TSR tranche
to vest.
For 100% to vest, Westpac’s TSR must exceed the
growth of the composite index by 21.55 (i.e. average
5% compound annual growth over the four year
performance period).
The Cash EPS CAGR measure as described for the
2014 grant is unchanged for the 2015 LTI award.
EPS rights which satisfy the EPS hurdle and qualify
for vesting at the completion of the three year
performance period will have a one year holding
lock applied and will vest at the completion of the
four year term from the commencement date.
The companies in the 2015 peer group for the
Westpac LTI Plan are:
AMP Limited;
Australia and New Zealand Banking Group
Limited;
Bendigo and Adelaide Bank Limited;
Bank of Queensland;
Challenger Limited;
Commonwealth Bank of Australia;
Macquarie Group Limited;
National Australia Bank Limited;
Perpetual Limited; and
Suncorp Group Limited.
The Board considers the vesting profile as being
appropriate as 100% vesting will only occur where, in
respect of the 2014 LTI award, Westpac is ranked
third or better out of the total of 11 companies
(including Westpac), and in respect of the 2015 LTI
award, Westpac’s TSR equals or exceeds the growth
of the composite index plus 21.55.
The TSR performance will be measured once at the
completion of the performance period. Westpac
shares will be allocated in satisfaction of vested
share rights at no cost to participants.
To ensure objectivity and external validation, TSR
results are calculated by an independent external
consultant and are provided to the Board or its
delegate to review and determine vesting outcomes.
Under the relevant plan rules, the Board may
exercise discretion if in all prevailing circumstances
Directors think it is appropriate to do so when
determining the ultimate vesting outcome.
Targets are
set for stretch
performance
Who
measures the
performance
hurdle
outcomes?
The expensed value of the December 2013, 2014
and 2015 grants in Table 6.2 of this Report have
been discounted to 50%, reflecting the Board’s
current assessment of the probability of the
threshold EPS hurdles being met and share rights
vesting over time.
The Cash EPS CAGR outcome will be determined
by the Board based on the Cash EPS disclosed in
our results at the completion of the performance
period. Under the relevant plan rules, the Board
may exercise discretion if in all prevailing
circumstances Directors think it is appropriate to do
so when determining the ultimate vesting outcome.
Early vesting
is possible in
limited cases
For awards made since 1 October 2009, unvested securities may vest before a test date if the executive is
no longer employed by the Group due to death or disability. In general, any such vesting is not subject to
performance hurdles being met.
No re-testing
There is no re-testing on awards made since 2011. Any securities remaining unvested after the nominated
measurement period including any holding lock period lapse immediately.
50
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
51
1
Treatment of
securities
Westpac LTI Plan – Granted after 1 October 2014
The Board has discretion in relation to performance share rights where the CEO or a senior executive
resigns or retires, or otherwise leaves the Group before vesting occurs. This discretion enables the Board to
vest the relevant securities or leave them on foot for the remainder of the performance period. In exercising
its discretion, the Board will take into account all relevant circumstances including those surrounding the
departure in question. The Board may also adjust the number of performance share rights downwards, or to
zero (in which case they will lapse) where the circumstances of the departure warrant, or to respond to
misconduct resulting in significant financial and/or reputational impact to Westpac.
Where a holder acts fraudulently or dishonestly, or is in material breach of his or her obligations under the
relevant equity plan, unexercised performance share rights (whether vested or unvested) will lapse unless
the Board determines otherwise.
Directors’ report
4.2. Linking reward and performance
CEO performance objectives and key highlights
The Remuneration Committee reviews and makes recommendations to the Board on individual performance objectives for the
CEO. These objectives are intended to provide a robust link between remuneration outcomes and the key drivers of long-term
shareholder value. The STI objectives are set in the form of a scoreboard with targets and measures aligned to our strategic
priorities cascaded from the CEO scoreboard to the relevant Group Executive scoreboard. The key financial and non-financial
objectives for the CEO in the 2015 financial year, with commentary on key highlights are provided below:
Category
Weighting Measure1
Performance Highlights
Return
30%
Economic Profit
Return on Equity
Return on Equity was 15.8% exceeding our target of 15%,
Growth
10%
Core Earnings Growth
The Group delivered 3% growth in core earnings, with our
20%
Customers
We have exceeded our customer growth targets, making
The Group delivered EP of $4.418 million, down 2% from
FY14. While cash earnings increased 3%, the EP outcome
was impacted by a 6% increase in average ordinary equity.
with all divisions achieving returns above their cost of capital
despite difficult operating conditions and increased capital
requirements.
Australian and New Zealand consumer and business banks
performing above target. Core earnings were impacted by
severe weather claims in BTFG and the partial sale of BTIM
as well as the FVA adjustments and below target margins in
WIB.
solid progress towards our goal of on-boarding a million new
customers by 2017, while importantly reducing complaints by
31% year on year and down 80% over the past three years.
Reached stretch target of 10 million customers across the
Group 18 months ahead of target.
The Westpac Institutional Bank regained its No.1 spot on the
Peter Lee relationship strength index, while retaining the No.1
Lead Transaction Bank position for a 12th year in a row.
Our digital platforms have been key to the engagement of
customers with Westpac Live ranked No.2 globally by
Forrester Research and Westpac One delivering the Best
Online Bank award from Canstar in New Zealand.
We continued to grow our market share for business credit,
household deposits and credit cards at or above system.
Maintained sector leading wealth penetration at around 20%.
BT Platforms Funds Under Administration ranked No.1 for
market share.
We continued to grow our Corporate and Institutional
customer base for a third straight year.
Market Share
Wealth
Asia
Strength
10%
Adherence to Group Risk
Appetite Statement (RAS)
The Group has a strong capital position, improved liquidity
and funding profiles and impairments at the lowest level
among the major Australian banks.
The Group has delivered its financial performance while
operating within our Group RAS.
10%
Balance Sheet Strength and
The Group’s asset quality remains sector leading with Net
Sustainable Funding
Interest Margin performance maintained.
Our funding position is strong and well diversified, the
average duration extended from 2.77 years to 2.82 years.
10%
Business & Technology
Significant progress has been made towards having a world
Architecture
class online and mobile capability, a more resilient
infrastructure and a clear road map for continuing
development.
52
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
53
Treatment of
securities
Westpac LTI Plan – Granted after 1 October 2014
The Board has discretion in relation to performance share rights where the CEO or a senior executive
resigns or retires, or otherwise leaves the Group before vesting occurs. This discretion enables the Board to
vest the relevant securities or leave them on foot for the remainder of the performance period. In exercising
its discretion, the Board will take into account all relevant circumstances including those surrounding the
departure in question. The Board may also adjust the number of performance share rights downwards, or to
zero (in which case they will lapse) where the circumstances of the departure warrant, or to respond to
misconduct resulting in significant financial and/or reputational impact to Westpac.
Where a holder acts fraudulently or dishonestly, or is in material breach of his or her obligations under the
relevant equity plan, unexercised performance share rights (whether vested or unvested) will lapse unless
the Board determines otherwise.
Directors’ report
4.2. Linking reward and performance
CEO performance objectives and key highlights
The Remuneration Committee reviews and makes recommendations to the Board on individual performance objectives for the
CEO. These objectives are intended to provide a robust link between remuneration outcomes and the key drivers of long-term
shareholder value. The STI objectives are set in the form of a scoreboard with targets and measures aligned to our strategic
priorities cascaded from the CEO scoreboard to the relevant Group Executive scoreboard. The key financial and non-financial
objectives for the CEO in the 2015 financial year, with commentary on key highlights are provided below:
Category
Weighting Measure1
Return
30%
Economic Profit
Performance Highlights
The Group delivered EP of $4.418 million, down 2% from
FY14. While cash earnings increased 3%, the EP outcome
was impacted by a 6% increase in average ordinary equity.
Return on Equity
Return on Equity was 15.8% exceeding our target of 15%,
Growth
10%
Core Earnings Growth
with all divisions achieving returns above their cost of capital
despite difficult operating conditions and increased capital
requirements.
The Group delivered 3% growth in core earnings, with our
Australian and New Zealand consumer and business banks
performing above target. Core earnings were impacted by
severe weather claims in BTFG and the partial sale of BTIM
as well as the FVA adjustments and below target margins in
WIB.
20%
Customers
We have exceeded our customer growth targets, making
solid progress towards our goal of on-boarding a million new
customers by 2017, while importantly reducing complaints by
31% year on year and down 80% over the past three years.
Reached stretch target of 10 million customers across the
Group 18 months ahead of target.
The Westpac Institutional Bank regained its No.1 spot on the
Peter Lee relationship strength index, while retaining the No.1
Lead Transaction Bank position for a 12th year in a row.
Our digital platforms have been key to the engagement of
customers with Westpac Live ranked No.2 globally by
Forrester Research and Westpac One delivering the Best
Online Bank award from Canstar in New Zealand.
We continued to grow our market share for business credit,
household deposits and credit cards at or above system.
Maintained sector leading wealth penetration at around 20%.
BT Platforms Funds Under Administration ranked No.1 for
market share.
We continued to grow our Corporate and Institutional
customer base for a third straight year.
The Group has a strong capital position, improved liquidity
and funding profiles and impairments at the lowest level
among the major Australian banks.
The Group has delivered its financial performance while
operating within our Group RAS.
The Group’s asset quality remains sector leading with Net
Interest Margin performance maintained.
Our funding position is strong and well diversified, the
average duration extended from 2.77 years to 2.82 years.
Significant progress has been made towards having a world
class online and mobile capability, a more resilient
infrastructure and a clear road map for continuing
development.
Market Share
Wealth
Asia
Strength
10%
Adherence to Group Risk
Appetite Statement (RAS)
10%
10%
Balance Sheet Strength and
Sustainable Funding
Business & Technology
Architecture
52
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2015 Westpac Group Annual Report
53
1
10%
People and Sustainability
We have retained our position as the most sustainable bank
globally in the 2015 Dow Jones Sustainability Indices (DJSI)
Review.
The number of women in leadership grew to 46% and is on
track to meet our 2017 target of 50%.
Our continued focus on a culture of workplace safety has
delivered a 28% reduction in Long Term Injury Frequency
Rate well ahead of targets and our 2014 result.
1
Individual measures will differ for each Group Executive.
Directors’ report
Our primary financial measure is economic profit which the Board believes, in combination with ROE, is an appropriate
measure of returns and of the value created for shareholders complementing the LTI measures. The remaining measures focus
on ensuring that we remain strong; deliver targeted growth; and drive simplification, innovation and productivity while helping
our customers, communities and people to prosper and grow. The final STI outcome for 2015 reflects the Board’s view of
performance across all balanced scoreboard measures relative to planned outcomes, and the value the Group has delivered
for our shareholders.
Aligning pay with performance and shareholder return
Graph 1 shows the CEO’s STI payment as a percentage of STI target and its relationship to our primary financial metric,
economic profit, while Graph 2 shows the Group’s ROE performance being the other key financial metric. Graphs 3 and 4 show
the Group’s TSR and EPS performance respectively, these being the LTI hurdles.
Graph 1: STI Award for CEO vs Economic Profit
Graph 2: Return on Equity (ROE) 2012 to 2015
2012
2013
2014
2015
2012
2013
2014
2015
Economic Profit ($m)
ST I Award for CEO
Return on Equity
Average Share Count (m)
Graph 3: Total Shareholder Return (TSR) 2011 to 2015
Graph 4: Cash Earnings per Share (EPS) 2012 to 2015
150
140
130
120
110
100
90
80
70
60
50
)
%
(
O
E
C
r
o
f
d
r
a
w
A
I
T
S
)
%
(
y
t
i
u
q
E
n
o
n
r
u
t
e
R
17
16
15
14
13
e
r
a
h
S
r
e
p
s
t
n
e
C
260
250
240
230
220
210
200
190
3,300
3,100
2,900
2,700
2,500
)
m
(
t
n
u
o
C
e
r
a
h
S
e
g
a
r
e
v
A
4
.
5
4
2
5
.
9
4
2
8
.
7
2
2
9
.
5
1
2
)
m
$
(
t
i
f
o
r
P
c
i
m
o
n
o
c
E
5,200
4,700
4,200
3,700
3,200
2,700
2,200
1,700
)
%
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
130
110
90
70
50
30
10
(10)
Oct 11
Oct 12
Oct 13
Oct 14
Oct 15
2012
2013
2014
2015
WBC
Pee r 1
Pee r 2
Pee r 3
Application of discretion
The Board and the Remuneration Committee recognise that the scoreboard approach, while embracing a number of
complementary performance objectives, will never entirely assess overall performance. The Remuneration Committee may
therefore make discretionary adjustments, positive and negative, to the scoreboard outcomes for the CEO and
Group Executives. The Remuneration Committee uses the following criteria to apply discretionary adjustments:
matters not known or not relevant at the beginning of the financial year, which are relevant to the under or over
performance of the CEO and Group Executives during the financial year;
the degree of stretch implicit in the scoreboard measures and targets themselves and the context in which the targets
were set;
whether the operating environment during the financial year has been materially better or worse than forecast;
comparison with the performance of the Group’s principal competitors;
any major positive or negative risk management or reputational issue that impacts the Group;
the quality of the financial result as shown by its composition and consistency;
whether there have been major positive or negative aspects regarding the quality of leadership and/or behaviours
consistent with our values; and
54
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
55
10%
People and Sustainability
We have retained our position as the most sustainable bank
globally in the 2015 Dow Jones Sustainability Indices (DJSI)
Review.
The number of women in leadership grew to 46% and is on
track to meet our 2017 target of 50%.
Our continued focus on a culture of workplace safety has
delivered a 28% reduction in Long Term Injury Frequency
Rate well ahead of targets and our 2014 result.
1
Individual measures will differ for each Group Executive.
Directors’ report
Our primary financial measure is economic profit which the Board believes, in combination with ROE, is an appropriate
measure of returns and of the value created for shareholders complementing the LTI measures. The remaining measures focus
on ensuring that we remain strong; deliver targeted growth; and drive simplification, innovation and productivity while helping
our customers, communities and people to prosper and grow. The final STI outcome for 2015 reflects the Board’s view of
performance across all balanced scoreboard measures relative to planned outcomes, and the value the Group has delivered
for our shareholders.
Aligning pay with performance and shareholder return
Graph 1 shows the CEO’s STI payment as a percentage of STI target and its relationship to our primary financial metric,
economic profit, while Graph 2 shows the Group’s ROE performance being the other key financial metric. Graphs 3 and 4 show
the Group’s TSR and EPS performance respectively, these being the LTI hurdles.
Graph 1: STI Award for CEO vs Economic Profit
Graph 2: Return on Equity (ROE) 2012 to 2015
)
m
$
(
i
t
i
f
o
r
P
c
m
o
n
o
c
E
5,200
4,700
4,200
3,700
3,200
2,700
2,200
1,700
150
140
130
120
110
100
90
80
70
60
50
)
%
(
O
E
C
r
o
f
d
r
a
w
A
I
T
S
)
%
(
y
t
i
u
q
E
n
o
n
r
u
t
e
R
17
16
15
14
13
3,300
3,100
2,900
2,700
2,500
)
m
(
t
n
u
o
C
e
r
a
h
S
e
g
a
r
e
v
A
2012
2013
2014
2015
2012
2013
2014
2015
Economic Profit ($m)
ST I Award for CEO
Return on Equity
Average Share Count (m)
Graph 3: Total Shareholder Return (TSR) 2011 to 2015
Graph 4: Cash Earnings per Share (EPS) 2012 to 2015
)
%
(
n
r
u
t
e
R
l
r
e
d
o
h
e
r
a
h
S
l
a
t
o
T
130
110
90
70
50
30
10
(10)
e
r
a
h
S
r
e
p
s
t
n
e
C
260
250
240
230
220
210
200
190
4
.
5
4
2
5
.
9
4
2
8
.
7
2
2
9
.
5
1
2
Oct 11
Oct 12
Oct 13
Oct 14
Oct 15
2012
2013
2014
2015
WBC
Pee r 1
Pee r 2
Pee r 3
Application of discretion
The Board and the Remuneration Committee recognise that the scoreboard approach, while embracing a number of
complementary performance objectives, will never entirely assess overall performance. The Remuneration Committee may
therefore make discretionary adjustments, positive and negative, to the scoreboard outcomes for the CEO and
Group Executives. The Remuneration Committee uses the following criteria to apply discretionary adjustments:
matters not known or not relevant at the beginning of the financial year, which are relevant to the under or over
performance of the CEO and Group Executives during the financial year;
the degree of stretch implicit in the scoreboard measures and targets themselves and the context in which the targets
were set;
whether the operating environment during the financial year has been materially better or worse than forecast;
comparison with the performance of the Group’s principal competitors;
any major positive or negative risk management or reputational issue that impacts the Group;
the quality of the financial result as shown by its composition and consistency;
whether there have been major positive or negative aspects regarding the quality of leadership and/or behaviours
consistent with our values; and
54
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
55
1
any other relevant under or over performance or other matter not captured.
The process ensures that financial measures such as EP are adjusted for non-operating items which impact the current year
process such as write-offs, accounting standard changes or one-off transactions (where appropriate) to ensure that employees
are neither advantaged nor disadvantaged when determining the incentive outcome. Adjustments are considered on a multi-
year basis where appropriate e.g. where a material adjustment has been brought forward into the current year.
At the end of the year, the Remuneration Committee reviews performance against objectives and applies any adjustments it
considers appropriate. The Remuneration Committee then recommends STI outcomes for the CEO and each Group Executive
to the Board for approval, thereby ensuring the Board retains oversight of final awards.
The following table provides the Group’s TSR, dividend, cash earnings per share and share price performance each year from
Directors’ report
LTI performance outcomes
2011 to 2015:
TSR – three years
TSR – five years
Dividends per Westpac share (cents)1
Cash earnings per Westpac share2
Share price – high
Share price – low
Share price – close
2015
62.30%
92.78%
187
$2.50
$40.07
$29.10
$29.70
2014
102.03%
103.74%
182
$2.45
$35.99
$30.00
$32.14
Years Ended 30 September
2013
66.09%
90.91%
174
$2.29
$34.79
$24.23
$32.73
2012
25.61%
20.03%
166
$2.16
$24.99
$19.00
$24.85
2011
9.6%
18.5%
156
$2.09
$25.60
$17.84
$20.34
1 Does not include 20 cent special dividend determined in 2013.
2 Cash earnings are not prepared in accordance with AAS and have not been subject to audit.
The vesting outcomes for awards made to the CEO and Group Executives under the CEO Performance Plan and Westpac
Reward Plan that reached the completion of the performance period during the financial year, are set out below. No changes
have been made to the terms and conditions of prior grants.
TSR hurdle vesting outcomes
TSR Percentile in
Vested
Lapsed
in Plan
Remain
Equity Instrument
Type of Equity
Test Date
Ranking Group
CEO Performance Plan2 Performance share rights
21 December 2009 21 December 2014 3
40th percentile
Commencement
Date1
1 October 2010
1 October 2015 3
50th percentile
1 October 2012
1 October 2015
30th percentile
Westpac Reward Plan
Performance share rights
1 October 2010
1 October 2015 3
50th percentile
1 October 2012
1 October 2015
30th percentile
1 Commencement date refers to the commencement of the performance period.
2 CEO Performance Plan refers to awards made to Gail Kelly.
3 Third test date. Unvested share rights lapsed. There is no re-testing for awards granted since 2011.
%
70
90
-
-
90
%
30
10
100
10
100
%
-
-
-
-
-
Cash EPS CAGR hurdle vesting outcomes
Equity Instrument
Type of Equity
Test Date
Performance
CEO Performance Plan2
Performance share rights
1 October 2012
1 October 2015
Westpac Reward Plan
Performance share rights
1 October 2012
1 October 2015
4.94%
4.94%
%
72
72
%
28
28
Commencement
Date1
Cash EPS CAGR
Vested
Lapsed
1 Commencement date refers to the commencement of the performance period.
2 CEO Performance Plan refers to awards made to Gail Kelly.
2012 Cash EPS CAGR hurdle
The Cash EPS CAGR hurdle and vesting profile over the three year vesting period for the 2012 LTI grant was:
a minimum of 4.1% CAGR for 50% to vest;
6% CAGR for 100% to vest; and
straight-line vesting between 4.1% and 6% CAGR.
The Cash EPS CAGR range was developed prior to the allocation in December 2012, and reflected stretch targets in the
context of both consensus analyst forecasts and the Westpac strategic plan and business forecasting. The performance range
also reflected the forecast market and operating conditions in late 2012.
56
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2015 Westpac Group Annual Report
57
The process ensures that financial measures such as EP are adjusted for non-operating items which impact the current year
process such as write-offs, accounting standard changes or one-off transactions (where appropriate) to ensure that employees
are neither advantaged nor disadvantaged when determining the incentive outcome. Adjustments are considered on a multi-
year basis where appropriate e.g. where a material adjustment has been brought forward into the current year.
At the end of the year, the Remuneration Committee reviews performance against objectives and applies any adjustments it
considers appropriate. The Remuneration Committee then recommends STI outcomes for the CEO and each Group Executive
to the Board for approval, thereby ensuring the Board retains oversight of final awards.
any other relevant under or over performance or other matter not captured.
LTI performance outcomes
Directors’ report
The following table provides the Group’s TSR, dividend, cash earnings per share and share price performance each year from
2011 to 2015:
Years Ended 30 September
TSR – three years
TSR – five years
Dividends per Westpac share (cents)1
Cash earnings per Westpac share2
Share price – high
Share price – low
2015
62.30%
92.78%
187
$2.50
$40.07
$29.10
2014
102.03%
103.74%
182
$2.45
$35.99
$30.00
Share price – close
1 Does not include 20 cent special dividend determined in 2013.
2 Cash earnings are not prepared in accordance with AAS and have not been subject to audit.
$29.70
$32.14
2013
66.09%
90.91%
174
$2.29
$34.79
$24.23
$32.73
2012
25.61%
20.03%
166
$2.16
$24.99
$19.00
$24.85
2011
9.6%
18.5%
156
$2.09
$25.60
$17.84
$20.34
The vesting outcomes for awards made to the CEO and Group Executives under the CEO Performance Plan and Westpac
Reward Plan that reached the completion of the performance period during the financial year, are set out below. No changes
have been made to the terms and conditions of prior grants.
TSR hurdle vesting outcomes
Equity Instrument
Type of Equity
CEO Performance Plan2 Performance share rights
Westpac Reward Plan
Performance share rights
Commencement
Date1
Test Date
TSR Percentile in
Ranking Group
Vested
%
Lapsed
%
21 December 2009 21 December 2014 3
1 October 2015 3
1 October 2015
1 October 2010
1 October 2012
40th percentile
50th percentile
30th percentile
1 October 2010
1 October 2012
1 October 2015 3
1 October 2015
50th percentile
30th percentile
70
90
-
90
-
30
10
100
10
100
Remain
in Plan
%
-
-
-
-
-
1 Commencement date refers to the commencement of the performance period.
2 CEO Performance Plan refers to awards made to Gail Kelly.
3 Third test date. Unvested share rights lapsed. There is no re-testing for awards granted since 2011.
Cash EPS CAGR hurdle vesting outcomes
Equity Instrument
CEO Performance Plan2
Westpac Reward Plan
Type of Equity
Commencement
Date1
Test Date
Cash EPS CAGR
Performance
Vested
%
Lapsed
%
Performance share rights
1 October 2012
1 October 2015
Performance share rights
1 October 2012
1 October 2015
4.94%
4.94%
72
72
28
28
1 Commencement date refers to the commencement of the performance period.
2 CEO Performance Plan refers to awards made to Gail Kelly.
2012 Cash EPS CAGR hurdle
The Cash EPS CAGR hurdle and vesting profile over the three year vesting period for the 2012 LTI grant was:
a minimum of 4.1% CAGR for 50% to vest;
6% CAGR for 100% to vest; and
straight-line vesting between 4.1% and 6% CAGR.
The Cash EPS CAGR range was developed prior to the allocation in December 2012, and reflected stretch targets in the
context of both consensus analyst forecasts and the Westpac strategic plan and business forecasting. The performance range
also reflected the forecast market and operating conditions in late 2012.
56
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2015 Westpac Group Annual Report
57
1
4.3. Remuneration outcomes for the CEO and Group Executives – Linking reward and performance
The following table has been prepared to provide shareholders with an outline of the remuneration which has been received for
the 2015 performance year either as cash or in the case of prior equity awards, the value which has vested in 2015 (see note 5
below). Details in this table supplement the statutory requirements in Section 6.2 of this report. Unlike the statutory table, which
represents remuneration outcomes prepared in accordance with Australian Accounting Standards (AAS), this table shows the
actual remuneration value received by executives and is not prepared in accordance with AAS.
Fixed
1
Remuneration
2015 STI Cash
Payment2
Other Short-Term
Benefits3
2015 Total Cash
Payments4
Prior Year Equity Awards5
Vested during 2015
Prior Year Equity Awards5
Forfeited during 2015
Managing Director & Chief Executive Officer
Brian Hartzer6
2,442,623
1,245,960
$
$
Group Executives
John Arthur
Lyn Cobley6
Philip Coffey
Brad Cooper
David Curran
George Frazis6
Alexandra Holcomb
Peter King
David Lindberg6
David McLean6
Christine Parker
1,150,235
77,719
1,335,525
1,096,259
984,092
1,161,549
981,564
968,511
272,415
782,164
853,179
728,000
-
734,400
816,000
547,400
928,000
499,800
522,580
151,725
430,580
508,500
$
-
-
1,100,000
-
-
-
-
-
-
-
-
-
$
$
3,688,583
436,856
1,878,235
1,177,719
2,069,925
1,912,259
1,531,492
2,089,549
1,481,364
1,491,091
424,140
1,212,744
1,361,679
1,856,504
-
2,940,393
3,166,210
-
2,522,158
1,028,774
921,140
315,312
450,062
897,932
$
-
443,315
-
746,062
816,052
-
621,718
192,259
165,230
-
79,436
123,083
Former Managing Director & Chief Executive Officer
Gail Kelly6
1,048,750
1,200,000
-
2,248,750
9,509,812
4,288,845
Base and Committee fees
Former Group Executives
Rob Whitfield6
Jason Yetton6
1 Fixed remuneration includes cash salary, annual leave accrual and salary sacrificed items plus employer superannuation contributions.
2 With the exception of Gail Kelly, the cash STI payment represents 50% of the 2015 STI outcome and will be paid in December 2015. The remaining
3,631,892
1,117,365
1,651,376
-
1,413,849
690,281
2,767,061
1,111,753
566,667
427,084
689,260
198,003
3
50% is deferred in the form of equity granted in December 2015 which will vest in equal tranches in October 2016 and 2017.
Includes payments made on cessation of employment or other contracted amounts. The payment to Lyn Cobley reflects annual incentive foregone
from her previous employer. The payment to Rob Whitfield after nearly 30 years’ service includes a payment in lieu of notice in accordance with his
contract provisions.
4 This is the addition of the first, second and third columns.
5 Prior year equity awards include both deferred STI and LTI allocations subject to performance hurdles which have vested in 2015. The equity value
has been calculated as the number of securities that vested or were forfeited during the year ended 30 September 2015, multiplied by the five day
volume weighted average price of Westpac ordinary shares at the time they vested or were forfeited, less any exercise price payable.
6 Refer Section 2 of this Report for details.
5. Non-executive Director remuneration
5.1. Structure and policy
Remuneration policy
Westpac’s Non-executive Director remuneration strategy is designed to attract and retain experienced, qualified Board
members and remunerate them appropriately for their time and expertise.
As the Board’s focus is on strategic direction, long-term corporate performance and the creation of shareholder value, fees for
Non-executive Directors are not directly related to the Group’s short-term results and Non-executive Directors do not receive
performance-based remuneration.
Non-executive Director remuneration consists of the following components:
Remuneration Component
Paid as
Detail
Base fee
Cash
This fee is for service on the Westpac Banking Corporation Board.
The base fee for the Chairman covers all responsibilities, including all
Board Committees.
58
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
59
Directors’ report
Committee fees
Cash
Additional fees are paid to Non-executive Directors for chairing or
participating in Board Committees.
Employer superannuation
Superannuation
Reflects statutory superannuation contributions which are capped at the
contributions
Subsidiary Board and
Advisory Board fees
superannuation maximum contributions base as prescribed under the
Superannuation Guarantee legislation.
Cash
Fees are for service on Subsidiary Boards and Advisory Boards. These
fees are paid by the relevant subsidiary company.
Non-executive Director remuneration in 2015
Non-executive Director fee review – effective 1 October 2014
The Board reviewed the Non-executive Director fee framework in late 2014. On the basis of market data provided by Guerdon
Associates, the Board approved a 2.4% increase to the Chairman and Non-executive Director annual base fees effective 1
October 2014. Remuneration Committee fees for both the Chairman and members increased by 7.8%. No other Committee
fees were increased. Non-executive Director fees were last increased in 2013.
Changes to Board and Committee composition
The following changes were made to Board and Committee composition:
Craig Dunn was appointed as a Non-executive Director to the Westpac Board effective 1 June 2015 and appointed to the
Remuneration and Risk & Compliance Committees effective 5 June 2015; and
At the 2008 Annual General Meeting, the current fee pool of $4.5 million per annum was approved by shareholders. For the
year ended 30 September 2015, $2.94 million (65%) of this fee pool was used. The fee pool is inclusive of employer
Ann Pickard retired effective 12 December 2014.
Fee pool
superannuation contributions.
Fee framework
This section details the current Non-executive Director fee framework.
The following table sets out the Board and standing Committee fees:
Base Fee
Chairman
Non-executive Directors
Committee Chairman Fees
Audit Committee
Risk & Compliance Committee
Remuneration Committee
Technology Committee
Committee Membership Fees
Audit Committee
Risk & Compliance Committee
Remuneration Committee
Technology Committee
Annual Rate
$
795,000
225,000
60,000
60,000
56,000
30,000
30,000
30,000
28,000
15,000
Committee fees are not payable to the Chairman of the Board and members of the Nominations Committee.
Employer superannuation contributions
The Group pays superannuation contributions to Non-executive Directors of up to 9.5% of their fees. The contributions are
capped at the maximum compulsory superannuation contributions base prescribed under the Superannuation Guarantee
legislation. Employer contributions are paid into an eligible superannuation fund nominated by the Director.
Subsidiary Board and Advisory Board fees
Advisory Board.
Throughout the reporting period, additional fees of $35,000 were paid to Peter Hawkins as a member of the Bank of Melbourne
4.3. Remuneration outcomes for the CEO and Group Executives – Linking reward and performance
The following table has been prepared to provide shareholders with an outline of the remuneration which has been received for
the 2015 performance year either as cash or in the case of prior equity awards, the value which has vested in 2015 (see note 5
below). Details in this table supplement the statutory requirements in Section 6.2 of this report. Unlike the statutory table, which
represents remuneration outcomes prepared in accordance with Australian Accounting Standards (AAS), this table shows the
actual remuneration value received by executives and is not prepared in accordance with AAS.
Fixed
2015 STI Cash
Other Short-Term
2015 Total Cash
Prior Year Equity Awards5
Prior Year Equity Awards5
Remuneration
Payment2
Benefits3
Payments4
Vested during 2015
Forfeited during 2015
Managing Director & Chief Executive Officer
Brian Hartzer6
2,442,623
1,245,960
3,688,583
436,856
1
$
1,150,235
77,719
1,335,525
1,096,259
984,092
1,161,549
981,564
968,511
272,415
782,164
853,179
$
-
728,000
734,400
816,000
547,400
928,000
499,800
522,580
151,725
430,580
508,500
Group Executives
John Arthur
Lyn Cobley6
Philip Coffey
Brad Cooper
David Curran
George Frazis6
Alexandra Holcomb
Peter King
David Lindberg6
David McLean6
Christine Parker
$
1,878,235
1,177,719
2,069,925
1,912,259
1,531,492
2,089,549
1,481,364
1,491,091
424,140
1,212,744
1,361,679
$
-
-
1,856,504
2,940,393
3,166,210
2,522,158
1,028,774
921,140
315,312
450,062
897,932
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
443,315
746,062
816,052
621,718
192,259
165,230
79,436
123,083
689,260
198,003
Former Managing Director & Chief Executive Officer
Gail Kelly6
1,048,750
1,200,000
2,248,750
9,509,812
4,288,845
Former Group Executives
Rob Whitfield6
Jason Yetton6
1,413,849
690,281
566,667
427,084
1,651,376
3,631,892
1,117,365
2,767,061
1,111,753
1 Fixed remuneration includes cash salary, annual leave accrual and salary sacrificed items plus employer superannuation contributions.
2 With the exception of Gail Kelly, the cash STI payment represents 50% of the 2015 STI outcome and will be paid in December 2015. The remaining
50% is deferred in the form of equity granted in December 2015 which will vest in equal tranches in October 2016 and 2017.
3
Includes payments made on cessation of employment or other contracted amounts. The payment to Lyn Cobley reflects annual incentive foregone
from her previous employer. The payment to Rob Whitfield after nearly 30 years’ service includes a payment in lieu of notice in accordance with his
contract provisions.
4 This is the addition of the first, second and third columns.
5 Prior year equity awards include both deferred STI and LTI allocations subject to performance hurdles which have vested in 2015. The equity value
has been calculated as the number of securities that vested or were forfeited during the year ended 30 September 2015, multiplied by the five day
volume weighted average price of Westpac ordinary shares at the time they vested or were forfeited, less any exercise price payable.
6 Refer Section 2 of this Report for details.
5. Non-executive Director remuneration
5.1. Structure and policy
Remuneration policy
Westpac’s Non-executive Director remuneration strategy is designed to attract and retain experienced, qualified Board
members and remunerate them appropriately for their time and expertise.
As the Board’s focus is on strategic direction, long-term corporate performance and the creation of shareholder value, fees for
Non-executive Directors are not directly related to the Group’s short-term results and Non-executive Directors do not receive
performance-based remuneration.
Non-executive Director remuneration consists of the following components:
Remuneration Component
Paid as
Detail
Base fee
Cash
This fee is for service on the Westpac Banking Corporation Board.
The base fee for the Chairman covers all responsibilities, including all
Board Committees.
Directors’ report
Committee fees
Cash
Employer superannuation
contributions
Superannuation
Additional fees are paid to Non-executive Directors for chairing or
participating in Board Committees.
Reflects statutory superannuation contributions which are capped at the
superannuation maximum contributions base as prescribed under the
Superannuation Guarantee legislation.
Subsidiary Board and
Advisory Board fees
Cash
Fees are for service on Subsidiary Boards and Advisory Boards. These
fees are paid by the relevant subsidiary company.
Non-executive Director remuneration in 2015
Non-executive Director fee review – effective 1 October 2014
The Board reviewed the Non-executive Director fee framework in late 2014. On the basis of market data provided by Guerdon
Associates, the Board approved a 2.4% increase to the Chairman and Non-executive Director annual base fees effective 1
October 2014. Remuneration Committee fees for both the Chairman and members increased by 7.8%. No other Committee
fees were increased. Non-executive Director fees were last increased in 2013.
1,100,000
Changes to Board and Committee composition
The following changes were made to Board and Committee composition:
Craig Dunn was appointed as a Non-executive Director to the Westpac Board effective 1 June 2015 and appointed to the
Remuneration and Risk & Compliance Committees effective 5 June 2015; and
Ann Pickard retired effective 12 December 2014.
Fee pool
At the 2008 Annual General Meeting, the current fee pool of $4.5 million per annum was approved by shareholders. For the
year ended 30 September 2015, $2.94 million (65%) of this fee pool was used. The fee pool is inclusive of employer
superannuation contributions.
Fee framework
This section details the current Non-executive Director fee framework.
Base and Committee fees
The following table sets out the Board and standing Committee fees:
Base Fee
Chairman
Non-executive Directors
Committee Chairman Fees
Audit Committee
Risk & Compliance Committee
Remuneration Committee
Technology Committee
Committee Membership Fees
Audit Committee
Risk & Compliance Committee
Remuneration Committee
Technology Committee
Annual Rate
$
795,000
225,000
60,000
60,000
56,000
30,000
30,000
30,000
28,000
15,000
Committee fees are not payable to the Chairman of the Board and members of the Nominations Committee.
Employer superannuation contributions
The Group pays superannuation contributions to Non-executive Directors of up to 9.5% of their fees. The contributions are
capped at the maximum compulsory superannuation contributions base prescribed under the Superannuation Guarantee
legislation. Employer contributions are paid into an eligible superannuation fund nominated by the Director.
Subsidiary Board and Advisory Board fees
Throughout the reporting period, additional fees of $35,000 were paid to Peter Hawkins as a member of the Bank of Melbourne
Advisory Board.
58
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
59
1
Equity participation
Non-executive Directors have voluntarily resolved to build and maintain their individual holdings of Westpac ordinary shares to
align their interests with the long-term interests of shareholders. Details of Non-executive Directors’ Westpac (and related
bodies corporate) shareholdings are set out in Section 4(a) of the Directors’ report.
6.2. Remuneration details – CEO and other Group Executives
This section sets out details of remuneration for the CEO and Group Executives for the 2015 financial year, calculated in
accordance with AAS.
Directors’ report
6. Required remuneration disclosures
6.1. Details of Non-executive Director remuneration
Details of Non-executive Director remuneration are set out in the table below:
Short-Term Benefits
Post-Employment Benefits
Westpac Banking
Corporation Board Fees1
$
Subsidiary and
Advisory Board Fees
$
Superannuation
$
Total
$
795,000
780,000
313,000
314,677
311,000
288,361
270,000
133,519
94,892
320,701
331,792
315,000
310,000
322,299
288,635
57,688
276,000
2,799,580
2,987,280
-
-
-
-
-
-
-
-
-
-
-
35,000
35,000
-
-
-
-
35,000
35,000
18,989
18,107
18,989
18,107
18,989
18,107
18,989
9,297
813,989
798,107
331,989
332,784
329,989
306,468
288,989
142,816
6,569
101,461
18,989
18,107
18,916
18,038
18,989
18,107
3,860
18,107
143,279
150,085
339,690
349,899
368,916
363,038
341,288
306,742
61,548
294,107
2,977,859
3,172,365
Name
Current Non-executive Directors
Lindsay Maxsted, Chairman
2015
2014
Elizabeth Bryan
2015
2014
Ewen Crouch
2015
2014
Alison Deans
2015
2014
Craig Dunn2
2015
Robert Elstone
2015
2014
Peter Hawkins
2015
2014
Peter Marriott
2015
2014
Former Non-executive Director
Ann Pickard2
2015
2014
Total fees
2015
3
2014
Includes fees paid to the Chairman and members of Board Committees.
1
2 Refer Section 2 of this Report for details.
3 The total fees for 2014 reflect the prior year remuneration for the 2014 reported Non-executive Directors.
Short-Term Benefits
Post-Employment Benefits
Share-Based Payments
Fixed Remu-
neration1
STI (Cash)2
Other
Superann-
Non-
Monetary
Benefits3
Short-Term
Benefits4
Name
$
$
$
$
Managing Director & Chief Executive Officer
Brian Hartzer9,10
uation
Benefits5
$
Long Service
Leave
$
Restricted
Shares6
$
Options7
$
Share
Rights7
$
Total8
$
2,413,205
2,234,087
1,245,960
1,162,500
66,063
3,169
29,418
24,705
57,016
33,487
1,143,466
500,913
5,737,629
4,549,345
-
-
1,024,117
-
2,002,204
1,126,050
1,204,085
728,000
943,800
14,971
14,664
24,185
23,337
18,265
18,260
647,634
667,095
1,153,998
746,669
3,713,103
3,617,910
71,006
-
1,100,000
6,713
1,252,975
782,501
590,484
978,087
75,256
792,211
931,706
803,641
958,854
-
-
797,145
845,403
-
-
20,628
21,079
16,679
24,585
14,420
907
22,909
15,221
36,253
27,359
35,682
31,114
22,429
5,380
36,022
27,260
35,460
4,876
29,789
15,412
Brian Hartzer: Remuneration impact relating to recruitment
Group Executives
John Arthur, Chief Operating Officer
Lyn Cobley, Chief Executive, Westpac Institutional Bank9
-
-
Philip Coffey, Deputy Chief Executive Officer
1,299,272
1,387,582
734,400
1,120,080
Brad Cooper, Chief Executive Officer, BT Financial Group
David Curran, Chief Information Officer
1,060,577
1,053,638
816,000
1,123,200
961,663
60,827
547,400
George Frazis, Chief Executive, Consumer Bank9
1,125,527
928,000
923,004
1,161,600
15,266
13,488
Alexandra Holcomb, Chief Risk Officer
Peter King, Chief Financial Officer
946,104
132,303
499,800
101,864
938,722
418,016
522,580
337,212
3,425
3,169
3,374
2,052
2,359
-
2,359
214
2,359
1,203
2015
2014
2014
2015
2014
2015
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2015
2015
2014
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,240)
463
525,239
86,361
496,155
38,656
2,502,877
364,737
14,960
56,731
372,877
212,434
504,705
87,707
2,385,992
1,128,715
David Lindberg, Chief Executive, Commercial & Business Bank9
David McLean, Chief Executive Officer, Westpac New Zealand Limited9
Christine Parker, Group Executive, Human Resources & Corporate Affairs
264,138
151,725
2,610
8,277
5,961
129,810
83,045
645,566
712,605
430,580
75,392
69,559
-
35,687
264,417
1,588,240
830,035
758,661
508,500
702,000
2,649
2,052
23,144
21,086
16,025
12,177
478,785
483,827
641,184
267,532
2,500,322
2,247,335
-
-
1,262,936
876,119
4,149,125
4,367,094
1,130,678
874,737
3,866,631
4,068,180
216,485
1,764,756
-
67,114
770,797
641,432
3,695,666
3,627,408
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
61
Equity participation
Non-executive Directors have voluntarily resolved to build and maintain their individual holdings of Westpac ordinary shares to
align their interests with the long-term interests of shareholders. Details of Non-executive Directors’ Westpac (and related
bodies corporate) shareholdings are set out in Section 4(a) of the Directors’ report.
6.2. Remuneration details – CEO and other Group Executives
This section sets out details of remuneration for the CEO and Group Executives for the 2015 financial year, calculated in
accordance with AAS.
Directors’ report
Short-Term Benefits
Post-Employment Benefits
Share-Based Payments
Fixed Remu-
neration1
$
STI (Cash)2
$
Name
Managing Director & Chief Executive Officer
Brian Hartzer9,10
Non-
Monetary
Benefits3
$
Other
Short-Term
Benefits4
$
Superann-
uation
Benefits5
$
Long Service
Leave
$
Restricted
Shares6
$
Options7
$
Share
Rights7
$
Total8
$
2015
2014
2,413,205
2,234,087
1,245,960
1,162,500
66,063
3,169
Brian Hartzer: Remuneration impact relating to recruitment
1,024,117
2014
-
-
Group Executives
John Arthur, Chief Operating Officer
2015
1,126,050
728,000
2014
1,204,085
943,800
14,971
14,664
-
-
-
-
-
29,418
24,705
57,016
33,487
782,501
590,484
-
-
978,087
24,185
23,337
18,265
18,260
647,634
667,095
Lyn Cobley, Chief Executive, Westpac Institutional Bank9
2015
71,006
-
-
1,100,000
6,713
-
75,256
Philip Coffey, Deputy Chief Executive Officer
734,400
1,299,272
2015
2014
1,387,582
1,120,080
3,425
3,169
Brad Cooper, Chief Executive Officer, BT Financial Group
3,374
2015
1,060,577
816,000
6,569
101,461
2014
1,053,638
1,123,200
2,052
David Curran, Chief Information Officer
2015
961,663
547,400
2014
60,827
-
George Frazis, Chief Executive, Consumer Bank9
2015
1,125,527
928,000
2014
923,004
1,161,600
Alexandra Holcomb, Chief Risk Officer
2015
946,104
499,800
2014
132,303
101,864
Peter King, Chief Financial Officer
2015
938,722
2014
418,016
522,580
337,212
2,359
-
15,266
13,488
2,359
214
2,359
1,203
David Lindberg, Chief Executive, Commercial & Business Bank9
2015
264,138
151,725
2,610
David McLean, Chief Executive Officer, Westpac New Zealand Limited9
2015
712,605
430,580
75,392
Christine Parker, Group Executive, Human Resources & Corporate Affairs
2015
830,035
508,500
2,649
2014
758,661
702,000
2,052
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,253
27,359
35,682
31,114
22,429
5,380
36,022
27,260
35,460
4,876
29,789
15,412
20,628
21,079
16,679
24,585
14,420
907
22,909
15,221
792,211
931,706
803,641
958,854
-
-
797,145
845,403
(2,240)
463
525,239
86,361
14,960
56,731
372,877
212,434
8,277
5,961
129,810
69,559
-
35,687
23,144
21,086
16,025
12,177
478,785
483,827
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,143,466
500,913
5,737,629
4,549,345
-
2,002,204
1,153,998
746,669
3,713,103
3,617,910
-
1,252,975
1,262,936
876,119
4,149,125
4,367,094
1,130,678
874,737
3,866,631
4,068,180
216,485
1,764,756
-
67,114
770,797
641,432
3,695,666
3,627,408
496,155
38,656
2,502,877
364,737
504,705
87,707
2,385,992
1,128,715
83,045
645,566
264,417
1,588,240
641,184
267,532
2,500,322
2,247,335
6. Required remuneration disclosures
6.1. Details of Non-executive Director remuneration
Details of Non-executive Director remuneration are set out in the table below:
Short-Term Benefits
Post-Employment Benefits
Westpac Banking
Subsidiary and
Corporation Board Fees1
Advisory Board Fees
Superannuation
$
Total
$
Current Non-executive Directors
Lindsay Maxsted, Chairman
Elizabeth Bryan
Name
2015
2014
2015
2014
2015
2014
2015
2014
2015
2015
2014
2015
2014
2015
2014
Ewen Crouch
Alison Deans
Craig Dunn2
Robert Elstone
Peter Hawkins
Peter Marriott
Ann Pickard2
2015
2014
2015
3
2014
Total fees
Former Non-executive Director
$
795,000
780,000
313,000
314,677
311,000
288,361
270,000
133,519
94,892
320,701
331,792
315,000
310,000
322,299
288,635
57,688
276,000
2,799,580
2,987,280
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,000
35,000
35,000
35,000
1
Includes fees paid to the Chairman and members of Board Committees.
2 Refer Section 2 of this Report for details.
3 The total fees for 2014 reflect the prior year remuneration for the 2014 reported Non-executive Directors.
18,989
18,107
18,989
18,107
18,989
18,107
18,989
9,297
18,989
18,107
18,916
18,038
18,989
18,107
3,860
18,107
143,279
150,085
813,989
798,107
331,989
332,784
329,989
306,468
288,989
142,816
339,690
349,899
368,916
363,038
341,288
306,742
61,548
294,107
2,977,859
3,172,365
60
2015 Westpac Group Annual Report
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61
1
STI Target
Maximum STI1
STI Portion Paid in Cash2
STI Portion Deferred3
$
$
$
Managing Director & Chief Executive Officer
Brian Hartzer4
2,307,334
1,245,960
1,245,960
Group Executives
John Arthur
Lyn Cobley4
Philip Coffey
Brad Cooper
David Curran
George Frazis4
Alexandra Holcomb
Peter King
David Lindberg4
David McLean4
Christine Parker
1,300,000
-
1,360,000
1,600,000
952,000
1,600,000
952,000
986,000
289,000
797,371
900,000
1,200,000
1,333,333
854,167
Former Managing Director & Chief Executive Officer
Former Group Executives
Gail Kelly4
Rob Whitfield4
Jason Yetton4
%
150
150
150
150
150
150
150
150
150
150
150
150
150
150
150
%
50
50
50
50
50
50
50
50
50
50
50
50
50
50
728,000
-
734,400
816,000
547,400
928,000
499,800
522,580
151,725
430,581
508,500
566,667
427,084
Directors’ report
%
50
50
50
50
50
50
50
50
50
50
50
50
50
50
728,000
-
734,400
816,000
547,400
928,000
499,800
522,580
151,725
430,581
508,500
566,667
427,084
100
1,200,000
-
-
1 The maximum STI potential is 150% of the individual STI Target.
2 50% of the STI outcome for the year is paid as cash in December 2015. The part year STI outcome for Gail Kelly has been paid 100% cash.
3 50% of the actual STI outcome is deferred in the form of restricted shares or share rights, half vesting on 1 October 2016 and the remainder vesting
on 1 October 2017.
4 Refer Section 2 of this Report for details.
Short-Term Benefits
Post-Employment Benefits
Share-Based Payments
This section sets out details of STI awards for the CEO and Group Executives for the 2015 financial year:
6.3. STI allocations for the CEO and Group Executives
Fixed Remu-
neration1
STI (Cash)2
Non-
Monetary
Benefits3
Other Short-
Term Benefits4
Name
$
$
$
Former Managing Director & Chief Executive Officer
Gail Kelly9
2015
1,039,892
1,200,000
7,679
2014
3,001,511
2,743,200
9,853
Former Group Executives
Rob Whitfield, Group Executive, Westpac Institutional Bank9
2,650
2015
1,383,619
566,667
2014
1,783,045
1,152,000
95,335
Superann-
uation
Benefits5
$
8,858
26,585
$
-
-
Long Service
Leave
Restricted
Shares6
Options7
$
$
$
-
642,436
51,170
1,957,830
Jason Yetton, Group Executive, Westpac Retail & Business Banking9
2015
675,726
427,084
2,359
933,333
14,555
17,033
327,217
1,651,376
-
30,230
28,764
-
27,398
614,800
900,285
Share
Rights7
$
Total8
$
891,410
3,790,275
3,192,579
10,982,728
623,110
699,784
4,872,452
4,686,611
693,518
3,090,825
-
-
-
-
-
2014
2,666,189
1 Fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking, etc., and any associated fringe benefits tax
938,553
470,082
485,976
702,000
45,038
21,371
3,169
-
-
(FBT)) and an accrual for annual leave entitlements.
2 2015 STI figures reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2015.
3 Non-monetary benefits are determined on the basis of the cost to the Group (including associated FBT, where applicable) and include annual health
4
checks, provision of taxation advice, relocation costs, living away from home expenses and allowances.
Includes payments made on cessation of employment or other contracted amounts. The payment to Lyn Cobley reflects annual incentive foregone
from her previous employer. The payment to Rob Whitfield after nearly 30 years’ service includes a payment in lieu of notice in accordance with his
contract provisions. The amount for Jason Yetton after 23 years’ service will be paid on cessation less any period of notice served.
5 The CEO and Group Executives are provided with insurance cover under the Westpac Group Plan at no cost. Superannuation benefits have been
calculated consistent with AASB 119 Employee Benefits.
6 The value of restricted shares is amortised over the applicable vesting period, and the amount shown is the amortisation relating to the 2015
reporting year (and 2014 year as comparison).
7 Equity-settled remuneration is based on the amortisation over the vesting period (normally three or four years) of the ‘fair value’ at grant date of
hurdled and unhurdled options and share rights that were granted during the four years ended 30 September 2015. Details of prior years’ grants have
been disclosed in previous Annual Reports. The value of share rights for 2015 includes both the 2014 and 2015 LTI awards on transition to the
revised LTI plan. The values for David McLean and Rob Whitfield include 2% and 39% respectively attributed to deferred STI.
8 The percentage of the total remuneration which is performance related (i.e. STI cash plus share-based payments) was: Brian Hartzer 55%,
John Arthur 68%, Lyn Cobley 6%, Philip Coffey 67%, Brad Cooper 71%, David Curran 43%, George Frazis 68%, Alexandra Holcomb 61%, Peter
King 59%, David Lindberg 56%, David McLean 46%, Christine Parker 65%, and for former KMP: Gail Kelly 72%, Rob Whitfield 37% and Jason
Yetton 47%. The percentage of total remuneration delivered in the form of options (including share rights) was: Brian Hartzer 20%, John Arthur 31%,
Lyn Cobley 0%, Philip Coffey 30%, Brad Cooper 29%, David Curran 12%, George Frazis 21%, Alexandra Holcomb 20%, Peter King 21%, David
Lindberg 13%, David McLean 17%, Christine Parker 26%, and for former KMP: Gail Kelly 24%, Rob Whitfield 13% and Jason Yetton 22%.
9 Refer Section 2 of this Report for details. Remuneration details for newly appointed KMP are from the date of appointment. The STI cash figure for
Brian Hartzer is the outcome pro-rated for the periods as Chief Executive, AFS and CEO. Brian Hartzer also received a pro-rated 2015 LTI award for
the period he was Chief Executive, AFS.
10 Brian Hartzer’s remuneration for 2014 has been separated into two elements. The first line represents his remuneration as the Chief Executive, AFS
for 2014 and the second line represents the elements which have been incurred as a result of the buy-out of equity forfeited on his resignation from
his previous employer including $542,834 in relocation benefits and $481,283 FBT expenses on his relocation from London.
62
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
63
Short-Term Benefits
Post-Employment Benefits
Share-Based Payments
Fixed Remu-
neration1
STI (Cash)2
Monetary
Other Short-
Benefits3
Term Benefits4
Non-
Superann-
uation
Benefits5
Name
$
$
$
$
$
Former Managing Director & Chief Executive Officer
Long Service
Leave
$
Restricted
Shares6
Options7
$
$
Share
Rights7
$
Total8
$
1,039,892
3,001,511
1,200,000
2,743,200
7,679
9,853
8,858
26,585
642,436
51,170
1,957,830
891,410
3,790,275
3,192,579
10,982,728
Gail Kelly9
2015
2014
2015
2014
2015
2014
Former Group Executives
Rob Whitfield, Group Executive, Westpac Institutional Bank9
1,383,619
1,783,045
566,667
1,152,000
2,650
95,335
1,651,376
Jason Yetton, Group Executive, Westpac Retail & Business Banking9
675,726
938,553
427,084
702,000
2,359
3,169
933,333
30,230
28,764
14,555
21,371
-
-
-
-
-
-
27,398
17,033
45,038
-
-
-
-
-
-
614,800
900,285
327,217
485,976
623,110
699,784
4,872,452
4,686,611
693,518
470,082
3,090,825
2,666,189
1 Fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking, etc., and any associated fringe benefits tax
(FBT)) and an accrual for annual leave entitlements.
2 2015 STI figures reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2015.
3 Non-monetary benefits are determined on the basis of the cost to the Group (including associated FBT, where applicable) and include annual health
checks, provision of taxation advice, relocation costs, living away from home expenses and allowances.
4
Includes payments made on cessation of employment or other contracted amounts. The payment to Lyn Cobley reflects annual incentive foregone
from her previous employer. The payment to Rob Whitfield after nearly 30 years’ service includes a payment in lieu of notice in accordance with his
contract provisions. The amount for Jason Yetton after 23 years’ service will be paid on cessation less any period of notice served.
5 The CEO and Group Executives are provided with insurance cover under the Westpac Group Plan at no cost. Superannuation benefits have been
6 The value of restricted shares is amortised over the applicable vesting period, and the amount shown is the amortisation relating to the 2015
calculated consistent with AASB 119 Employee Benefits.
reporting year (and 2014 year as comparison).
7 Equity-settled remuneration is based on the amortisation over the vesting period (normally three or four years) of the ‘fair value’ at grant date of
hurdled and unhurdled options and share rights that were granted during the four years ended 30 September 2015. Details of prior years’ grants have
been disclosed in previous Annual Reports. The value of share rights for 2015 includes both the 2014 and 2015 LTI awards on transition to the
revised LTI plan. The values for David McLean and Rob Whitfield include 2% and 39% respectively attributed to deferred STI.
8 The percentage of the total remuneration which is performance related (i.e. STI cash plus share-based payments) was: Brian Hartzer 55%,
John Arthur 68%, Lyn Cobley 6%, Philip Coffey 67%, Brad Cooper 71%, David Curran 43%, George Frazis 68%, Alexandra Holcomb 61%, Peter
King 59%, David Lindberg 56%, David McLean 46%, Christine Parker 65%, and for former KMP: Gail Kelly 72%, Rob Whitfield 37% and Jason
Yetton 47%. The percentage of total remuneration delivered in the form of options (including share rights) was: Brian Hartzer 20%, John Arthur 31%,
Lyn Cobley 0%, Philip Coffey 30%, Brad Cooper 29%, David Curran 12%, George Frazis 21%, Alexandra Holcomb 20%, Peter King 21%, David
Lindberg 13%, David McLean 17%, Christine Parker 26%, and for former KMP: Gail Kelly 24%, Rob Whitfield 13% and Jason Yetton 22%.
9 Refer Section 2 of this Report for details. Remuneration details for newly appointed KMP are from the date of appointment. The STI cash figure for
Brian Hartzer is the outcome pro-rated for the periods as Chief Executive, AFS and CEO. Brian Hartzer also received a pro-rated 2015 LTI award for
the period he was Chief Executive, AFS.
10 Brian Hartzer’s remuneration for 2014 has been separated into two elements. The first line represents his remuneration as the Chief Executive, AFS
for 2014 and the second line represents the elements which have been incurred as a result of the buy-out of equity forfeited on his resignation from
his previous employer including $542,834 in relocation benefits and $481,283 FBT expenses on his relocation from London.
6.3. STI allocations for the CEO and Group Executives
This section sets out details of STI awards for the CEO and Group Executives for the 2015 financial year:
STI Target
$
Maximum STI1
%
STI Portion Paid in Cash2
%
$
STI Portion Deferred3
%
$
Directors’ report
Managing Director & Chief Executive Officer
Brian Hartzer4
2,307,334
Group Executives
John Arthur
Lyn Cobley4
Philip Coffey
Brad Cooper
David Curran
George Frazis4
Alexandra Holcomb
Peter King
David Lindberg4
David McLean4
Christine Parker
1,300,000
-
1,360,000
1,600,000
952,000
1,600,000
952,000
986,000
289,000
797,371
900,000
150
150
150
150
150
150
150
150
150
150
150
150
50
50
50
50
50
50
50
50
50
50
50
50
1,245,960
728,000
-
734,400
816,000
547,400
928,000
499,800
522,580
151,725
430,581
508,500
Former Managing Director & Chief Executive Officer
Gail Kelly4
1,200,000
150
100
1,200,000
-
Former Group Executives
Rob Whitfield4
Jason Yetton4
1,333,333
854,167
150
150
50
50
566,667
427,084
50
50
50
50
50
50
50
50
50
50
50
50
50
50
1,245,960
728,000
-
734,400
816,000
547,400
928,000
499,800
522,580
151,725
430,581
508,500
-
566,667
427,084
1 The maximum STI potential is 150% of the individual STI Target.
2 50% of the STI outcome for the year is paid as cash in December 2015. The part year STI outcome for Gail Kelly has been paid 100% cash.
3 50% of the actual STI outcome is deferred in the form of restricted shares or share rights, half vesting on 1 October 2016 and the remainder vesting
on 1 October 2017.
4 Refer Section 2 of this Report for details.
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63
1
6.4. Movement in equity-settled instruments during the year
This table shows the details of movements during 2015 in the number and value of equity instruments for the CEO and
Group Executives under the relevant plans:
Name
Type of Equity-Based Instrument
Managing Director & Chief Executive Officer
Brian Hartzer7
Performance share rights
Shares under Restricted Share Plan
Number
Granted1
Number
Vested2
Number
Exercised3
Value
Granted4
$
Value
Exercised5
$
Value Forfeited or
Lapsed5,6
$
129,547
24,150
-
13,676
-
-
2,713,522
769,547
-
-
-
-
Group Executives
John Arthur
Lyn Cobley7
Philip Coffey
Performance share rights
Shares under Restricted Share Plan
122,943
19,607
29,310
27,954
Shares under Restricted Share Plan
54,011
-
29,310
2,531,083
1,011,994
443,315
-
-
624,783
1,629,579
-
-
-
-
48,362
3,298,589
1,669,807
746,062
-
741,474
-
-
196,785
-
1,643,682
-
-
54,957
2,952,953
1,897,515
816,052
-
-
743,545
1,264,621
-
-
-
-
40,302
1,926,925
1,391,518
621,718
-
768,973
-
-
31,697
-
12,456
1,779,688
-
350,741
457,835
430,072
-
-
-
192,259
-
10,991
2,064,879
379,489
165,230
-
-
-
348,829
248,330
-
-
-
-
-
-
-
6,151
32,406
643,414
203,319
333,017
1,071,170
79,436
-
8,646
1,969,122
298,523
123,083
-
464,692
-
-
48,362
42,278
54,957
42,560
-
40,302
37,480
12,456
19,387
10,991
17,467
-
9,679
6,151
6,432
8,646
19,212
160,725
23,269
-
143,434
23,334
63,519
94,372
24,132
-
87,679
11,007
101,206
10,947
12,476
-
35,662
11,569
95,880
14,583
Performance share rights
Shares under Restricted Share Plan
Brad Cooper
Performance options
Performance share rights
Shares under Restricted Share Plan
David Curran
George Frazis7
Performance share rights
Performance share rights
Shares under Restricted Share Plan
Alexandra Holcomb Performance options
Performance share rights
Shares under Restricted Share Plan
Peter King
Performance share rights
Shares under Restricted Share Plan
David Lindberg7
Performance share rights
Shares under Restricted Share Plan
David McLean7
Performance share rights
Unhurdled share rights
Christine Parker
Performance share rights
Shares under Restricted Share Plan
Former Managing Director & Chief Executive Officer
Gail Kelly7
CEO Performance share rights
Shares under the CEO Restricted
Share Plan
Former Group Executives
Rob Whitfield7
Performance share rights
Unhurdled share rights
Shares under Restricted Share Plan
Jason Yetton7
Performance share rights
Shares under Restricted Share Plan
-
197,848
197,848
-
6,741,595
4,288,845
56,988
83,812
-
1,815,939
-
-
Termination payments to be made on
CEO and all Group Executives
Deferred STI and LTI awards vest
81,961
18,780
23,932
123,202
14,583
43,966
43,966
1,687,370
1,518,026
689,260
-
41,376
12,823
21,607
-
-
564,953
762,600
-
-
-
-
12,823
2,531,603
442,743
198,003
-
464,692
-
-
1 No performance options were granted in 2015. The number of performance share rights granted in 2015 includes both the 2014 and 2015 LTI
awards on transition to the revised LTI plan.
2 72% of hurdled share rights granted in 2011 vested in October 2014 as assessed against the TSR and EPS performance hurdle.
Post-employment restraints
CEO and all Group Executives
12 month non-solicitation restraint
1 Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period.
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65
Directors’ report
3 Vested options and share rights that were granted prior to October 2009 can be exercised up to a maximum of 10 years from their commencement
date. For each share right and each performance option exercised during the year, the relevant executive received one fully paid Westpac ordinary
share. The exercise price for share rights is nil.
4 For performance share rights, the value granted represents the number of securities granted multiplied by the fair value per instrument as set out in
the table in the sub-section titled ‘Fair value of LTI grants made during the year’ below. The value of performance share rights granted in 2015
includes both the 2014 and 2015 LTI awards on transition to the revised LTI plan. For restricted shares, the value granted represents the number of
ordinary shares granted multiplied by the five day volume weighted average price of a Westpac ordinary share on the date the shares were granted.
These values, which represent the full value of the equity-based awards made to disclosed Group Executives in 2015, do not reconcile with the
amount shown in the table in Section 6.2 of this Report, which shows amortised totals of equity awards over their vesting period. The minimum total
value of the grants for future financial years is nil and an estimate of the maximum possible total value in future financial years is the fair value, as
shown above.
5 The value of each option or share right exercised or lapsed is calculated based on the five day volume weighted average price of Westpac ordinary
shares on the ASX on the date of exercise (or lapse), less the relevant exercise price (if any). Where the exercise price is greater than the five day
volume weighted average price of Westpac ordinary shares, the value has been calculated as nil.
6 Apart from equity instruments referred to in this section, no other equity instruments granted in prior years vested and none were forfeited during the
financial year.
7 Refer Section 2 of this Report for details.
Fair value of LTI grants made during the year
The table below provides a summary of the fair value of LTI awards granted to Group Executives during 2015 calculated in
accordance with Australian Accounting Standard AASB 2 Share-based Payments and is used for accounting purposes only.
The LTI grants will vest on satisfaction of performance and/or service conditions tested in future financial years.
Equity Instrument
Hurdle
Granted to
Grant Date
Test Date
Expiry
Instrument
Performance
Commencement
Date1
Westpac Reward Plan
Relative TSR
3 December 2014
1 October 2014 1 October 2017 1 October 2024
Cash EPS CAGR
All Group
3 December 2014
1 October 2014 1 October 2017 1 October 2024
Relative TSR
Cash EPS CAGR
Executives
3 December 2014
1 October 2014 1 October 2018 1 October 2024
3 December 2014
1 October 2014 1 October 2017 1 October 2024
Fair
Value2 per
$15.06
$28.23
$13.89
$26.76
1 The commencement date is the start of the performance period.
2 The fair values of share rights granted during the year included in the table above have been independently calculated at their respective grant dates
based on the requirements of AASB 2 Share-based Payment. The fair value of rights with Cash EPS CAGR hurdles has been assessed with
reference to the share price at grant date and a discount rate reflecting the expected dividend yield over their vesting periods which for the rights
valued at $26.76 is 4 years to the 1 October 2018 vesting date. For the purpose of allocating rights with Cash EPS CAGR hurdles, the valuation also
takes into account the average Cash EPS CAGR outcome using a Monte Carlo simulation model. The fair value of rights with hurdles based on TSR
performance relative to a group of comparator companies also takes into account the average TSR outcome determined using a Monte Carlo
simulation pricing model.
7. Employment agreements
The remuneration and other terms of employment for the CEO and Group Executives are formalised in their employment
agreements. Each of these employment agreements provides for the payment of fixed and performance-based remuneration,
employer superannuation contributions and other benefits such as death and disablement insurance cover.
The term and termination provisions of the employment agreements for the current KMP are summarised below:
Term
Who
Conditions
Duration of agreement
CEO and Group Executives
Ongoing until notice given by either party
Notice to be provided by the executive
CEO and Group Executives
or the Group to terminate the
employment agreement
Phil Coffey
12 months1
Six months
termination without cause
Termination for cause
CEO and all other Group
Executives
Brad Cooper and Phil Coffey
according to the applicable equity plan
rules
Immediately for misconduct
Three months’ notice for poor
performance
Immediately for misconduct
Contractual notice period for poor
performance
6.4. Movement in equity-settled instruments during the year
This table shows the details of movements during 2015 in the number and value of equity instruments for the CEO and
Group Executives under the relevant plans:
Number
Granted1
Number
Vested2
Number
Exercised3
Granted4
Exercised5
$
$
Lapsed5,6
$
Value
Value
Value Forfeited or
Peter King
Performance share rights
10,991
2,064,879
379,489
165,230
Name
Type of Equity-Based Instrument
Managing Director & Chief Executive Officer
Brian Hartzer7
Performance share rights
Shares under Restricted Share Plan
13,676
129,547
24,150
Group Executives
John Arthur
Lyn Cobley7
Philip Coffey
Performance share rights
Shares under Restricted Share Plan
122,943
19,607
29,310
27,954
Shares under Restricted Share Plan
54,011
Performance share rights
Shares under Restricted Share Plan
160,725
23,269
48,362
42,278
Brad Cooper
Performance options
Performance share rights
Shares under Restricted Share Plan
David Curran
George Frazis7
Performance share rights
Performance share rights
Shares under Restricted Share Plan
Alexandra Holcomb Performance options
Performance share rights
Shares under Restricted Share Plan
Shares under Restricted Share Plan
David Lindberg7
Performance share rights
Shares under Restricted Share Plan
David McLean7
Performance share rights
Unhurdled share rights
Christine Parker
Performance share rights
Former Managing Director & Chief Executive Officer
Gail Kelly7
CEO Performance share rights
Shares under the CEO Restricted
143,434
23,334
63,519
94,372
24,132
87,679
11,007
101,206
10,947
12,476
-
-
-
35,662
11,569
95,880
14,583
-
-
-
-
-
-
54,957
42,560
40,302
37,480
12,456
19,387
10,991
17,467
9,679
6,151
6,432
8,646
19,212
29,310
2,531,083
1,011,994
443,315
48,362
3,298,589
1,669,807
746,062
196,785
-
1,643,682
54,957
2,952,953
1,897,515
816,052
40,302
1,926,925
1,391,518
621,718
31,697
457,835
430,072
12,456
1,779,688
192,259
2,713,522
769,547
624,783
1,629,579
741,474
743,545
1,264,621
768,973
-
-
350,741
348,829
248,330
6,151
32,406
643,414
203,319
79,436
333,017
1,071,170
8,646
1,969,122
298,523
123,083
Shares under Restricted Share Plan
464,692
-
197,848
197,848
-
6,741,595
4,288,845
Share Plan
56,988
83,812
1,815,939
Former Group Executives
Rob Whitfield7
Performance share rights
Unhurdled share rights
Shares under Restricted Share Plan
Shares under Restricted Share Plan
81,961
18,780
23,932
123,202
14,583
-
41,376
12,823
21,607
564,953
762,600
464,692
43,966
43,966
1,687,370
1,518,026
689,260
Jason Yetton7
Performance share rights
12,823
2,531,603
442,743
198,003
1 No performance options were granted in 2015. The number of performance share rights granted in 2015 includes both the 2014 and 2015 LTI
awards on transition to the revised LTI plan.
2 72% of hurdled share rights granted in 2011 vested in October 2014 as assessed against the TSR and EPS performance hurdle.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Directors’ report
3 Vested options and share rights that were granted prior to October 2009 can be exercised up to a maximum of 10 years from their commencement
date. For each share right and each performance option exercised during the year, the relevant executive received one fully paid Westpac ordinary
share. The exercise price for share rights is nil.
4 For performance share rights, the value granted represents the number of securities granted multiplied by the fair value per instrument as set out in
the table in the sub-section titled ‘Fair value of LTI grants made during the year’ below. The value of performance share rights granted in 2015
includes both the 2014 and 2015 LTI awards on transition to the revised LTI plan. For restricted shares, the value granted represents the number of
ordinary shares granted multiplied by the five day volume weighted average price of a Westpac ordinary share on the date the shares were granted.
These values, which represent the full value of the equity-based awards made to disclosed Group Executives in 2015, do not reconcile with the
amount shown in the table in Section 6.2 of this Report, which shows amortised totals of equity awards over their vesting period. The minimum total
value of the grants for future financial years is nil and an estimate of the maximum possible total value in future financial years is the fair value, as
shown above.
5 The value of each option or share right exercised or lapsed is calculated based on the five day volume weighted average price of Westpac ordinary
shares on the ASX on the date of exercise (or lapse), less the relevant exercise price (if any). Where the exercise price is greater than the five day
volume weighted average price of Westpac ordinary shares, the value has been calculated as nil.
6 Apart from equity instruments referred to in this section, no other equity instruments granted in prior years vested and none were forfeited during the
financial year.
7 Refer Section 2 of this Report for details.
Fair value of LTI grants made during the year
The table below provides a summary of the fair value of LTI awards granted to Group Executives during 2015 calculated in
accordance with Australian Accounting Standard AASB 2 Share-based Payments and is used for accounting purposes only.
The LTI grants will vest on satisfaction of performance and/or service conditions tested in future financial years.
Equity Instrument
Westpac Reward Plan
Performance
Hurdle
Relative TSR
Cash EPS CAGR
Relative TSR
Cash EPS CAGR
Granted to
Grant Date
Commencement
Date1
Test Date
Expiry
All Group
Executives
3 December 2014
3 December 2014
3 December 2014
3 December 2014
1 October 2014 1 October 2017 1 October 2024
1 October 2014 1 October 2017 1 October 2024
1 October 2014 1 October 2018 1 October 2024
1 October 2014 1 October 2017 1 October 2024
Fair
Value2 per
Instrument
$15.06
$28.23
$13.89
$26.76
1 The commencement date is the start of the performance period.
2 The fair values of share rights granted during the year included in the table above have been independently calculated at their respective grant dates
based on the requirements of AASB 2 Share-based Payment. The fair value of rights with Cash EPS CAGR hurdles has been assessed with
reference to the share price at grant date and a discount rate reflecting the expected dividend yield over their vesting periods which for the rights
valued at $26.76 is 4 years to the 1 October 2018 vesting date. For the purpose of allocating rights with Cash EPS CAGR hurdles, the valuation also
takes into account the average Cash EPS CAGR outcome using a Monte Carlo simulation model. The fair value of rights with hurdles based on TSR
performance relative to a group of comparator companies also takes into account the average TSR outcome determined using a Monte Carlo
simulation pricing model.
7. Employment agreements
The remuneration and other terms of employment for the CEO and Group Executives are formalised in their employment
agreements. Each of these employment agreements provides for the payment of fixed and performance-based remuneration,
employer superannuation contributions and other benefits such as death and disablement insurance cover.
The term and termination provisions of the employment agreements for the current KMP are summarised below:
Term
Duration of agreement
Notice to be provided by the executive
or the Group to terminate the
employment agreement
Termination payments to be made on
termination without cause
Who
CEO and Group Executives
CEO and Group Executives
Phil Coffey
Conditions
Ongoing until notice given by either party
12 months1
Six months
CEO and all Group Executives
Deferred STI and LTI awards vest
Termination for cause
CEO and all other Group
Executives
Brad Cooper and Phil Coffey
according to the applicable equity plan
rules
Immediately for misconduct
Three months’ notice for poor
performance
Immediately for misconduct
Contractual notice period for poor
performance
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65
Post-employment restraints
1 Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period.
CEO and all Group Executives
12 month non-solicitation restraint
1
8. Non-executive Directors, CEO and Group Executives – Additional disclosures
8.2. Details of Westpac equity holdings of Key Management Personnel
8.1. Details of Westpac ordinary shares held by Non-executive Directors
Shareholdings
The following table sets out details of relevant interests in Westpac ordinary shares held by Non-executive Directors (including
their related parties) during the year ended 30 September 20151:
The following table sets out details of Westpac equity held by the CEO and Group Executives (including their related parties)
for the year ended 30 September 20151:
Name
Current Non-executive Directors
Lindsay Maxsted
Elizabeth Bryan
Ewen Crouch2
Alison Deans
Craig Dunn3
Robert Elstone
Peter Hawkins4
Peter Marriott
Former Non-executive Director
Ann Pickard 3,5
Number Held at
Start of the Year
Other Changes
During the Year
Number Held at
End of the Year
Name
Instrument
of the Year
Remuneration
Year
Year
Year
of the Year
Year
Type of Equity-based
Held at Start
During the Year as
During the
During the
During the
Held at End
End of the
Number
Number Granted
Exercised
Lapsed
Changes
Number
Exercisable at
17,283
26,801
38,176
9,000
n/a
10,000
15,218
20,000
13,800
594
-
320
-
8,500
291
-
-
-
17,877
26,801
38,496
9,000
8,500
10,291
15,218
20,000
n/a
In addition to holdings of ordinary shares, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2 at year end.
1 None of these shares include non-beneficially held shares.
2
3 The information relates to the period these individuals were Non-executive Directors. Refer Section 2 of this Report for details.
4
In addition to holdings of ordinary shares, Peter Hawkins and his related parties held interests in 1,370 Convertible Preference Shares and 850
Westpac Capital Notes 3 at year end.
5 Ann Pickard's relevant interests arose through holding 13,800 American Depositary Shares (ADS). One ADS represents one Westpac fully paid
ordinary share.
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67
Brad Cooper
Ordinary shares
23,334
251,742
(366,645)
37,582
(196,785)
143,434
(54,957)
(24,001)
251,914
Directors’ report
Received
on Exercise
and/or
Number
Other
Number
Vested and
24,150
129,547
19,607
122,943
54,011
23,269
160,725
-
-
-
-
-
63,519
24,132
94,372
11,007
87,679
10,947
101,206
12,476
35,662
11,569
14,583
95,880
-
-
-
-
-
-
-
29,310
8,189
(29,310)
(13,040)
48,362
(49,993)
(48,362)
(21,948)
40,302
(182,938)
(40,302)
(18,290)
(69,053)
44,153
(31,697)
(12,456)
10,991
(5,656)
38,557
(6,151)
(32,406)
8,646
(8,646)
(2,334)
(3,619)
(39,884)
(30,361)
(43,966)
(20,279)
(83,024)
23,932
81,961
18,780
14,583
123,202
43,966
-
12,823
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
49,571
246,155
264,156
251,163
54,011
305,555
282,039
-
-
63,519
36,774
173,597
46,708
38,847
120,060
73,894
122,900
26,747
64,984
2,654
42,972
11,569
22,044
144,970
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38,847
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Managing Director & Chief Executive Officer
Brian Hartzer
Ordinary shares
Performance share rights
Group Executives
John Arthur2
Ordinary shares
Performance share rights
Lyn Cobley3
Philip Coffey4
Ordinary shares
Ordinary shares
Performance share rights
Performance options
Performance share rights
David Curran5
Ordinary shares
Performance share rights
George Frazis
Ordinary shares
Performance share rights
Alexandra Holcomb Ordinary shares
Performance options
Performance share rights
Peter King
Ordinary shares
David Lindberg3
Ordinary shares
Performance share rights
David McLean3
Ordinary shares
Performance share rights
Unhurdled share rights
Christine Parker
Ordinary shares
Performance share rights
Former Group Executives
Rob Whitfield3
Ordinary shares
Performance share rights
Unhurdled share rights
Jason Yetton3
Ordinary shares
25,421
116,608
207,050
170,570
n/a
283,917
191,624
129,151
196,785
187,438
-
-
155,278
137,817
60,601
70,544
50,493
,
51,956
37,545
n/a
n/a
3,981
15,795
32,406
29,176
61,355
290,971
151,029
-
160,209
109,468
Performance share rights
(10,991)
(4,860)
Former Managing Director & Chief Executive Officer
Gail Kelly3
Ordinary shares
Performance share rights
1,542,459
713,264
56,988
197,848
-
(197,848)
(124,882)
Performance share rights
(12,823)
(5,825)
1 The highest number of shares held by an individual in the above tables is 0.0096% of total Westpac ordinary shares outstanding as at
30 September 2015.
Notes 2 at year-end.
2
4
Capital Notes 3 at year-end.
In addition to holdings of ordinary shares, John Arthur and his related parties held interests in 1,000 Westpac Capital Notes and 885 Westpac Capital
3 This information relates to the period these individuals were Key Management Personnel. Refer Section 2 of the Remuneration Report for details.
In addition to holdings of ordinary shares, Philip Coffey and his related parties held interests in 200,000 Westpac Capital Notes 2 and 3,000 Westpac
5 David Curran and his related parties held interests in 965 Westpac Convertible Preference Shares at year-end.
8. Non-executive Directors, CEO and Group Executives – Additional disclosures
8.1. Details of Westpac ordinary shares held by Non-executive Directors
Shareholdings
The following table sets out details of relevant interests in Westpac ordinary shares held by Non-executive Directors (including
their related parties) during the year ended 30 September 20151:
Current Non-executive Directors
Name
Lindsay Maxsted
Elizabeth Bryan
Ewen Crouch2
Alison Deans
Craig Dunn3
Robert Elstone
Peter Hawkins4
Peter Marriott
Former Non-executive Director
Ann Pickard 3,5
Number Held at
Start of the Year
Other Changes
During the Year
Number Held at
End of the Year
17,283
26,801
38,176
9,000
n/a
10,000
15,218
20,000
13,800
594
320
8,500
291
-
-
-
-
-
17,877
26,801
38,496
9,000
8,500
10,291
15,218
20,000
n/a
1 None of these shares include non-beneficially held shares.
2
4
In addition to holdings of ordinary shares, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2 at year end.
3 The information relates to the period these individuals were Non-executive Directors. Refer Section 2 of this Report for details.
In addition to holdings of ordinary shares, Peter Hawkins and his related parties held interests in 1,370 Convertible Preference Shares and 850
5 Ann Pickard's relevant interests arose through holding 13,800 American Depositary Shares (ADS). One ADS represents one Westpac fully paid
Westpac Capital Notes 3 at year end.
ordinary share.
8.2. Details of Westpac equity holdings of Key Management Personnel
The following table sets out details of Westpac equity held by the CEO and Group Executives (including their related parties)
for the year ended 30 September 20151:
Directors’ report
Number
Held at Start
of the Year
Number Granted
During the Year as
Remuneration
Received
on Exercise
and/or
Exercised
During the
Year
Number
Lapsed
During the
Year
Other
Changes
During the
Year
Number
Held at End
of the Year
Number
Vested and
Exercisable at
End of the
Year
Name
Type of Equity-based
Instrument
Managing Director & Chief Executive Officer
Brian Hartzer
Ordinary shares
Performance share rights
Group Executives
John Arthur2
Lyn Cobley3
Philip Coffey4
Brad Cooper
David Curran5
George Frazis
Ordinary shares
Performance share rights
Ordinary shares
Ordinary shares
Performance share rights
Ordinary shares
Performance options
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Alexandra Holcomb Ordinary shares
Peter King
David Lindberg3
David McLean3
Christine Parker
Performance options
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Unhurdled share rights
Ordinary shares
Performance share rights
25,421
116,608
207,050
170,570
n/a
283,917
191,624
129,151
196,785
187,438
-
-
155,278
137,817
60,601
70,544
50,493
,
51,956
37,545
n/a
n/a
3,981
15,795
32,406
29,176
61,355
24,150
129,547
19,607
122,943
54,011
23,269
160,725
23,334
-
143,434
-
63,519
24,132
94,372
11,007
-
87,679
10,947
101,206
-
12,476
-
35,662
11,569
14,583
95,880
-
-
-
-
-
-
49,571
246,155
29,310
(29,310)
-
(13,040)
8,189
-
264,156
251,163
-
-
-
54,011
48,362
(48,362)
251,742
(196,785)
(54,957)
-
(21,948)
-
-
(24,001)
(49,993)
-
(366,645)
-
-
-
-
40,302
(40,302)
44,153
(31,697)
(12,456)
10,991
(10,991)
-
-
38,557
(6,151)
(32,406)
8,646
(8,646)
-
-
-
-
-
(18,290)
(182,938)
-
-
-
(5,656)
-
(4,860)
-
-
-
(2,334)
-
-
(3,619)
(69,053)
-
-
-
-
-
-
(39,884)
-
-
(30,361)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38,847
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
305,555
282,039
37,582
-
251,914
-
63,519
36,774
173,597
46,708
38,847
120,060
73,894
122,900
26,747
64,984
2,654
42,972
11,569
22,044
144,970
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Former Managing Director & Chief Executive Officer
Gail Kelly3
Ordinary shares
Performance share rights
1,542,459
713,264
56,988
-
197,848
(197,848)
-
(124,882)
-
-
Former Group Executives
Rob Whitfield3
Ordinary shares
Performance share rights
Unhurdled share rights
Jason Yetton3
Ordinary shares
Performance share rights
290,971
151,029
-
160,209
109,468
23,932
81,961
18,780
14,583
123,202
43,966
(43,966)
-
12,823
(12,823)
-
(20,279)
-
-
(5,825)
(83,024)
-
-
-
-
66
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2015 Westpac Group Annual Report
67
1 The highest number of shares held by an individual in the above tables is 0.0096% of total Westpac ordinary shares outstanding as at
2
30 September 2015.
In addition to holdings of ordinary shares, John Arthur and his related parties held interests in 1,000 Westpac Capital Notes and 885 Westpac Capital
Notes 2 at year-end.
3 This information relates to the period these individuals were Key Management Personnel. Refer Section 2 of the Remuneration Report for details.
4
In addition to holdings of ordinary shares, Philip Coffey and his related parties held interests in 200,000 Westpac Capital Notes 2 and 3,000 Westpac
Capital Notes 3 at year-end.
5 David Curran and his related parties held interests in 965 Westpac Convertible Preference Shares at year-end.
1
8.3. Loans to Directors and other Key Management Personnel disclosures
All financial instrument transactions that have occurred during the financial year between Directors or other Key Management
Personnel (KMP) and the Group are in the ordinary course of business on terms and conditions (including interest and
collateral) as apply to other employees and certain customers. These transactions consisted principally of normal personal
banking and financial investment services.
Details of loans to Directors and other KMP (including their related parties) of the Group are:
Directors
Other KMP
Balance at Start of
the Year
$
Interest Paid and
Payable for the
Year
$
Interest Not
Charged During
the Year
$
Balance at End
of the Year
$
Number in Group
at End of the Year
3,866,378
14,575,662
18,442,040
219,776
647,788
867,564
-
-
-
4,663,312
10,782,076
15,445,388
2
8
10
Individuals (including their related parties) with loans above $100,000 during the 2015 financial year are:
b. no contraventions of any applicable code of professional conduct in relation to the audit.
Directors
Lindsay Maxsted
Ewen Crouch
Other KMP
Brian Hartzer
John Arthur
Philip Coffey
Brad Cooper
George Frazis
Alexandra Holcomb
David McLean
Christine Parker
Rob Whitfield1
Jason Yetton1
Balance at Start of
the Year
$
Interest Paid and
Payable for the
Year
$
Interest Not
Charged During
the Year
$
Balance at End
of the Year
$
Highest
Indebtedness
during the Year
$
2,341,735
1,524,643
27,995
-
2,394,000
3,996,192
228,225
2,918,498
-
1,960,298
2,750,454
300,000
142,419
77,357
4,842
41,235
118,312
87,777
7,653
132,203
50,293
125,061
55,915
24,497
-
-
-
-
-
-
-
-
-
-
-
-
3,248,220
1,415,092
63,063
1,463,544
2,394,000
266,534
-
3,964,352
31,975
2,598,608
n/a
n/a
3,265,910
1,524,643
106,127
1,490,000
2,394,000
4,041,548
228,225
4,071,467
1,358,144
3,455,895
2,750,454
1,790,558
1 This information relates to the period these individuals were Key Management Personnel. Refer Section 2 of the Remuneration Report for details.
10. Auditor
a) Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act is below:
Directors’ report
Auditor’s Independence Declaration
As lead auditor for the audit of Westpac Banking Corporation for the year ended 30 September 2015, I declare
that, to the best of my knowledge and belief, there have been:
a. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
This declaration is in respect of Westpac Banking Corporation and the entities it controlled during the period.
Michael Codling
Partner
PricewaterhouseCoopers
Sydney
2 November 2015
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation
b) Non-audit services
We may decide to engage PwC on assignments additional to their statutory audit duties where their expertise or experience
with Westpac or a controlled entity is important.
Details of the non-audit service amounts paid or payable to PwC for non-audit services provided during the 2014 and 2015
financial years are set out in Note 39 to the financial statements.
PwC also provides audit and non-audit services to non-consolidated entities, non-consolidated trusts of which a
Westpac Group entity is trustee, manager or responsible entity and non-consolidated superannuation funds or pension funds.
The fees in respect of these services were approximately $9.9 million in total (2014 $7.9 million). PwC may also provide audit
and non-audit services to other entities in which Westpac holds a minority interest and which are not consolidated. Westpac is
not aware of the amount of any fees paid to PwC by those entities.
Westpac has a policy on engaging PwC, details of which are set out in Westpac’s Corporate Governance Statement and in the
subsection entitled ‘Engagement of the external auditor’, which forms part of this Directors’ report.
The Board has considered the position and, in accordance with the advice received from the Board Audit Committee, is
satisfied that the provision of the non-audit services during 2015 by PwC is compatible with the general standard of
independence for auditors imposed by the Corporations Act. The Directors are satisfied that the provision of non-audit services
by PwC, as set out above, did not compromise the auditor independence requirements of the Corporations Act for the
following reasons:
all non-audit services have been reviewed by the Board Audit Committee, which is of the view that they do not impact the
impartiality and objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of
Ethics for Professional Accountants.
68
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
69
Directors
Other KMP
Directors
Lindsay Maxsted
Ewen Crouch
Other KMP
Brian Hartzer
John Arthur
Philip Coffey
Brad Cooper
George Frazis
Alexandra Holcomb
David McLean
Christine Parker
Rob Whitfield1
Jason Yetton1
Balance at Start of
Payable for the
Charged During
Balance at End
Interest Paid and
Interest Not
the Year
$
3,866,378
14,575,662
18,442,040
Year
$
219,776
647,788
867,564
the Year
of the Year
Number in Group
$
at End of the Year
4,663,312
10,782,076
15,445,388
2
8
10
Balance at Start of
Payable for the
Charged During
Balance at End
Indebtedness
Interest Paid and
Interest Not
Highest
the Year
of the Year
during the Year
$
$
the Year
$
2,341,735
1,524,643
27,995
-
-
2,394,000
3,996,192
228,225
2,918,498
1,960,298
2,750,454
300,000
Year
$
142,419
77,357
4,842
41,235
118,312
87,777
7,653
132,203
50,293
125,061
55,915
24,497
3,248,220
1,415,092
63,063
1,463,544
2,394,000
266,534
-
3,964,352
31,975
2,598,608
n/a
n/a
3,265,910
1,524,643
106,127
1,490,000
2,394,000
4,041,548
228,225
4,071,467
1,358,144
3,455,895
2,750,454
1,790,558
$
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
1 This information relates to the period these individuals were Key Management Personnel. Refer Section 2 of the Remuneration Report for details.
8.3. Loans to Directors and other Key Management Personnel disclosures
All financial instrument transactions that have occurred during the financial year between Directors or other Key Management
Personnel (KMP) and the Group are in the ordinary course of business on terms and conditions (including interest and
collateral) as apply to other employees and certain customers. These transactions consisted principally of normal personal
banking and financial investment services.
Details of loans to Directors and other KMP (including their related parties) of the Group are:
10. Auditor
a) Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act is below:
Directors’ report
Individuals (including their related parties) with loans above $100,000 during the 2015 financial year are:
b. no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Westpac Banking Corporation and the entities it controlled during the period.
Auditor’s Independence Declaration
As lead auditor for the audit of Westpac Banking Corporation for the year ended 30 September 2015, I declare
that, to the best of my knowledge and belief, there have been:
a. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
Michael Codling
Partner
PricewaterhouseCoopers
Sydney
2 November 2015
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation
b) Non-audit services
We may decide to engage PwC on assignments additional to their statutory audit duties where their expertise or experience
with Westpac or a controlled entity is important.
Details of the non-audit service amounts paid or payable to PwC for non-audit services provided during the 2014 and 2015
financial years are set out in Note 39 to the financial statements.
PwC also provides audit and non-audit services to non-consolidated entities, non-consolidated trusts of which a
Westpac Group entity is trustee, manager or responsible entity and non-consolidated superannuation funds or pension funds.
The fees in respect of these services were approximately $9.9 million in total (2014 $7.9 million). PwC may also provide audit
and non-audit services to other entities in which Westpac holds a minority interest and which are not consolidated. Westpac is
not aware of the amount of any fees paid to PwC by those entities.
Westpac has a policy on engaging PwC, details of which are set out in Westpac’s Corporate Governance Statement and in the
subsection entitled ‘Engagement of the external auditor’, which forms part of this Directors’ report.
The Board has considered the position and, in accordance with the advice received from the Board Audit Committee, is
satisfied that the provision of the non-audit services during 2015 by PwC is compatible with the general standard of
independence for auditors imposed by the Corporations Act. The Directors are satisfied that the provision of non-audit services
by PwC, as set out above, did not compromise the auditor independence requirements of the Corporations Act for the
following reasons:
all non-audit services have been reviewed by the Board Audit Committee, which is of the view that they do not impact the
impartiality and objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of
Ethics for Professional Accountants.
68
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
69
1
11. Responsibility statement
The Directors of Westpac Banking Corporation confirm that to the best of their knowledge:
the consolidated financial statements for the financial year ended 30 September 2015, which have been prepared in
accordance with the accounting policies described in Note 1 to the consolidated financial statements, being in accordance
with Australian Accounting Standards (AAS), give a true and fair view of the assets, liabilities, financial position and profit
of the Group; and
the Annual Report from the section entitled ‘Information on Westpac’ to and including the section entitled ‘Other Westpac
business information’ includes a fair review of the information required by the Disclosure and Transparency Rules 4.1.8R
to 4.1.11R of the United Kingdom Financial Conduct Authority.
Signed in accordance with a resolution of the Board.
Lindsay Maxsted
Chairman
2 November 2015
Brian Hartzer
Managing Director & Chief Executive Officer
2 November 2015
70
2015 Westpac Group Annual Report
Five year summary
Reading this report
Review of Group operations
Divisional performance
Risk and risk management
Other Westpac business information
11. Responsibility statement
The Directors of Westpac Banking Corporation confirm that to the best of their knowledge:
the consolidated financial statements for the financial year ended 30 September 2015, which have been prepared in
accordance with the accounting policies described in Note 1 to the consolidated financial statements, being in accordance
with Australian Accounting Standards (AAS), give a true and fair view of the assets, liabilities, financial position and profit
of the Group; and
the Annual Report from the section entitled ‘Information on Westpac’ to and including the section entitled ‘Other Westpac
business information’ includes a fair review of the information required by the Disclosure and Transparency Rules 4.1.8R
to 4.1.11R of the United Kingdom Financial Conduct Authority.
Signed in accordance with a resolution of the Board.
Lindsay Maxsted
Chairman
2 November 2015
Brian Hartzer
2 November 2015
Managing Director & Chief Executive Officer
70
2015 Westpac Group Annual Report
Five year summary
Reading this report
Review of Group operations
Divisional performance
Risk and risk management
Other Westpac business information
2
Five year summary1
(in $m unless otherwise indicated)
Income statements for the years ended 30 September2
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
Balance sheet as at 30 September2
Loans
Other assets
Total assets
Deposits and other borrowings
Debt issues
Loan capital
Other liabilities
Total liabilities
Total shareholders’ equity and non-controlling interests
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)3
Return on average ordinary equity (%)
Basic earnings per share (cents)
Net tangible assets per ordinary share ($)4
Share price ($):
High
Low
Close
Business performance
Operating expenses to operating income ratio (%)
Net interest margin (%)
Capital adequacy
Total equity to total assets (%)
Total equity to total average assets (%)
APRA Basel III:
Common equity Tier 1 (%)5
Tier 1 ratio (%)6
Total capital ratio (%)6
Credit quality
Net impaired assets to equity and collectively assessed provisions (%)
Total provisions for impairment on loans and credit commitments to total loans
(basis points)
2015
2014
2013
2012
2011
Disclosure regarding forward-looking statements
Reading this report
14,267
7,375
21,642
(9,473)
(753)
11,416
(3,348)
(56)
8,012
623,316
188,840
812,156
475,328
171,054
13,840
98,019
758,241
53,915
187
-
73.4
16.2
256.3
13.08
40.07
29.10
29.70
43.8
2.09
6.6
6.8
9.5
11.4
13.3
1.8
53
13,542
6,395
19,937
(8,547)
(650)
10,740
(3,115)
(64)
7,561
580,343
190,499
770,842
460,822
152,251
10,858
97,574
721,505
49,337
182
-
74.7
16.3
243.7
11.57
35.99
30.00
32.14
42.9
2.09
6.4
6.7
9.0
10.6
12.3
2.5
60
12,821
5,774
18,595
(7,976)
(847)
9,772
(2,947)
(74)
6,751
536,164
164,933
701,097
424,482
144,133
9,330
75,615
653,560
47,537
174
20
79.7
15.2
218.3
11.09
34.79
24.23
32.73
42.9
2.14
6.8
6.9
9.1
10.7
12.3
4.1
73
12,502
5,481
17,983
(7,957)
(1,212)
8,814
(2,812)
(66)
5,936
514,445
164,167
678,612
394,991
147,847
9,537
79,972
632,347
46,265
166
-
85.3
13.9
194.7
10.49
24.99
19.00
24.85
44.2
2.16
6.8
6.9
8.2
10.3
11.7
5.6
82
11,996
4,917
16,913
(7,406)
(993)
8,514
(1,455)
(68)
6,991
496,609
173,619
670,228
370,278
165,931
8,173
82,038
626,420
43,808
156
-
67.0
17.8
233.0
9.96
25.60
17.84
20.34
43.8
2.19
6.5
7.0
n/a
9.7
11.0
6.3
88
Other information
Full-time equivalent employees (number at financial year end)7
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
33,418
33,045
32,620
33,586
33,898
and may differ from results previously reported.
2 The above income statement extracts for 2015, 2014 and 2013 and balance sheet extracts for 2015 and 2014 are derived from the consolidated
financial statements included in this Annual Report. The above income statement extracts for 2012 and 2011 and balance sheet extracts for 2013,
2012 and 2011 are derived from financial statements previously published.
3 Excludes special dividends and adjusted for Treasury shares.
4 Total equity attributable to owners of Westpac Banking Corporation, after deducting goodwill and other intangible assets divided by the number of
ordinary shares outstanding, less Treasury shares held.
5 Basel III was not effective in Australia until 1 January 2013. The 2012 ratio has been presented on a pro forma Basel III basis. No comparative is
presented for 2011. For further information, refer to Note 33 to the financial statements.
6 Basel III was not effective in Australia until 1 January 2013. Comparatives are presented on a Basel II basis. For further information, refer to Note 33
to the financial statements.
7 Full-time equivalent employees includes full-time and pro-rata part-time staff. It excludes staff on unpaid absences (e.g. unpaid maternity leave),
overtime, temporary and contract staff.
72
2015 Westpac Group Annual Report
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73
This Annual 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 Annual Report 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 and financial support to certain borrowers. We use words such as ‘will’, ‘may’, ‘expect’, ‘intend’,
‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’ 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 management’s expectations and beliefs concerning future developments and their potential effect
upon us. There can be no assurance that future developments will be in accordance with our expectations or that the effect of
future developments on us will be those anticipated. Actual results could differ materially from those which we expect,
depending on the outcome of various factors, 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;
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;
the conduct, behaviour or practices of Westpac or its staff;
changes to our credit ratings;
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 our ability to maintain or to
increase market share and control expenses;
the effects of competition in the geographic and business areas in which Westpac conducts its operations;
information security breaches, including cyberattacks;
reliability and security of Westpac’s technology and risks associated with changes to technology systems;
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 Westpac’s risk management policies, including our internal processes, systems and employees;
the incidence or severity of Westpac insured events;
the occurrence of environmental change or external events in countries in which Westpac or its customers or counterparties
conduct their operations;
internal and external events which may adversely impact Westpac’s reputation;
changes to the value of Westpac’s intangible assets;
changes in political, social or economic conditions in any of the major markets in which Westpac or its customers or
the success of strategic decisions involving diversification or innovation, in addition to business expansion and integration of
counterparties operate;
new businesses; and
various other factors beyond Westpac’s 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’ under the section ‘Risk and risk management’. 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
Westpac is under no obligation to update any forward-looking statements contained in this Annual Report, whether as a result
of new information, future events or otherwise, after the date of this Annual Report.
For a discussion of significant developments impacting the Group, refer to ‘Significant developments’ under ‘Information on
and events.
Significant developments
Westpac’ in Section 1.
Total shareholders’ equity and non-controlling interests
53,915
49,337
47,537
46,265
43,808
Five year summary1
(in $m unless otherwise indicated)
Income statements for the years ended 30 September2
Net operating income before operating expenses and impairment charges
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
Balance sheet as at 30 September2
Net interest income
Non-interest income
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Deposits and other borrowings
Loans
Other assets
Total assets
Debt issues
Loan capital
Other liabilities
Total liabilities
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)3
Return on average ordinary equity (%)
Basic earnings per share (cents)
Net tangible assets per ordinary share ($)4
Share price ($):
High
Low
Close
Business performance
Operating expenses to operating income ratio (%)
Net interest margin (%)
Capital adequacy
Total equity to total assets (%)
Total equity to total average assets (%)
APRA Basel III:
Common equity Tier 1 (%)5
Tier 1 ratio (%)6
Total capital ratio (%)6
Credit quality
(basis points)
Other information
2015
2014
2013
2012
2011
14,267
7,375
21,642
(9,473)
(753)
11,416
(3,348)
(56)
8,012
623,316
188,840
812,156
475,328
171,054
13,840
98,019
13,542
6,395
19,937
(8,547)
(650)
10,740
(3,115)
(64)
7,561
580,343
190,499
770,842
460,822
152,251
10,858
97,574
12,821
5,774
18,595
(7,976)
(847)
9,772
(2,947)
(74)
6,751
536,164
164,933
701,097
424,482
144,133
9,330
75,615
12,502
5,481
17,983
(7,957)
(1,212)
8,814
(2,812)
(66)
5,936
514,445
164,167
678,612
394,991
147,847
9,537
79,972
11,996
4,917
16,913
(7,406)
(993)
8,514
(1,455)
(68)
6,991
496,609
173,619
670,228
370,278
165,931
8,173
82,038
758,241
721,505
653,560
632,347
626,420
187
-
73.4
16.2
256.3
13.08
40.07
29.10
29.70
43.8
2.09
6.6
6.8
9.5
11.4
13.3
1.8
53
182
-
74.7
16.3
243.7
11.57
35.99
30.00
32.14
42.9
2.09
6.4
6.7
9.0
10.6
12.3
2.5
60
174
20
79.7
15.2
218.3
11.09
34.79
24.23
32.73
42.9
2.14
6.8
6.9
9.1
10.7
12.3
4.1
73
166
-
85.3
13.9
194.7
10.49
24.99
19.00
24.85
44.2
2.16
6.8
6.9
8.2
10.3
11.7
5.6
82
156
-
67.0
17.8
233.0
9.96
25.60
17.84
20.34
43.8
2.19
6.5
7.0
n/a
9.7
11.0
6.3
88
Net impaired assets to equity and collectively assessed provisions (%)
Total provisions for impairment on loans and credit commitments to total loans
Full-time equivalent employees (number at financial year end)7
32,620
33,586
33,045
33,418
33,898
and may differ from results previously reported.
2 The above income statement extracts for 2015, 2014 and 2013 and balance sheet extracts for 2015 and 2014 are derived from the consolidated
financial statements included in this Annual Report. The above income statement extracts for 2012 and 2011 and balance sheet extracts for 2013,
2012 and 2011 are derived from financial statements previously published.
3 Excludes special dividends and adjusted for Treasury shares.
4 Total equity attributable to owners of Westpac Banking Corporation, after deducting goodwill and other intangible assets divided by the number of
ordinary shares outstanding, less Treasury shares held.
5 Basel III was not effective in Australia until 1 January 2013. The 2012 ratio has been presented on a pro forma Basel III basis. No comparative is
presented for 2011. For further information, refer to Note 33 to the financial statements.
6 Basel III was not effective in Australia until 1 January 2013. Comparatives are presented on a Basel II basis. For further information, refer to Note 33
7 Full-time equivalent employees includes full-time and pro-rata part-time staff. It excludes staff on unpaid absences (e.g. unpaid maternity leave),
to the financial statements.
overtime, temporary and contract staff.
Reading this report
Disclosure regarding forward-looking statements
This Annual 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 Annual Report 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 and financial support to certain borrowers. We use words such as ‘will’, ‘may’, ‘expect’, ‘intend’,
‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’ 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 management’s expectations and beliefs concerning future developments and their potential effect
upon us. There can be no assurance that future developments will be in accordance with our expectations or that the effect of
future developments on us will be those anticipated. Actual results could differ materially from those which we expect,
depending on the outcome of various factors, 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;
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;
the conduct, behaviour or practices of Westpac or its staff;
changes to our credit ratings;
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 our ability to maintain or to
increase market share and control expenses;
the effects of competition in the geographic and business areas in which Westpac conducts its operations;
information security breaches, including cyberattacks;
reliability and security of Westpac’s technology and risks associated with changes to technology systems;
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 Westpac’s risk management policies, including our internal processes, systems and employees;
the incidence or severity of Westpac insured events;
the occurrence of environmental change or external events in countries in which Westpac or its customers or counterparties
conduct their operations;
internal and external events which may adversely impact Westpac’s reputation;
changes to the value of Westpac’s 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 and integration of
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
new businesses; and
various other factors beyond Westpac’s 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’ under the section ‘Risk and risk management’. 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 Annual Report, whether as a result
of new information, future events or otherwise, after the date of this Annual Report.
Significant developments
For a discussion of significant developments impacting the Group, refer to ‘Significant developments’ under ‘Information on
Westpac’ in Section 1.
72
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73
2
Currency of presentation, exchange rates and certain definitions
In this Annual Report, ‘financial statements’ means our audited consolidated balance sheets as at 30 September 2015 and 30
September 2014 and income statements, statements of comprehensive income, changes in equity and cash flows for each of
the years ended 30 September 2015, 2014 and 2013 together with accompanying notes which are included in this
Annual Report.
Our financial year ends on 30 September. As used throughout this Annual Report, the financial year ended 30 September 2015
is referred to as 2015 and other financial years are referred to in a corresponding manner.
We publish our consolidated financial statements in Australian dollars. In this Annual Report, unless otherwise stated or the
context otherwise requires, references to ‘dollars’, ‘dollar amounts’, ‘$’, ‘AUD’ or ‘A$’ are to Australian dollars, references to
‘US$’, ‘USD’ or ‘US dollars’ are to United States dollars and references to ‘NZ$’, ‘NZD’ or ‘NZ dollars’ are to New Zealand
dollars. Solely for the convenience of the reader, certain Australian dollar amounts have been translated into US dollars at a
specified rate. These translations should not be construed as representations that the Australian dollar amounts actually
represent such US dollar amounts or have been or could be converted into US dollars at the rate indicated. Unless otherwise
stated, the translations of Australian dollars into US dollars have been made at the rate of A$1.00 = US$0.7020, the noon
buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve
Bank of New York (the ‘noon buying rate’) as of Wednesday, 30 September 2015. The Australian dollar equivalent of New
Zealand dollars at 30 September 2015 was A$1.00 = NZ$1.098, being the closing spot exchange rate on that date. Refer to
‘Exchange rates’ in Section 4 for information regarding the rates of exchange between the Australian dollar and the US dollar
for the financial years ended 30 September 2011 to 30 September 2015.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to rounding.
Selected consolidated financial and operating data
We have derived the following selected financial information as of, and for the financial years ended, 30 September 2015,
2014, 2013, 2012 and 2011 from our audited consolidated financial statements and related notes.
This information should be read together with our audited consolidated financial statements and the accompanying notes
Review of Group operations
included elsewhere in this Annual Report.
Accounting standards
Accounting Standards Board (IASB).
financial statements.
Recent accounting developments
Critical accounting estimates
The financial statements and other financial information included elsewhere in this Annual Report, unless otherwise indicated,
have been prepared and presented in accordance with Australian Accounting Standards (AAS). Compliance with AAS ensures
that the financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International
The financial statements have been prepared in accordance with the accounting policies described in the Notes to the
For a discussion of recent accounting developments refer to Note 1 to the financial statements.
Our reported results are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of the
income statement and the balance sheet. Note 1(d) includes a description of our critical accounting assumptions and estimates.
We have discussed each of the assumptions and estimates with our Board Audit Committee (BAC). The following is a summary
of the areas we consider involve our most critical accounting estimates.
Fair value of financial instruments
Financial instruments classified as held-for-trading (including derivatives) or designated at fair value through income statement
and financial assets classified as available-for-sale are recognised in the financial statements at fair value. All derivatives are
measured and recognised at fair value. As far as possible, financial instruments are valued with reference to quoted,
observable market prices or by using models which employ observable valuation parameters. Where valuation models rely on
parameters for which inputs are not observable, judgments and estimation may be required.
As at 30 September 2015, the fair value of trading securities and financial assets designated at fair value through profit or loss,
loans designated at fair value, available-for-sale securities and life insurance assets was $102,455 million
(2014: $102,254 million). The value of other financial liabilities at fair value through income statement, deposits and other
borrowings at fair value, debt issues at fair value and life insurance liabilities was $76,342 million (2014: $88,051 million). The
fair value of outstanding derivatives was a net liability of $131 million (2014: $1,865 million net asset). The fair value of financial
assets and financial liabilities determined by valuation models that use unobservable market prices was $1,969 million
(2014: $1,815 million) and $57 million (2014: $48 million), respectively. The fair value of other financial assets and financial
liabilities, including derivatives, is largely determined based on valuation models using observable market prices and rates.
Where observable market inputs are not available, day one profits or losses are not recognised.
We believe that the judgments and estimates used are reasonable in the current market. However, a change in these
judgments and estimates would lead to different results as future market conditions can vary from those expected.
Provisions for impairment charges on loans
Provisions for credit impairment represent management’s best estimate of the impairment charges incurred in the loan
portfolios as at the balance date. There are two components of our loan impairment provisions: Individually Assessed
Provisions (IAPs) and Collectively Assessed Provisions (CAPs).
In determining IAPs, considerations that have a bearing on the amount and timing of expected future cash flows are taken into
account. For example, the business prospects of the customer, the realisable value of collateral, our position relative to other
claimants, the reliability of customer information and the likely cost and duration of the work-out process. These judgments and
estimates can change with time as new information becomes available or as work-out strategies evolve, resulting in revisions to
the impairment provision as individual decisions are made.
The CAPs are established on a portfolio basis taking into account the level of arrears, collateral and security, past loss
experience, current economic conditions, expected default and timing of recovery based on portfolio trends. The most
significant factors in establishing these provisions are estimated loss rates and related emergence periods. The future credit
quality of these portfolios is subject to uncertainties that could cause actual credit losses to differ from reported loan impairment
provisions. These uncertainties include the economic environment, notably interest rates, unemployment levels, payment
behaviour and bankruptcy rates.
As at 30 September 2015, gross loans to customers were $626,344 million (2014: $583,516 million) and the provision for
impairment on loans was $3,028 million (2014: $3,173 million).
74
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75
Currency of presentation, exchange rates and certain definitions
In this Annual Report, ‘financial statements’ means our audited consolidated balance sheets as at 30 September 2015 and 30
September 2014 and income statements, statements of comprehensive income, changes in equity and cash flows for each of
the years ended 30 September 2015, 2014 and 2013 together with accompanying notes which are included in this
Annual Report.
Our financial year ends on 30 September. As used throughout this Annual Report, the financial year ended 30 September 2015
is referred to as 2015 and other financial years are referred to in a corresponding manner.
We publish our consolidated financial statements in Australian dollars. In this Annual Report, unless otherwise stated or the
context otherwise requires, references to ‘dollars’, ‘dollar amounts’, ‘$’, ‘AUD’ or ‘A$’ are to Australian dollars, references to
‘US$’, ‘USD’ or ‘US dollars’ are to United States dollars and references to ‘NZ$’, ‘NZD’ or ‘NZ dollars’ are to New Zealand
dollars. Solely for the convenience of the reader, certain Australian dollar amounts have been translated into US dollars at a
specified rate. These translations should not be construed as representations that the Australian dollar amounts actually
represent such US dollar amounts or have been or could be converted into US dollars at the rate indicated. Unless otherwise
stated, the translations of Australian dollars into US dollars have been made at the rate of A$1.00 = US$0.7020, the noon
buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve
Bank of New York (the ‘noon buying rate’) as of Wednesday, 30 September 2015. The Australian dollar equivalent of New
Zealand dollars at 30 September 2015 was A$1.00 = NZ$1.098, being the closing spot exchange rate on that date. Refer to
‘Exchange rates’ in Section 4 for information regarding the rates of exchange between the Australian dollar and the US dollar
for the financial years ended 30 September 2011 to 30 September 2015.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to rounding.
Review of Group operations
Selected consolidated financial and operating data
We have derived the following selected financial information as of, and for the financial years ended, 30 September 2015,
2014, 2013, 2012 and 2011 from our audited consolidated financial statements and related notes.
This information should be read together with our audited consolidated financial statements and the accompanying notes
included elsewhere in this Annual Report.
Accounting standards
The financial statements and other financial information included elsewhere in this Annual Report, unless otherwise indicated,
have been prepared and presented in accordance with Australian Accounting Standards (AAS). Compliance with AAS ensures
that the financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
The financial statements have been prepared in accordance with the accounting policies described in the Notes to the
financial statements.
Recent accounting developments
For a discussion of recent accounting developments refer to Note 1 to the financial statements.
Critical accounting estimates
Our reported results are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of the
income statement and the balance sheet. Note 1(d) includes a description of our critical accounting assumptions and estimates.
We have discussed each of the assumptions and estimates with our Board Audit Committee (BAC). The following is a summary
of the areas we consider involve our most critical accounting estimates.
Fair value of financial instruments
Financial instruments classified as held-for-trading (including derivatives) or designated at fair value through income statement
and financial assets classified as available-for-sale are recognised in the financial statements at fair value. All derivatives are
measured and recognised at fair value. As far as possible, financial instruments are valued with reference to quoted,
observable market prices or by using models which employ observable valuation parameters. Where valuation models rely on
parameters for which inputs are not observable, judgments and estimation may be required.
As at 30 September 2015, the fair value of trading securities and financial assets designated at fair value through profit or loss,
loans designated at fair value, available-for-sale securities and life insurance assets was $102,455 million
(2014: $102,254 million). The value of other financial liabilities at fair value through income statement, deposits and other
borrowings at fair value, debt issues at fair value and life insurance liabilities was $76,342 million (2014: $88,051 million). The
fair value of outstanding derivatives was a net liability of $131 million (2014: $1,865 million net asset). The fair value of financial
assets and financial liabilities determined by valuation models that use unobservable market prices was $1,969 million
(2014: $1,815 million) and $57 million (2014: $48 million), respectively. The fair value of other financial assets and financial
liabilities, including derivatives, is largely determined based on valuation models using observable market prices and rates.
Where observable market inputs are not available, day one profits or losses are not recognised.
We believe that the judgments and estimates used are reasonable in the current market. However, a change in these
judgments and estimates would lead to different results as future market conditions can vary from those expected.
Provisions for impairment charges on loans
Provisions for credit impairment represent management’s best estimate of the impairment charges incurred in the loan
portfolios as at the balance date. There are two components of our loan impairment provisions: Individually Assessed
Provisions (IAPs) and Collectively Assessed Provisions (CAPs).
In determining IAPs, considerations that have a bearing on the amount and timing of expected future cash flows are taken into
account. For example, the business prospects of the customer, the realisable value of collateral, our position relative to other
claimants, the reliability of customer information and the likely cost and duration of the work-out process. These judgments and
estimates can change with time as new information becomes available or as work-out strategies evolve, resulting in revisions to
the impairment provision as individual decisions are made.
The CAPs are established on a portfolio basis taking into account the level of arrears, collateral and security, past loss
experience, current economic conditions, expected default and timing of recovery based on portfolio trends. The most
significant factors in establishing these provisions are estimated loss rates and related emergence periods. The future credit
quality of these portfolios is subject to uncertainties that could cause actual credit losses to differ from reported loan impairment
provisions. These uncertainties include the economic environment, notably interest rates, unemployment levels, payment
behaviour and bankruptcy rates.
As at 30 September 2015, gross loans to customers were $626,344 million (2014: $583,516 million) and the provision for
impairment on loans was $3,028 million (2014: $3,173 million).
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75
2
Goodwill
Goodwill represents the excess of purchase consideration, the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the acquiree, over the fair value of the identified net assets of
acquired businesses. The determination of the fair value of the assets and liabilities of acquired businesses requires the
exercise of management judgment. Different fair values would result in changes to the goodwill and to the post-acquisition
performance of the acquisitions.
Goodwill is tested for impairment annually by determining if the carrying value of the cash-generating unit (CGU) that it has
been allocated to is recoverable. The recoverable amount is the higher of the CGU’s fair value less costs to sell and its value in
use. Determination of appropriate cash flows and discount rates for the calculation of the value in use is subjective. As at
30 September 2015, the carrying value of goodwill was $8,809 million (2014: $9,112 million). Refer to Note 26 to the financial
statements for further information.
Superannuation obligations
The actuarial valuation of our defined benefit plan obligations are dependent upon a series of assumptions, the key ones being
discount rate, salary increase rate, mortality, morbidity and investment returns assumptions. Different assumptions could
significantly alter the amount of the difference between plan assets and defined benefit obligations and the amount recognised
directly in retained earnings.
The aggregate superannuation deficits across all our plans as at 30 September 2015 was $192 million (2014: $315 million).
One plan had a superannuation surplus as at 30 September 2015 of $18 million (2014: $nil).
Provisions (other than loan impairment charges)
Provisions are held in respect of a range of obligations such as employee entitlements, restructuring costs, litigation provisions
and non-lending losses, impairment charges on credit commitments and surplus lease space. Some of the provisions involve
significant judgment about the likely outcome of various events and estimated future cash flows.
Income taxes
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. All our businesses
predominantly operate in jurisdictions with similar tax rates to the Australian corporate tax rate. Significant judgment is required
in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the
ordinary course of business for which the ultimate tax determination is uncertain. For these circumstances, we hold appropriate
provisions. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences
will impact the current and deferred tax provisions in the period where such determination is made.
Life insurance contract liabilities
The actuarial valuation of life insurance contract liabilities and associated deferred policy acquisition costs are dependent upon
a number of assumptions. The key factors impacting the valuation of these liabilities and related assets are the cost of
providing benefits and administrating the contracts, mortality and morbidity experience, discontinuance experience and the rate
at which projected future cash flows are discounted.
Review of Group operations
Income statement review
Consolidated income statement1
As at 30 September
(in $m unless otherwise indicated)
Interest income
Interest expense
Net interest income
Non-interest income
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net profit for the year
Net operating income before operating expenses and
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
Weighted average number of ordinary shares (millions)
Basic earnings per ordinary share (cents)
Diluted earnings per share (cents)3
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)4
2015
US$2
2015
A$
2014
A$
2013
A$
2012
A$
2011
A$
22,671
32,295
32,248
33,009
36,873
38,098
(12,656)
(18,028)
(18,706)
(20,188)
(24,371)
(26,102)
10,015
5,177
14,267
7,375
13,542
6,395
12,821
5,774
12,502
5,481
11,996
4,917
15,192
(6,650)
(529)
8,013
(2,350)
5,663
(39)
5,624
3,124
179.9
175.0
131
-
73.4
21,642
(9,473)
(753)
11,416
(3,348)
8,068
(56)
8,012
3,124
256.3
249.3
187
-
73.4
19,937
(8,547)
(650)
10,740
(3,115)
7,625
(64)
7,561
3,098
243.7
238.7
182
-
74.7
18,595
(7,976)
(847)
9,772
(2,947)
6,825
(74)
6,751
3,087
218.3
213.5
174
20
79.7
17,983
(7,957)
(1,212)
8,814
(2,812)
6,002
(66)
5,936
3,043
194.7
189.4
166
-
85.3
16,913
(7,406)
(993)
8,514
(1,455)
7,059
(68)
6,991
2,997
233.0
223.6
156
-
67.0
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
2 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7020, the noon
and may differ from results previously reported.
buying rate in New York City on 30 September 2015.
3 Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive
potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
4 Calculated by dividing the dividends per ordinary share by the basic earnings per ordinary share. Excludes special dividends and adjusted for
Treasury shares.
Overview of performance – 2015 v 2014
Net profit attributable to owners for 2015 was $8,012 million, an increase of $451 million or 6% compared to 2014. There were
a number of significant infrequent items that in aggregate increased net profit. These included the partial sale of the Group’s
shareholding in BT Investment Management Limited (BTIM)1 which generated an after tax gain of $665 million, several tax
recoveries of $121 million, partially offset by higher technology expenses of $354 million (post-tax) following changes to
accounting for technology investment spending and derivative valuation methodologies changes which resulted in an $85
million2 (post-tax) charge.
Net interest income increased $725 million or 5% compared to 2014, with total loan growth of 7% and customer deposit growth
of 4%. Net interest margin was stable at 2.09%, with lower Treasury income, reduced asset spreads and higher liquidity costs
offset by reduced cost of funds from both deposit products and wholesale funding.
Non-interest income increased $980 million or 15% compared to 2014 primarily due to the gain associated with the sale of
BTIM shares ($1,036 million). Excluding this item, non-interest income reduced $56 million or 1% from lower trading income2
and lower insurance income reflecting higher insurance claims mostly associated with severe weather events.
Operating expenses increased $926 million or 11% compared to 2014. This included $505 million related to changes to
accounting for technology investment spending. Excluding this item, operating expenses increased $421 million or 5% primarily
due to higher investment related costs, including increased software amortisation and foreign currency translation impacts.
Impairment charges increased $103 million compared to 2014 mostly due to a reduced benefit from credit quality improvements
while direct write-offs were also higher. Overall asset quality improved during the year with stressed exposures as a percentage
of total committed exposures reducing from 1.24% to 0.99%.
The effective tax rate of 29.3% in 2015 was marginally higher than the 29.0% recorded in 2014.
2015 basic earnings per share were 256.3 cents per share compared to 243.7 cents per share in 2014.
Refer to divisional results of BT Financial Group (Australia) for more detail.
1
2
In 2015 changes were made to derivative valuation methodologies, which include the first time adoption of a Funding Valuation Adjustment (FVA) to
the fair value of derivatives. The impact of these changes resulted in a $122 million (pre-tax) charge which reduced non-interest income.
76
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77
Goodwill
Goodwill represents the excess of purchase consideration, the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the acquiree, over the fair value of the identified net assets of
acquired businesses. The determination of the fair value of the assets and liabilities of acquired businesses requires the
exercise of management judgment. Different fair values would result in changes to the goodwill and to the post-acquisition
performance of the acquisitions.
Goodwill is tested for impairment annually by determining if the carrying value of the cash-generating unit (CGU) that it has
been allocated to is recoverable. The recoverable amount is the higher of the CGU’s fair value less costs to sell and its value in
use. Determination of appropriate cash flows and discount rates for the calculation of the value in use is subjective. As at
30 September 2015, the carrying value of goodwill was $8,809 million (2014: $9,112 million). Refer to Note 26 to the financial
statements for further information.
Superannuation obligations
The actuarial valuation of our defined benefit plan obligations are dependent upon a series of assumptions, the key ones being
discount rate, salary increase rate, mortality, morbidity and investment returns assumptions. Different assumptions could
significantly alter the amount of the difference between plan assets and defined benefit obligations and the amount recognised
directly in retained earnings.
The aggregate superannuation deficits across all our plans as at 30 September 2015 was $192 million (2014: $315 million).
One plan had a superannuation surplus as at 30 September 2015 of $18 million (2014: $nil).
Provisions (other than loan impairment charges)
Provisions are held in respect of a range of obligations such as employee entitlements, restructuring costs, litigation provisions
and non-lending losses, impairment charges on credit commitments and surplus lease space. Some of the provisions involve
significant judgment about the likely outcome of various events and estimated future cash flows.
Income taxes
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. All our businesses
predominantly operate in jurisdictions with similar tax rates to the Australian corporate tax rate. Significant judgment is required
in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the
ordinary course of business for which the ultimate tax determination is uncertain. For these circumstances, we hold appropriate
provisions. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences
will impact the current and deferred tax provisions in the period where such determination is made.
Life insurance contract liabilities
The actuarial valuation of life insurance contract liabilities and associated deferred policy acquisition costs are dependent upon
a number of assumptions. The key factors impacting the valuation of these liabilities and related assets are the cost of
providing benefits and administrating the contracts, mortality and morbidity experience, discontinuance experience and the rate
at which projected future cash flows are discounted.
Income statement review
Consolidated income statement1
As at 30 September
(in $m unless otherwise indicated)
Interest income
Interest expense
Net interest income
Non-interest income
Review of Group operations
2015
US$2
22,671
(12,656)
10,015
5,177
2015
2014
2013
2012
2011
A$
32,295
(18,028)
14,267
7,375
A$
32,248
(18,706)
13,542
6,395
A$
33,009
(20,188)
12,821
5,774
A$
36,873
(24,371)
12,502
5,481
A$
38,098
(26,102)
11,996
4,917
15,192
(6,650)
(529)
21,642
(9,473)
(753)
19,937
(8,547)
(650)
18,595
(7,976)
(847)
Net operating income before operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net profit for the year
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
Weighted average number of ordinary shares (millions)
Basic earnings per ordinary share (cents)
Diluted earnings per share (cents)3
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)4
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
5,936
3,043
194.7
189.4
166
-
6,751
3,087
218.3
213.5
174
20
7,561
3,098
243.7
238.7
182
-
8,012
3,124
256.3
249.3
187
-
5,624
3,124
179.9
175.0
131
-
6,991
2,997
233.0
223.6
156
-
8,814
(2,812)
6,002
(66)
9,772
(2,947)
6,825
(74)
10,740
(3,115)
7,625
(64)
8,514
(1,455)
7,059
(68)
11,416
(3,348)
8,068
(56)
8,013
(2,350)
5,663
(39)
17,983
(7,957)
(1,212)
16,913
(7,406)
(993)
73.4
73.4
79.7
85.3
74.7
67.0
and may differ from results previously reported.
2 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7020, the noon
buying rate in New York City on 30 September 2015.
3 Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive
potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
4 Calculated by dividing the dividends per ordinary share by the basic earnings per ordinary share. Excludes special dividends and adjusted for
Treasury shares.
Overview of performance – 2015 v 2014
Net profit attributable to owners for 2015 was $8,012 million, an increase of $451 million or 6% compared to 2014. There were
a number of significant infrequent items that in aggregate increased net profit. These included the partial sale of the Group’s
shareholding in BT Investment Management Limited (BTIM)1 which generated an after tax gain of $665 million, several tax
recoveries of $121 million, partially offset by higher technology expenses of $354 million (post-tax) following changes to
accounting for technology investment spending and derivative valuation methodologies changes which resulted in an $85
million2 (post-tax) charge.
Net interest income increased $725 million or 5% compared to 2014, with total loan growth of 7% and customer deposit growth
of 4%. Net interest margin was stable at 2.09%, with lower Treasury income, reduced asset spreads and higher liquidity costs
offset by reduced cost of funds from both deposit products and wholesale funding.
Non-interest income increased $980 million or 15% compared to 2014 primarily due to the gain associated with the sale of
BTIM shares ($1,036 million). Excluding this item, non-interest income reduced $56 million or 1% from lower trading income2
and lower insurance income reflecting higher insurance claims mostly associated with severe weather events.
Operating expenses increased $926 million or 11% compared to 2014. This included $505 million related to changes to
accounting for technology investment spending. Excluding this item, operating expenses increased $421 million or 5% primarily
due to higher investment related costs, including increased software amortisation and foreign currency translation impacts.
Impairment charges increased $103 million compared to 2014 mostly due to a reduced benefit from credit quality improvements
while direct write-offs were also higher. Overall asset quality improved during the year with stressed exposures as a percentage
of total committed exposures reducing from 1.24% to 0.99%.
The effective tax rate of 29.3% in 2015 was marginally higher than the 29.0% recorded in 2014.
2015 basic earnings per share were 256.3 cents per share compared to 243.7 cents per share in 2014.
1
2
Refer to divisional results of BT Financial Group (Australia) for more detail.
In 2015 changes were made to derivative valuation methodologies, which include the first time adoption of a Funding Valuation Adjustment (FVA) to
the fair value of derivatives. The impact of these changes resulted in a $122 million (pre-tax) charge which reduced non-interest income.
76
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
77
2
The Board has determined a final dividend of 94 cents per ordinary share. The full year ordinary dividends of 187 cents
represent an increase of 3% over ordinary dividends declared in 2014 and a pay-out ratio of 73.4%. The full year ordinary
dividend is fully franked.
Income statement review – 2015 v 2014
Net interest income – 2015 v 2014
$m
Interest income
Interest expense
Net interest income
Increase/(decrease) in net interest income
Due to change in volume
Due to change in rate
Change in net interest income
2015
32,295
(18,028)
14,267
878
(153)
725
2014
32,248
(18,706)
13,542
802
(81)
721
2013
33,009
(20,188)
12,821
430
(111)
319
Net interest income increased $725 million or 5% compared to 2014. Key features include:
net interest income excluding Treasury and Markets increased $863 million or 7%, reflecting 6% growth in average interest-
earning assets and a 2 basis point increase in Group net interest margin excluding Treasury and Markets; and
in aggregate, Treasury and Markets net interest income decreased $138 million or 25% due to lower returns in Treasury
related to the liquid asset portfolio and balance sheet management activities.
Total loans were $43.0 billion or 7% higher than 2014. Excluding foreign exchange translation impacts, total loans increased
$38.7 billion or 7%.
Key features of total loan growth were:
Australian housing loans increased $24.8 billion or 7% at 0.8x system1. New lending volumes increased 13% during the
year. Excluding the impact of customer switching to owner occupied lending, investor property lending growth was
under 10%2;
Australian personal loans and cards increased $1.0 billion or 5%, with growth across auto finance and personal lending;
Australian business loans increased $8.6 billion or 6% at 1.2x system1. Growth in institutional lending was mainly in
infrastructure and financial services segments. Westpac RBB and St.George increased 4%, with new lending 11% higher;
New Zealand lending increased NZ$4.6 billion or 7%. Mortgages grew at 6% (0.8x system3), and business lending increased
8% (in line with system); and
other overseas loans increased $3.2 billion or 23%. Excluding the impact of foreign currency translation, other overseas
loans increased $0.1 billion. Growth in term lending was offset by lower trade finance volumes.
Total customer deposits were $17.9 billion or 4% higher than 2014. Excluding foreign exchange translation impacts, customer
deposits increased $14.7 billion or 4%.
Key features of total customer deposit growth were:
Australian customer deposits increased $17.2 billion or 5%. Household deposits grew at system4 in the year. Growth in
financial corporation and non-financial corporation deposits was modest as pricing was adjusted to reflect relative Liquidity
Coverage Ratio (LCR) value. Australian non-interest bearing deposits increased from growth in mortgage offset accounts;
New Zealand customer deposits increased NZ$2.5 billion or 5%, with a focus on higher quality deposits; and
other overseas customer deposits decreased $2.4 billion.
Certificates of deposits decreased $3.4 billion or 7%, reflecting decreased short term wholesale funding in this form.
Interest spread and margin – 2015 v 2014
$m
Group
Net interest income
Average interest earning assets
Average interest bearing liabilities
Average net non-interest bearing assets, liabilities and equity
Benefit of net non-interest bearing assets, liabilities and equity2
Interest spread1
Net interest margin3
1
Review of Group operations
2015
2014
2013
14,267
683,814
640,628
43,186
1.91%
0.18%
2.09%
13,542
647,362
606,553
40,809
1.90%
0.19%
2.09%
12,821
599,869
560,470
39,399
1.90%
0.24%
2.14%
Interest spread is the difference between the average yield on all interest earning assets and the average yield on all interest bearing liabilities.
2 The benefit of net non-interest bearing assets, liabilities and equity is determined by applying the average yield paid on all interest bearing liabilities to
the average level of net non-interest bearing funds as a percentage of average interest earning assets.
3 Net interest margin is calculated by dividing net interest income by average interest earning assets.
Net interest margin was 2.09% in 2015, remaining flat compared to 2014. Key drivers of the margin were:
a 8 basis point decline from asset spreads. The primary driver was increased competition in mortgages. Business,
institutional, and unsecured lending spreads were also lower;
a 2 basis point decline from Treasury and Markets, reflecting lower returns from the management of the liquids portfolio and
balance sheet management in Treasury;
a 2 basis point decline from increased holdings of high quality liquid assets to meet the new LCR requirement from
1 January 2015 and the Committed Liquidity Facility (CLF) fee of 15 basis points; and
a 1 basis point decline from capital and other due to the impact of lower hedge rates on capital returns in relation to 2014,
partially offset by increased capital from the 2015 interim dividend DRP and partial DRP underwrite; offset by
a 13 basis point increase from lower funding costs. This comprised:
– a 3 basis point increase from lower term funding costs, as pricing for new term senior issuances was lower than
– a 10 basis point increase from customer deposit impacts, mostly from improved spreads on term deposits and
maturing deals; and
savings accounts.
Non-interest income – 2015 v 2014
Wealth management and insurance income
$m
Fees and commissions
Trading income
Other income
Non-interest income
2015
2,942
2,228
964
1,241
7,375
2014
2,926
2,254
1,017
198
6,395
2013
2,723
1,944
1,069
38
5,774
Non-interest income was $7,375 million in 2015, an increase of $980 million or 15% compared to 2014. The increase was
primarily driven by the partial sale of an interest in BTIM and higher fees and commissions, partially offset by a decline in
wealth management and insurance income and trading income.
Fees and commissions income was $2,942 million in 2015, an increase of $16 million or 1% compared to 2014. This increase
was primarily due to growth in business lending fees, institutional fees and the full period impact of the Lloyds acquisition.
Credit card income was lower mostly reflecting promotional point awards associated with the launch of the Westpac New
Zealand Airpoints loyalty program.
This decrease was primarily due to:
Wealth management and insurance income was $2,228 million in 2015, a decrease of $26 million or 1% compared to 2014.
funds management and life insurance revenue grew as a result of the benefit of positive net flows, higher average FUM and
FUA balances and growth in net earned premiums of 14% on life insurance. This was offset by the lower BTIM income
associated with the partial sale and move to equity accounting1, lower performance fee income, a slightly higher loss ratio
and increased claims which is consistent with growth in the book; and
general insurance income decreased from higher insurance claims mostly related to severe weather events ($65 million).
This was partly offset by gross written premium growth of 6% driven by home and contents sales.
1
2
3
4
Source: Reserve Bank of Australia (RBA).
As measured under APRA’s 10% growth rate threshold for investor property lending.
Source: Reserve Bank of New Zealand (RBNZ).
Source: APRA.
1
Refer to divisional results of BT Financial Group (Australia) for more detail.
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2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
79
Interest spread and margin – 2015 v 2014
Review of Group operations
2013
2014
2015
2.09%
1.90%
0.19%
1.90%
2.09%
0.18%
1.91%
0.24%
2.14%
14,267
683,814
640,628
43,186
13,542
647,362
606,553
40,809
12,821
599,869
560,470
39,399
Interest spread is the difference between the average yield on all interest earning assets and the average yield on all interest bearing liabilities.
$m
Group
Net interest income
Average interest earning assets
Average interest bearing liabilities
Average net non-interest bearing assets, liabilities and equity
Interest spread1
Benefit of net non-interest bearing assets, liabilities and equity2
Net interest margin3
1
2 The benefit of net non-interest bearing assets, liabilities and equity is determined by applying the average yield paid on all interest bearing liabilities to
The Board has determined a final dividend of 94 cents per ordinary share. The full year ordinary dividends of 187 cents
represent an increase of 3% over ordinary dividends declared in 2014 and a pay-out ratio of 73.4%. The full year ordinary
dividend is fully franked.
Income statement review – 2015 v 2014
Net interest income – 2015 v 2014
$m
Interest income
Interest expense
Net interest income
Increase/(decrease) in net interest income
Due to change in volume
Due to change in rate
Change in net interest income
2015
32,295
(18,028)
14,267
878
(153)
725
2014
32,248
(18,706)
13,542
802
(81)
721
2013
33,009
(20,188)
12,821
430
(111)
319
Net interest income increased $725 million or 5% compared to 2014. Key features include:
net interest income excluding Treasury and Markets increased $863 million or 7%, reflecting 6% growth in average interest-
earning assets and a 2 basis point increase in Group net interest margin excluding Treasury and Markets; and
in aggregate, Treasury and Markets net interest income decreased $138 million or 25% due to lower returns in Treasury
related to the liquid asset portfolio and balance sheet management activities.
Total loans were $43.0 billion or 7% higher than 2014. Excluding foreign exchange translation impacts, total loans increased
$38.7 billion or 7%.
Key features of total loan growth were:
Australian housing loans increased $24.8 billion or 7% at 0.8x system1. New lending volumes increased 13% during the
year. Excluding the impact of customer switching to owner occupied lending, investor property lending growth was
under 10%2;
Australian personal loans and cards increased $1.0 billion or 5%, with growth across auto finance and personal lending;
Australian business loans increased $8.6 billion or 6% at 1.2x system1. Growth in institutional lending was mainly in
infrastructure and financial services segments. Westpac RBB and St.George increased 4%, with new lending 11% higher;
New Zealand lending increased NZ$4.6 billion or 7%. Mortgages grew at 6% (0.8x system3), and business lending increased
8% (in line with system); and
other overseas loans increased $3.2 billion or 23%. Excluding the impact of foreign currency translation, other overseas
loans increased $0.1 billion. Growth in term lending was offset by lower trade finance volumes.
Total customer deposits were $17.9 billion or 4% higher than 2014. Excluding foreign exchange translation impacts, customer
deposits increased $14.7 billion or 4%.
Key features of total customer deposit growth were:
Australian customer deposits increased $17.2 billion or 5%. Household deposits grew at system4 in the year. Growth in
financial corporation and non-financial corporation deposits was modest as pricing was adjusted to reflect relative Liquidity
Coverage Ratio (LCR) value. Australian non-interest bearing deposits increased from growth in mortgage offset accounts;
New Zealand customer deposits increased NZ$2.5 billion or 5%, with a focus on higher quality deposits; and
other overseas customer deposits decreased $2.4 billion.
Certificates of deposits decreased $3.4 billion or 7%, reflecting decreased short term wholesale funding in this form.
the average level of net non-interest bearing funds as a percentage of average interest earning assets.
3 Net interest margin is calculated by dividing net interest income by average interest earning assets.
Net interest margin was 2.09% in 2015, remaining flat compared to 2014. Key drivers of the margin were:
a 8 basis point decline from asset spreads. The primary driver was increased competition in mortgages. Business,
institutional, and unsecured lending spreads were also lower;
a 2 basis point decline from Treasury and Markets, reflecting lower returns from the management of the liquids portfolio and
balance sheet management in Treasury;
a 2 basis point decline from increased holdings of high quality liquid assets to meet the new LCR requirement from
1 January 2015 and the Committed Liquidity Facility (CLF) fee of 15 basis points; and
a 1 basis point decline from capital and other due to the impact of lower hedge rates on capital returns in relation to 2014,
partially offset by increased capital from the 2015 interim dividend DRP and partial DRP underwrite; offset by
a 13 basis point increase from lower funding costs. This comprised:
– a 3 basis point increase from lower term funding costs, as pricing for new term senior issuances was lower than
maturing deals; and
– a 10 basis point increase from customer deposit impacts, mostly from improved spreads on term deposits and
savings accounts.
Non-interest income – 2015 v 2014
$m
Fees and commissions
Wealth management and insurance income
Trading income
Other income
Non-interest income
2015
2,942
2,228
964
1,241
7,375
2014
2,926
2,254
1,017
198
6,395
2013
2,723
1,944
1,069
38
5,774
Non-interest income was $7,375 million in 2015, an increase of $980 million or 15% compared to 2014. The increase was
primarily driven by the partial sale of an interest in BTIM and higher fees and commissions, partially offset by a decline in
wealth management and insurance income and trading income.
Fees and commissions income was $2,942 million in 2015, an increase of $16 million or 1% compared to 2014. This increase
was primarily due to growth in business lending fees, institutional fees and the full period impact of the Lloyds acquisition.
Credit card income was lower mostly reflecting promotional point awards associated with the launch of the Westpac New
Zealand Airpoints loyalty program.
Wealth management and insurance income was $2,228 million in 2015, a decrease of $26 million or 1% compared to 2014.
This decrease was primarily due to:
funds management and life insurance revenue grew as a result of the benefit of positive net flows, higher average FUM and
FUA balances and growth in net earned premiums of 14% on life insurance. This was offset by the lower BTIM income
associated with the partial sale and move to equity accounting1, lower performance fee income, a slightly higher loss ratio
and increased claims which is consistent with growth in the book; and
general insurance income decreased from higher insurance claims mostly related to severe weather events ($65 million).
This was partly offset by gross written premium growth of 6% driven by home and contents sales.
Source: Reserve Bank of Australia (RBA).
As measured under APRA’s 10% growth rate threshold for investor property lending.
Source: Reserve Bank of New Zealand (RBNZ).
Source: APRA.
1
2
3
4
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2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
79
1
Refer to divisional results of BT Financial Group (Australia) for more detail.
2
Review of Group operations
The improvement in asset quality through 2015, including low levels of new impaired assets, has led to impairment charges
relative to average gross loans remaining modest at 12 basis points. While the level of impairment charges was low, they
increased over the year from higher collectively assessed provision charges. Balance sheet provisions were broadly
maintained, with collective provisions rising $49 million and individually assessed provisions are lower from the work out of
existing impaired assets, down $198 million. Economic overlays were little changed ($1 million) over 2015 with a balance of
Impairment charges of $753 million were up $103 million when compared to 2014.
$388 million at 30 September 2015.
Key movements included:
lower compared to 2014; and
new Individually Assessed Provisions (IAP) reduced by $118 million offset by lower write-backs and recoveries, $111 million
total new Collectively Assessed Provisions (CAP) were $110 million higher than 2014. Write-offs increased $91 million due
to the reclassification from new IAPs to write-offs for the Lloyds portfolio and growth in the Westpac RBB unsecured
portfolio. Other changes in CAPs were a smaller benefit as portfolio quality improved at a slower rate.
Income tax expense – 2015 v 2014
$m
Income tax expense
Tax as a percentage of profit before income tax expense (effective tax rate)
2015
3,348
29.3%
2014
3,115
29.0%
2013
2,947
30.2%
Income tax expense was $3,348 million in 2015, an increase of $233 million or 7% compared to 2014. The effective tax rate
increased to 29.3% in 2015, from 29.0% in 2014. The increase was largely due to the finalisation of prior period taxation
matters in 2014 that was not repeated in 2015.
Trading income was $964 million in 2015, a decrease of $53 million or 5% compared to 2014. This decrease reflects the
$122 million charge from methodology changes to derivative valuation adjustments1 which more than offset higher Market sales
and trading income. The contribution to trading income from Westpac Pacific was also lower following the introduction of
exchange rate controls in PNG which reduced foreign exchange income.
Other income was $1,241 million in 2015, an increase of $1,043 million or 527% compared to 2014. This increase was primarily
driven by the partial sale of an interest in BTIM which delivered a realised gain of $1,036 million and a rise in income from
asset sales.
Operating expenses – 2015 v 2014
$m
Salaries and other staff expenses
Equipment and occupancy expenses
Technology expenses
Other expenses
Total operating expenses
Total operating expenses to net operating income ratio
1 Prior comparative period has been restated to reflect business structure changes in 2015.
2015
4,704
954
2,288
1,527
9,473
43.8%
20141
4,571
904
1,574
1,498
8,547
42.9%
2013
4,269
873
1,406
1,428
7,976
42.9%
Operating expenses increased $926 million or 11% compared to 2014. The key factors of the result were:
changes to the accounting approach for technology investment spend resulted in an increase in the technology and IT
equipment expenses by $505 million or 32%, with a further $118 million or 1% higher than 2014 due to higher investment
related expenses;
foreign currency translation contributed $51 million or 1%; partially offset by
lower BTIM expenses associated with the partial sale and move to equity accounting2; and
delivery of productivity benefits of $239 million or 3%.
Salaries and other staff expenses were $4,704 million, an increase of $133 million or 3% compared to 2014. This result reflects
the full year impact of annual salary increases, partially offset by a reduction in FTE from productivity initiatives and lower BTIM
expenses associated with the partial sale and move to equity accounting.
Equipment and occupancy costs were $954 million, an increase of $50 million or 6% compared to 2014. This increase was
due to:
rental expenses increased as a result of the Group moving from landlord to tenant following the sale of property and
relocation to Barangaroo with a fixed rent lease3; and
investment in an additional 12 Bank of Melbourne branches.
Technology expenses were $2,288 million, an increase of $714 million or 45%. This was driven by:
higher technology expenses, IT equipment depreciation and impairment expenses of $623 million or 40%, including the
impact of changes to the accounting for technology investments ($505 million); and
higher software licensing and volume related costs.
Other expenses were $1,527 million, $29 million or 2% higher compared to 2014. This increase was due to:
higher non lending losses of $97 million due mainly to higher credit card and digital fraud and the release of $75 million
provision in 2014 related to Bell litigation not repeated; and
professional service costs associated with higher outsourced operational costs; partially offset by
Westpac Bicentennial Foundation grant of $100 million in 2014 not repeated in 2015.
Impairment charges – 2015 v 2014
$m
Impairment charges
Impairment charges to average gross loans (basis points)
2015
753
12
2014
650
12
2013
847
16
1
2
3
In 2015 changes were made to derivative valuation methodologies, which include the first time adoption of a Funding Valuation Adjustment (FVA) to
the fair value of derivatives. The impact of these changes resulted in a $122 million (pre-tax) charge which reduced non-interest income.
Refer to divisional results of BT Financial Group (Australia) for more detail.
Accounting standards require any lease with fixed rent increases to be “Straight-lined”, spreading the fixed annual rental increases evenly over the
term of the lease. This adjustment brings forward future increases in cash rent, creating a flat profile over the life of the lease.
80
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
81
Review of Group operations
The improvement in asset quality through 2015, including low levels of new impaired assets, has led to impairment charges
relative to average gross loans remaining modest at 12 basis points. While the level of impairment charges was low, they
increased over the year from higher collectively assessed provision charges. Balance sheet provisions were broadly
maintained, with collective provisions rising $49 million and individually assessed provisions are lower from the work out of
existing impaired assets, down $198 million. Economic overlays were little changed ($1 million) over 2015 with a balance of
$388 million at 30 September 2015.
Impairment charges of $753 million were up $103 million when compared to 2014.
Key movements included:
new Individually Assessed Provisions (IAP) reduced by $118 million offset by lower write-backs and recoveries, $111 million
lower compared to 2014; and
total new Collectively Assessed Provisions (CAP) were $110 million higher than 2014. Write-offs increased $91 million due
to the reclassification from new IAPs to write-offs for the Lloyds portfolio and growth in the Westpac RBB unsecured
portfolio. Other changes in CAPs were a smaller benefit as portfolio quality improved at a slower rate.
Income tax expense – 2015 v 2014
$m
Income tax expense
Tax as a percentage of profit before income tax expense (effective tax rate)
2015
3,348
29.3%
2014
3,115
29.0%
2013
2,947
30.2%
Operating expenses increased $926 million or 11% compared to 2014. The key factors of the result were:
changes to the accounting approach for technology investment spend resulted in an increase in the technology and IT
equipment expenses by $505 million or 32%, with a further $118 million or 1% higher than 2014 due to higher investment
Income tax expense was $3,348 million in 2015, an increase of $233 million or 7% compared to 2014. The effective tax rate
increased to 29.3% in 2015, from 29.0% in 2014. The increase was largely due to the finalisation of prior period taxation
matters in 2014 that was not repeated in 2015.
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
81
Trading income was $964 million in 2015, a decrease of $53 million or 5% compared to 2014. This decrease reflects the
$122 million charge from methodology changes to derivative valuation adjustments1 which more than offset higher Market sales
and trading income. The contribution to trading income from Westpac Pacific was also lower following the introduction of
exchange rate controls in PNG which reduced foreign exchange income.
Other income was $1,241 million in 2015, an increase of $1,043 million or 527% compared to 2014. This increase was primarily
driven by the partial sale of an interest in BTIM which delivered a realised gain of $1,036 million and a rise in income from
asset sales.
Operating expenses – 2015 v 2014
$m
Salaries and other staff expenses
Equipment and occupancy expenses
Technology expenses
Other expenses
Total operating expenses
Total operating expenses to net operating income ratio
1 Prior comparative period has been restated to reflect business structure changes in 2015.
2015
4,704
954
2,288
1,527
9,473
43.8%
20141
4,571
904
1,574
1,498
8,547
42.9%
2013
4,269
873
1,406
1,428
7,976
42.9%
related expenses;
foreign currency translation contributed $51 million or 1%; partially offset by
lower BTIM expenses associated with the partial sale and move to equity accounting2; and
delivery of productivity benefits of $239 million or 3%.
Salaries and other staff expenses were $4,704 million, an increase of $133 million or 3% compared to 2014. This result reflects
the full year impact of annual salary increases, partially offset by a reduction in FTE from productivity initiatives and lower BTIM
expenses associated with the partial sale and move to equity accounting.
Equipment and occupancy costs were $954 million, an increase of $50 million or 6% compared to 2014. This increase was
due to:
rental expenses increased as a result of the Group moving from landlord to tenant following the sale of property and
relocation to Barangaroo with a fixed rent lease3; and
investment in an additional 12 Bank of Melbourne branches.
Technology expenses were $2,288 million, an increase of $714 million or 45%. This was driven by:
higher technology expenses, IT equipment depreciation and impairment expenses of $623 million or 40%, including the
impact of changes to the accounting for technology investments ($505 million); and
higher software licensing and volume related costs.
Other expenses were $1,527 million, $29 million or 2% higher compared to 2014. This increase was due to:
higher non lending losses of $97 million due mainly to higher credit card and digital fraud and the release of $75 million
provision in 2014 related to Bell litigation not repeated; and
professional service costs associated with higher outsourced operational costs; partially offset by
Westpac Bicentennial Foundation grant of $100 million in 2014 not repeated in 2015.
Impairment charges – 2015 v 2014
$m
Impairment charges
Impairment charges to average gross loans (basis points)
2015
753
12
2014
650
12
2013
847
16
In 2015 changes were made to derivative valuation methodologies, which include the first time adoption of a Funding Valuation Adjustment (FVA) to
the fair value of derivatives. The impact of these changes resulted in a $122 million (pre-tax) charge which reduced non-interest income.
Refer to divisional results of BT Financial Group (Australia) for more detail.
Accounting standards require any lease with fixed rent increases to be “Straight-lined”, spreading the fixed annual rental increases evenly over the
term of the lease. This adjustment brings forward future increases in cash rent, creating a flat profile over the life of the lease.
1
2
3
80
2
Balance sheet review
Selected consolidated balance sheet data1
The detailed components of the balance sheet are set out in the notes to the financial statements.
As at 30 September
Cash and balances with central banks
Receivables due from other financial institutions
Derivative financial instruments
Trading securities and financial assets designated at
fair value and available-for-sale securities
Loans
Life insurance assets
All other assets
Total assets
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
Total liabilities excluding loan capital
Total loan capital3
Total liabilities
Net assets
Total equity attributable to owners of Westpac Banking Corporation
Non-controlling interests
2015
US$m2
10,369
6,727
33,817
57,765
437,568
9,214
14,673
570,133
13,149
333,680
6,477
33,909
120,080
8,114
7,160
522,569
2015
A$m
14,770
9,583
48,173
82,287
623,316
13,125
20,902
812,156
18,731
475,328
9,226
48,304
171,054
11,559
10,199
744,401
2014
A$m
25,760
7,424
41,404
81,933
580,343
11,007
22,971
770,842
18,636
460,822
19,236
39,539
152,251
9,637
10,526
710,647
2013
A$m
11,699
11,210
28,356
79,100
536,164
13,149
21,419
701,097
8,836
424,482
10,302
32,990
144,133
11,938
11,549
644,230
2012
A$m
12,523
10,228
35,489
71,739
514,445
11,907
22,281
678,612
7,564
394,991
9,964
38,935
147,847
10,875
12,634
622,810
2011
A$m
16,258
8,551
49,145
69,006
496,609
7,916
22,743
670,228
14,512
370,278
9,803
39,405
165,931
7,002
11,316
618,247
9,716
13,840
10,858
9,330
9,537
8,173
532,285
37,848
37,274
574
758,241
53,915
53,098
817
53,915
721,505
49,337
48,456
881
49,337
653,560
47,537
46,674
863
632,347
46,265
44,295
1,970
626,420
43,808
41,826
1,982
Total shareholders’ equity and non-controlling interests
Average balances
Total assets
Loans and other receivables4
Total equity attributable to owners of Westpac Banking Corporation
Non-controlling interests
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
798,703
594,200
737,124
559,789
34,651
600
49,361
854
44,350
1,972
42,605
1,964
39,378
1,921
46,477
862
560,690
516,482
688,295
417,128
665,804
501,118
628,428
476,083
37,848
43,808
47,537
46,265
and may differ from results previously reported.
2 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7020, the noon
cash and balances with central banks decreased $11.0 billion or 43% reflecting lower liquid assets held in this form;
buying rate in New York City on 30 September 2015.
3 This includes Westpac Capital Notes 3 (Westpac CN3) in 2015, Westpac Capital Notes 2 (Westpac CN2) in 2014, Westpac Capital Notes (Westpac
CN), Westpac Convertible Preference Shares (Westpac CPS) and 2004 Trust Preferred Securities (2004 TPS) in 2015, 2014 and 2013; Westpac
Stapled Preferred Securities II (SPS II) in 2013; Westpac CPS, Westpac Stapled Preferred Securities (SPS), SPS II and 2004 TPS in 2012; and SPS,
SPS II and 2004 TPS in 2011.
4 Other receivables include other assets, cash and balances with central banks.
82
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
83
Summary of consolidated ratios
As at 30 September
(in $m unless otherwise indicated)
Profitability ratios (%)
Net interest margin2
Return on average assets3
Return on average ordinary equity4
Return on average total equity5
Average total equity to average total assets
Capital ratio (%)
Tier 1 ratio6
Total capital ratio6
Earnings ratios
Basic earnings per ordinary share (cents)7
Diluted earnings per ordinary share (cents)8
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)
Credit quality ratios
Review of Group operations
2015
US$1
2015
A$
2014
A$
2013
A$
2012
A$
2011
A$
2.09
1.00
16.2
16.0
6.3
11.4
13.3
179.9
175.0
131
-
73.4
2.09
1.00
16.2
16.0
6.3
11.4
13.3
256.3
249.3
187
-
73.4
2.09
1.03
16.3
16.0
6.4
10.6
12.3
243.7
238.7
182
-
74.7
2.14
0.98
15.2
14.6
6.7
10.7
12.3
218.3
213.5
174
20
79.7
2.16
0.89
13.9
13.3
6.7
10.3
11.7
194.7
189.4
166
-
85.3
2.19
1.11
17.8
16.9
6.6
9.7
11.0
233.0
223.6
156
-
67.0
Impairment charges on loans written off (net of recoveries)
777
1,107
1,302
1,323
1,604
1,867
Impairment charges on loans written off (net of recoveries) to
average loans (bps)
1 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7020, the noon
18
18
23
25
32
38
buying rate in New York City on 30 September 2015.
2 Calculated by dividing net interest income by average interest earning assets.
3 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average total assets.
4 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity.
5 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity and non-controlling interests.
6 Basel III was not effective in Australia until 1 January 2014. Comparatives are presented on a Basel II basis. For further information, refer to Note 33
to the financial statements.
7 Based on the weighted average number of fully paid ordinary shares.
8 Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive
potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
Balance sheet review
Assets – 2015 v 2014
Total assets as at 30 September 2015 were $812.2 billion, an increase of $41.3 billion or 5% compared to 30 September 2014.
Significant movements during the year included:
receivables due from other financial institutions increased $2.2 billion or 29% due to higher collateral posted with derivative
counterparties, mainly related to foreign currency swaps and forwards;
trading securities, other financial assets designated at fair value and available-for-sale securities increased $0.4 billion or
0.4%. Holdings of liquid assets for LCR purposes increased $4.7 billion, partially offset by a reduction of $4.3 billion in bonds
held for trading purposes;
derivative assets increased $6.8 billion or 16% mainly due to foreign currency translation impacts on cross currency swaps
and forward contracts, offset by an increase in netting for centrally cleared trades;
loans grew $43.0 billion or 7%. Refer to Loan Quality below for further information; and
life insurance assets increased by $2.1 billion or 19%, as two additional managed funds were consolidated.
The detailed components of the balance sheet are set out in the notes to the financial statements.
Balance sheet review
Selected consolidated balance sheet data1
As at 30 September
Cash and balances with central banks
Receivables due from other financial institutions
Derivative financial instruments
Trading securities and financial assets designated at
fair value and available-for-sale securities
Loans
Life insurance assets
All other assets
Total assets
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
Total liabilities excluding loan capital
Total loan capital3
Total liabilities
Net assets
Non-controlling interests
Average balances
Total assets
Loans and other receivables4
Non-controlling interests
Total equity attributable to owners of Westpac Banking Corporation
Total shareholders’ equity and non-controlling interests
Total equity attributable to owners of Westpac Banking Corporation
2015
US$m2
10,369
6,727
33,817
2015
A$m
14,770
9,583
48,173
2014
A$m
25,760
7,424
41,404
2013
A$m
11,699
11,210
28,356
2012
A$m
12,523
10,228
35,489
2011
A$m
16,258
8,551
49,145
57,765
82,287
81,933
79,100
71,739
69,006
437,568
623,316
580,343
536,164
514,445
496,609
9,214
14,673
13,125
20,902
11,007
22,971
13,149
21,419
11,907
22,281
7,916
22,743
570,133
812,156
770,842
701,097
678,612
670,228
13,149
18,731
18,636
8,836
7,564
14,512
333,680
475,328
460,822
424,482
394,991
370,278
6,477
33,909
120,080
8,114
7,160
9,226
48,304
19,236
39,539
10,302
32,990
9,964
38,935
9,803
39,405
171,054
152,251
144,133
147,847
165,931
11,559
10,199
9,637
10,526
11,938
11,549
10,875
12,634
7,002
11,316
522,569
744,401
710,647
644,230
622,810
618,247
9,716
13,840
10,858
9,330
9,537
8,173
532,285
758,241
721,505
653,560
632,347
626,420
37,848
37,274
574
53,915
53,098
817
49,337
48,456
881
47,537
46,674
863
37,848
53,915
49,337
47,537
46,265
44,295
1,970
46,265
43,808
41,826
1,982
43,808
560,690
417,128
798,703
594,200
737,124
559,789
688,295
665,804
628,428
516,482
501,118
476,083
34,651
49,361
46,477
600
854
862
44,350
1,972
42,605
1,964
39,378
1,921
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
2 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7020, the noon
and may differ from results previously reported.
buying rate in New York City on 30 September 2015.
3 This includes Westpac Capital Notes 3 (Westpac CN3) in 2015, Westpac Capital Notes 2 (Westpac CN2) in 2014, Westpac Capital Notes (Westpac
CN), Westpac Convertible Preference Shares (Westpac CPS) and 2004 Trust Preferred Securities (2004 TPS) in 2015, 2014 and 2013; Westpac
Stapled Preferred Securities II (SPS II) in 2013; Westpac CPS, Westpac Stapled Preferred Securities (SPS), SPS II and 2004 TPS in 2012; and SPS,
SPS II and 2004 TPS in 2011.
4 Other receivables include other assets, cash and balances with central banks.
Summary of consolidated ratios
As at 30 September
(in $m unless otherwise indicated)
Profitability ratios (%)
Net interest margin2
Return on average assets3
Return on average ordinary equity4
Return on average total equity5
Capital ratio (%)
Average total equity to average total assets
Tier 1 ratio6
Total capital ratio6
Earnings ratios
Basic earnings per ordinary share (cents)7
Diluted earnings per ordinary share (cents)8
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)
Credit quality ratios
Impairment charges on loans written off (net of recoveries)
Review of Group operations
2015
US$1
2015
A$
2014
A$
2013
A$
2012
A$
2011
A$
2.09
1.00
16.2
16.0
6.3
11.4
13.3
179.9
175.0
131
-
73.4
2.09
1.00
16.2
16.0
6.3
11.4
13.3
256.3
249.3
187
-
73.4
2.09
1.03
16.3
16.0
6.4
10.6
12.3
243.7
238.7
182
-
74.7
2.14
0.98
15.2
14.6
6.7
10.7
12.3
218.3
213.5
174
20
79.7
2.16
0.89
13.9
13.3
6.7
10.3
11.7
194.7
189.4
166
-
85.3
2.19
1.11
17.8
16.9
6.6
9.7
11.0
233.0
223.6
156
-
67.0
777
1,107
1,302
1,323
1,604
1,867
Impairment charges on loans written off (net of recoveries) to
average loans (bps)
38
1 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7020, the noon
18
25
18
23
32
buying rate in New York City on 30 September 2015.
2 Calculated by dividing net interest income by average interest earning assets.
3 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average total assets.
4 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity.
5 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity and non-controlling interests.
6 Basel III was not effective in Australia until 1 January 2014. Comparatives are presented on a Basel II basis. For further information, refer to Note 33
to the financial statements.
7 Based on the weighted average number of fully paid ordinary shares.
8 Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive
potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
Balance sheet review
Assets – 2015 v 2014
Total assets as at 30 September 2015 were $812.2 billion, an increase of $41.3 billion or 5% compared to 30 September 2014.
Significant movements during the year included:
cash and balances with central banks decreased $11.0 billion or 43% reflecting lower liquid assets held in this form;
receivables due from other financial institutions increased $2.2 billion or 29% due to higher collateral posted with derivative
counterparties, mainly related to foreign currency swaps and forwards;
trading securities, other financial assets designated at fair value and available-for-sale securities increased $0.4 billion or
0.4%. Holdings of liquid assets for LCR purposes increased $4.7 billion, partially offset by a reduction of $4.3 billion in bonds
held for trading purposes;
derivative assets increased $6.8 billion or 16% mainly due to foreign currency translation impacts on cross currency swaps
and forward contracts, offset by an increase in netting for centrally cleared trades;
loans grew $43.0 billion or 7%. Refer to Loan Quality below for further information; and
life insurance assets increased by $2.1 billion or 19%, as two additional managed funds were consolidated.
82
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
83
2
Liabilities and equity – 2015 v 2014
Total liabilities as at 30 September 2015 were $758.2 billion, an increase of $36.7 billion or 5% compared to 30 September
2014. Significant movements during the year included:
deposits and other borrowings increased $14.5 billion or 3%; Australian deposits increased $17.2 billion, New Zealand
deposit increased $3.1 billion, other overseas deposits decreased $2.4 billion and certificates of deposits
decreased $3.4 billion;
other financial liabilities at fair value through the income statement decreased $10.0 billion or 52% due to reduced funding of
securities through repurchase agreements;
derivative liabilities increased $8.8 billion or 22% mainly due to foreign currency translation impacts on cross currency swaps
and forward contracts, offset by an increase in netting for centrally cleared trades;
debt issues increased $18.8 billion or 12% ($8 billion or 5% increase excluding foreign currency translation impacts)
reflecting additional long term and short term issuances;
life insurance liabilities increased by $1.9 billion or 20%, as two additional managed funds were consolidated; and
loan capital increased $3.0 billion or 27% reflecting the Westpac Capital Notes 3 (Additional Tier 1 capital) issuance of $1.3
billion, subordinated debt issuances of $1.0 billion and foreign currency translation impacts.
Equity increased $4.6 billion or 9% reflecting retained profits less dividends paid, profit on the partial sale of an interest in BTIM
and shares issued under both the 2014 final DRP and 2015 interim DRP and partial underwrite.
Loan quality 2015 v 2014
$m
Total gross loans1
Average gross loans
Australia
New Zealand
Other overseas
Total average gross loans
1 Gross loans are stated before related provisions for impairment.
As at 30 September
2015
2014
2013
626,344
583,516
539,806
526,378
62,508
15,906
604,792
492,670
58,428
13,125
564,223
467,835
50,112
8,807
526,754
Total gross loans represented 77% of the total assets of the Group as at 30 September 2015, compared to 76% in 2014.
Australia and New Zealand average gross loans were $588.9 billion in 2015, an increase of $37.8 billion or 7% from
$551.1 billion in 2014. This increase was primarily due to growth in Australian housing lending and business lending.
Other overseas average loans were $15.9 billion in 2015, an increase of $2.8 billion or 21% from $13.1 billion in 2014. This was
primarily due to growth in term lending.
Approximately 14.0% of the loans at 30 September 2015 mature within one year and 23.1% mature between one year and five
years. Retail lending comprises the majority of the loan portfolio maturing after five years.
$m
Impaired loans
Non-performing loans1:
Impairment provisions
Restructured loans:
Impairment provisions
Gross
Net
Gross
Net
Gross
Net
Impairment provisions
Net impaired loans
Overdrafts, personal loans and revolving credit greater than 90 days past due:
Provisions for impairment on loans and credit commitments
Individually assessed provisions
Collectively assessed provisions
Total provisions for impairment on loans and credit commitments
Loan quality
Total impairment provisions for impaired loans to total impaired loans2
Total impaired loans to total loans
Total provisions for impairment on loans and credit commitments to total loans
Total provisions for impairment on loans and credit commitments to total
impaired loans
Collectively assessed provisions to non-housing performing loans
Review of Group operations
As at 30 September
2015
2014
2013
2012
2011
3,249
(1,363)
1,886
4,034
(1,463)
2,571
4,287
(1,487)
2,800
1,593
(689)
904
39
(16)
23
263
(172)
91
1,018
669
2,663
3,332
2,030
(862)
1,168
93
(44)
49
217
(141)
76
1,293
867
2,614
3,481
156
(56)
100
195
(135)
60
2,046
1,364
2,585
3,949
46.3%
0.30%
0.53%
44.8%
0.40%
0.60%
43.2%
0.67%
0.73%
175.8%
148.8%
109.7%
1.2%
1.3%
1.4%
153
(44)
109
199
(134)
65
2,745
1,470
2,771
4,241
37.4%
0.85%
0.82%
96.7%
1.6%
129
(29)
100
200
(147)
53
2,953
1,461
2,953
4,414
36.0%
0.92%
0.88%
95.6%
1.7%
1 Non-performing loans are loans with an impaired internal risk grade, excluding restructured assets.
2
Impairment provisions relating to impaired loans include individually assessed provisions plus the proportion of the collectively assessed provisions
that relate to impaired loans. The proportion of the collectively assessed provisions that relate to impaired loans was $208 million as at
30 September 2015 (2014: $180 million, 2013: $190 million, 2012: $171 million, 2011: $202 million). This sum is compared to the total gross impaired
loans to determine this ratio.
The quality of our loan portfolio improved during 2015, with total impaired loans as a percentage of total gross loans of 0.30%
at 30 September 2015, a decrease of 0.10% from 0.40% at 30 September 2014.
At 30 September 2015, we had 3 impaired counterparties with exposure greater than $50 million, collectively accounting for
15% of total impaired loans. This compares to 5 impaired counterparties with exposure greater than $50 million in 2014
accounting for 22% of total impaired loans. There were 9 impaired exposures at 30 September 2015 that were less than $50
million and greater than $20 million (2014: 9 impaired exposures).
At 30 September 2015, 77% of our exposure was to either investment grade or secured consumer mortgage segment (2014:
77%, 2013: 77%, 2012: 76%) and 95% of our exposure as at 30 September 2015 was in Australia, New Zealand and the
Pacific region (2014: 95%, 2013: 97%, 2012: 97%).
We believe that Westpac remains appropriately provisioned with total impairment provisions for impaired loans to total impaired
loans coverage at 46.3% at 30 September 2015 compared to 44.8% at 30 September 2014. Total provisions for impairment on
loans and credit commitments to total impaired loans represented 175.8% of total impaired loans as at 30 September 2015, up
from 148.8% at 30 September 2014. Total provisions for impairments on loans and credit commitments to total loans was
0.53% at 30 September 2015, down from 0.60% at 30 September 2014 (2013: 0.73%).
Consumer mortgage loans 90 days past due at 30 September 2015 were 0.42% of outstandings, down from 0.45% of
outstandings at 30 September 2014 (2013: 0.51%).
Other consumer loan delinquencies (including credit card and personal loan products) were 1.07% of outstandings as at 30
September 2015, an increase of 8 basis points from 0.99% of outstandings as at 30 September 2014 (2013: 1.04%).
Potential problem loans as at 30 September 2015 amounted to $923 million, a decrease of 35% from $1,421 million at 30
September 2014. The reduction of potential problem loans is due mainly to the upgrade or repayment of some of these assets.
Potential problem loans are facilities that are performing and no loss is expected, but the customer demonstrates significant
weakness in debt servicing or security cover that could jeopardise repayment of debt on current terms if not rectified. Potential
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85
Liabilities and equity – 2015 v 2014
Total liabilities as at 30 September 2015 were $758.2 billion, an increase of $36.7 billion or 5% compared to 30 September
2014. Significant movements during the year included:
deposits and other borrowings increased $14.5 billion or 3%; Australian deposits increased $17.2 billion, New Zealand
deposit increased $3.1 billion, other overseas deposits decreased $2.4 billion and certificates of deposits
other financial liabilities at fair value through the income statement decreased $10.0 billion or 52% due to reduced funding of
decreased $3.4 billion;
securities through repurchase agreements;
derivative liabilities increased $8.8 billion or 22% mainly due to foreign currency translation impacts on cross currency swaps
and forward contracts, offset by an increase in netting for centrally cleared trades;
debt issues increased $18.8 billion or 12% ($8 billion or 5% increase excluding foreign currency translation impacts)
reflecting additional long term and short term issuances;
life insurance liabilities increased by $1.9 billion or 20%, as two additional managed funds were consolidated; and
loan capital increased $3.0 billion or 27% reflecting the Westpac Capital Notes 3 (Additional Tier 1 capital) issuance of $1.3
billion, subordinated debt issuances of $1.0 billion and foreign currency translation impacts.
Equity increased $4.6 billion or 9% reflecting retained profits less dividends paid, profit on the partial sale of an interest in BTIM
and shares issued under both the 2014 final DRP and 2015 interim DRP and partial underwrite.
Loan quality 2015 v 2014
$m
Total gross loans1
Average gross loans
Australia
New Zealand
Other overseas
As at 30 September
2015
2014
2013
626,344
583,516
539,806
526,378
62,508
15,906
604,792
492,670
58,428
13,125
564,223
467,835
50,112
8,807
526,754
Total average gross loans
1 Gross loans are stated before related provisions for impairment.
Total gross loans represented 77% of the total assets of the Group as at 30 September 2015, compared to 76% in 2014.
Australia and New Zealand average gross loans were $588.9 billion in 2015, an increase of $37.8 billion or 7% from
$551.1 billion in 2014. This increase was primarily due to growth in Australian housing lending and business lending.
Other overseas average loans were $15.9 billion in 2015, an increase of $2.8 billion or 21% from $13.1 billion in 2014. This was
primarily due to growth in term lending.
Approximately 14.0% of the loans at 30 September 2015 mature within one year and 23.1% mature between one year and five
years. Retail lending comprises the majority of the loan portfolio maturing after five years.
Review of Group operations
As at 30 September
2015
2014
2013
2012
2011
3,249
(1,363)
1,886
4,034
(1,463)
2,571
4,287
(1,487)
2,800
$m
Impaired loans
Non-performing loans1:
Gross
Impairment provisions
Net
Restructured loans:
Gross
Impairment provisions
Net
Overdrafts, personal loans and revolving credit greater than 90 days past due:
Gross
Impairment provisions
Net
Net impaired loans
Provisions for impairment on loans and credit commitments
Individually assessed provisions
Collectively assessed provisions
Total provisions for impairment on loans and credit commitments
Loan quality
Total impairment provisions for impaired loans to total impaired loans2
Total impaired loans to total loans
Total provisions for impairment on loans and credit commitments to total loans
1,593
(689)
904
39
(16)
23
263
(172)
91
1,018
669
2,663
3,332
2,030
(862)
1,168
93
(44)
49
217
(141)
76
1,293
867
2,614
3,481
156
(56)
100
195
(135)
60
2,046
1,364
2,585
3,949
46.3%
0.30%
0.53%
44.8%
0.40%
0.60%
43.2%
0.67%
0.73%
153
(44)
109
199
(134)
65
2,745
1,470
2,771
4,241
37.4%
0.85%
0.82%
96.7%
1.6%
129
(29)
100
200
(147)
53
2,953
1,461
2,953
4,414
36.0%
0.92%
0.88%
95.6%
1.7%
Total provisions for impairment on loans and credit commitments to total
impaired loans
Collectively assessed provisions to non-housing performing loans
1 Non-performing loans are loans with an impaired internal risk grade, excluding restructured assets.
2
175.8%
1.2%
148.8%
1.3%
109.7%
1.4%
Impairment provisions relating to impaired loans include individually assessed provisions plus the proportion of the collectively assessed provisions
that relate to impaired loans. The proportion of the collectively assessed provisions that relate to impaired loans was $208 million as at
30 September 2015 (2014: $180 million, 2013: $190 million, 2012: $171 million, 2011: $202 million). This sum is compared to the total gross impaired
loans to determine this ratio.
The quality of our loan portfolio improved during 2015, with total impaired loans as a percentage of total gross loans of 0.30%
at 30 September 2015, a decrease of 0.10% from 0.40% at 30 September 2014.
At 30 September 2015, we had 3 impaired counterparties with exposure greater than $50 million, collectively accounting for
15% of total impaired loans. This compares to 5 impaired counterparties with exposure greater than $50 million in 2014
accounting for 22% of total impaired loans. There were 9 impaired exposures at 30 September 2015 that were less than $50
million and greater than $20 million (2014: 9 impaired exposures).
At 30 September 2015, 77% of our exposure was to either investment grade or secured consumer mortgage segment (2014:
77%, 2013: 77%, 2012: 76%) and 95% of our exposure as at 30 September 2015 was in Australia, New Zealand and the
Pacific region (2014: 95%, 2013: 97%, 2012: 97%).
We believe that Westpac remains appropriately provisioned with total impairment provisions for impaired loans to total impaired
loans coverage at 46.3% at 30 September 2015 compared to 44.8% at 30 September 2014. Total provisions for impairment on
loans and credit commitments to total impaired loans represented 175.8% of total impaired loans as at 30 September 2015, up
from 148.8% at 30 September 2014. Total provisions for impairments on loans and credit commitments to total loans was
0.53% at 30 September 2015, down from 0.60% at 30 September 2014 (2013: 0.73%).
Consumer mortgage loans 90 days past due at 30 September 2015 were 0.42% of outstandings, down from 0.45% of
outstandings at 30 September 2014 (2013: 0.51%).
Other consumer loan delinquencies (including credit card and personal loan products) were 1.07% of outstandings as at 30
September 2015, an increase of 8 basis points from 0.99% of outstandings as at 30 September 2014 (2013: 1.04%).
Potential problem loans as at 30 September 2015 amounted to $923 million, a decrease of 35% from $1,421 million at 30
September 2014. The reduction of potential problem loans is due mainly to the upgrade or repayment of some of these assets.
Potential problem loans are facilities that are performing and no loss is expected, but the customer demonstrates significant
weakness in debt servicing or security cover that could jeopardise repayment of debt on current terms if not rectified. Potential
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85
2
Westpac’s regulatory capital ratios as at 30 September are summarised in the table below:
Review of Group operations
$m
Common equity
Deductions from common equity
Total common equity after deductions
Additional Tier 1 capital
Net Tier 1 regulatory capital
Tier 2 capital
Deductions from Tier 2 capital
Total Tier 2 capital after deductions
Total regulatory capital
Credit risk
Market risk
Operational risk
Other assets
Interest rate risk in the banking book
Total risk weighted assets
Common Equity Tier 1 capital ratio
Additional Tier 1 capital ratio
Tier 1 capital ratio
Tier 2 capital ratio
Total regulatory capital ratio
2015
51,972
(17,903)
34,069
6,729
40,798
6,942
(206)
6,736
47,534
310,342
10,074
31,010
2,951
4,203
9.5%
1.9%
11.4%
1.9%
13.3%
2014
47,137
(17,413)
29,724
5,273
34,997
5,902
(198)
5,704
40,701
281,459
8,975
29,340
7,316
4,297
9.0%
1.6%
10.6%
1.7%
12.3%
358,580
331,387
Refer to ‘Significant developments’ in Section 1 for a discussion on future regulatory developments that may impact upon
capital requirements.
problem loans are identified using established credit frameworks and policies, which include the ongoing monitoring of facilities
through the use of watchlists.
Capital resources
Capital management strategy
Westpac’s approach 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:
the development of a capital management strategy, including preferred capital range, capital buffers and contingency plans;
consideration of both economic and regulatory capital requirements;
a process that challenges the capital measures, coverage and requirements which incorporates, amongst other things, the
impact of adverse economic scenarios; and
consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors.
Westpac’s capital ratios are significantly above APRA minimum capital adequacy requirements.
Basel Capital Accord
The regulatory limits applied to our capital ratios are consistent with A global regulatory framework for more resilient banks and
banking systems, also known as Basel III, issued by the Bank for International Settlements. This framework reflects the
advanced risk management practices that underpin the calculation of regulatory capital through a broad array of risk classes
and advanced measurement processes.
As provided for in the Basel III accord, APRA has exercised discretions to make the framework applicable in the Australian
market, and in particular has required that Australian banks use sophisticated models for credit risk, operational risk and
interest rate risk taken in the banking book. In addition, APRA has applied discretion in the calculation of the components of
regulatory capital. The new Basel III prudential standards became effective on 1 January 2013.
Westpac is accredited by APRA 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 for credit
risk, the Advanced Measurement Approach (AMA) for operational risk and the internal model approach for Interest Rate Risk in
the Banking Book (IRRBB). Effective risk management is regarded as a key activity performed at all levels of the Group.
Achieving advanced accreditation from APRA has resulted in a broad array of changes to risk management practices that have
been implemented across all risk classes. We recognise that embedding these principles and practices into day-to-day
activities of the divisions to achieve the full benefits of these changes is an ongoing facet of risk management.
Australia’s risk-based capital adequacy guidelines are generally consistent but not completely aligned with the approach agreed
upon by the Basel Committee on Banking Supervision (BCBS). APRA has exercised its discretion in applying the Basel
framework to Australian ADIs, resulting in a more conservative approach than the minimum standards published by the BCBS.
APRA also introduced the new standards from 1 January 2013 with no phasing in of higher capital requirements as allowed by
the BCBS. The application of these discretions act to reduce reported capital ratios relative to those reported in
other jurisdictions.
Under APRA’s implementation of Basel III, Australian banks are required to maintain a minimum Common Equity Tier 1 ratio of
at least 4.5%, Tier 1 ratio of 6.0% and Total Regulatory Capital of 8.0%. Subject to certain limitations, Common Equity Tier 1
capital consists of paid-up share capital, retained profits and certain reserves, less the deduction of certain intangible assets,
capitalised expenses and software, and investments and retained earnings in insurance and funds management subsidiaries
that are not consolidated for capital adequacy purposes. The balance of eligible capital is defined as Additional Tier 1 or Tier 2
capital which includes, subject to limitations, mandatory convertible notes, perpetual floating rate notes and like instruments,
and term subordinated debt less a deduction for holdings of Westpac’s own subordinated debt and that of other
financial institutions.
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87
problem loans are identified using established credit frameworks and policies, which include the ongoing monitoring of facilities
Westpac’s regulatory capital ratios as at 30 September are summarised in the table below:
Review of Group operations
$m
Common equity
Deductions from common equity
Total common equity after deductions
Additional Tier 1 capital
Net Tier 1 regulatory capital
Tier 2 capital
Deductions from Tier 2 capital
Total Tier 2 capital after deductions
Total regulatory capital
Credit risk
Market risk
Operational risk
Interest rate risk in the banking book
Other assets
Total risk weighted assets
Common Equity Tier 1 capital ratio
Additional Tier 1 capital ratio
Tier 1 capital ratio
Tier 2 capital ratio
Total regulatory capital ratio
2015
51,972
(17,903)
34,069
6,729
40,798
6,942
(206)
6,736
47,534
310,342
10,074
31,010
2,951
4,203
358,580
9.5%
1.9%
11.4%
1.9%
13.3%
2014
47,137
(17,413)
29,724
5,273
34,997
5,902
(198)
5,704
40,701
281,459
8,975
29,340
7,316
4,297
331,387
9.0%
1.6%
10.6%
1.7%
12.3%
Refer to ‘Significant developments’ in Section 1 for a discussion on future regulatory developments that may impact upon
capital requirements.
through the use of watchlists.
Capital resources
Capital management strategy
Westpac’s approach 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:
the development of a capital management strategy, including preferred capital range, capital buffers and contingency plans;
consideration of both economic and regulatory capital requirements;
a process that challenges the capital measures, coverage and requirements which incorporates, amongst other things, the
impact of adverse economic scenarios; and
consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors.
Westpac’s capital ratios are significantly above APRA minimum capital adequacy requirements.
Basel Capital Accord
The regulatory limits applied to our capital ratios are consistent with A global regulatory framework for more resilient banks and
banking systems, also known as Basel III, issued by the Bank for International Settlements. This framework reflects the
advanced risk management practices that underpin the calculation of regulatory capital through a broad array of risk classes
and advanced measurement processes.
As provided for in the Basel III accord, APRA has exercised discretions to make the framework applicable in the Australian
market, and in particular has required that Australian banks use sophisticated models for credit risk, operational risk and
interest rate risk taken in the banking book. In addition, APRA has applied discretion in the calculation of the components of
regulatory capital. The new Basel III prudential standards became effective on 1 January 2013.
Westpac is accredited by APRA 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 for credit
risk, the Advanced Measurement Approach (AMA) for operational risk and the internal model approach for Interest Rate Risk in
the Banking Book (IRRBB). Effective risk management is regarded as a key activity performed at all levels of the Group.
Achieving advanced accreditation from APRA has resulted in a broad array of changes to risk management practices that have
been implemented across all risk classes. We recognise that embedding these principles and practices into day-to-day
activities of the divisions to achieve the full benefits of these changes is an ongoing facet of risk management.
Australia’s risk-based capital adequacy guidelines are generally consistent but not completely aligned with the approach agreed
upon by the Basel Committee on Banking Supervision (BCBS). APRA has exercised its discretion in applying the Basel
framework to Australian ADIs, resulting in a more conservative approach than the minimum standards published by the BCBS.
APRA also introduced the new standards from 1 January 2013 with no phasing in of higher capital requirements as allowed by
the BCBS. The application of these discretions act to reduce reported capital ratios relative to those reported in
other jurisdictions.
Under APRA’s implementation of Basel III, Australian banks are required to maintain a minimum Common Equity Tier 1 ratio of
at least 4.5%, Tier 1 ratio of 6.0% and Total Regulatory Capital of 8.0%. Subject to certain limitations, Common Equity Tier 1
capital consists of paid-up share capital, retained profits and certain reserves, less the deduction of certain intangible assets,
capitalised expenses and software, and investments and retained earnings in insurance and funds management subsidiaries
that are not consolidated for capital adequacy purposes. The balance of eligible capital is defined as Additional Tier 1 or Tier 2
capital which includes, subject to limitations, mandatory convertible notes, perpetual floating rate notes and like instruments,
and term subordinated debt less a deduction for holdings of Westpac’s own subordinated debt and that of other
financial institutions.
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2
Divisional performance
Divisional performance – 2015 v 2014
In 2015 our operations comprised five primary customer-facing business divisions:
Westpac Retail & Business Banking, which we refer to as Westpac RBB;
St.George Banking Group, which we refer to as St.George;
BT Financial Group (Australia), which we refer to as BTFG;
Westpac Institutional Bank, which we refer to as WIB; and
Westpac New Zealand.
Although Westpac announced in June 2015 that it would implement a new organisational structure for its Australian retail and
business banking operations, up to 30 September 2015 the accounting and financial performance continued to be reported
(both internally and externally) on the basis of the existing structure. From 1 October 2015, Westpac will report under the new
structure, comprising the following five primary customer-facing business divisions:
Consumer Bank: responsible for all Australian consumer relationships across all brands;
Commercial & Business Bank: responsible for all Australian business and commercial consumer relationships across all
brands;
BT Financial Group: the Group's wealth management, insurance and private banking businesses;
Westpac Institutional Bank: responsible for the relationship with institutional and corporate customers, along with the Group's
over time;
International operations including Asia and the Pacific; and
Westpac New Zealand: responsible for all customer segments in New Zealand.
Other divisions in the Group include Customer & Business Services, Treasury, Group Technology and Core Support.
determining income;
The accounting standard AASB 8 Operating Segments requires segment results to be presented on a basis that is consistent
with information provided internally to Westpac’s key decision makers. In assessing financial performance, including divisional
results, Westpac uses a measure of performance referred to as ‘cash earnings’. Cash earnings is not a measure of cash flow or
net profit determined on a cash accounting basis, as it includes non-cash items reflected in net profit determined in accordance
with AAS. To calculate cash earnings, the specific adjustments to the net profit attributable to owners of Westpac Banking
Corporation include both cash and non-cash items and are outlined below. Cash earnings is viewed as a measure of the level
of profit that is generated by ongoing operations and is therefore available for distribution to shareholders. Management
believes this allows the Group to more effectively assess performance for the current period against prior periods and to
compare performance across business divisions and across peer companies.
A reconciliation of cash earnings to net profit attributable to owners of Westpac Banking Corporation for each business division
is set out in Note 2 to the financial statements.
Three categories of adjustments are made to statutory results to determine cash earnings:
material items that key decision makers at Westpac believe do not reflect ongoing operations;
items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of Treasury
consistent manner;
shares and economic hedging impacts; and
accounting reclassifications between individual line items that do not impact statutory results.
The discussion of our divisional performance in this section is presented on a cash earnings basis unless otherwise stated.
Cash earnings is not directly comparable to statutory results presented in other parts of this Annual Report.
Outlined below are the cash earnings adjustments to the reported result:
partial sale of BTIM – During 2015 the Group recognised a significant gain following the partial sale and deconsolidation of
the Group’s shareholding in BTIM. This gain has been treated as a cash earnings adjustment given its size and that it does
not reflect ongoing operations;
capitalised technology cost balances – Following changes to the Group’s technology and digital strategy, rapid changes in
technology and evolving regulatory requirements, a number of accounting changes have been introduced, including moving
to an accelerated amortisation methodology for most existing assets with a useful life of greater than 3 years, writing off the
capitalised cost of regulatory program assets where the regulatory requirements have changed and directly expensing more
project costs. The expense recognised this year to reduce the carrying value of impacted assets has been treated as a cash
earnings adjustment given its size and that it does not reflect ongoing operations;
amortisation of intangible assets – The merger with St.George, the acquisition of J O Hambro Capital Management
(JOHCM) and the acquisition of Lloyds resulted in the recognition of identifiable intangible assets. The commencement of
equity accounting for BTIM also resulted in the recognition of notional identifiable intangible assets within the investments in
associate’s carrying value. The intangible assets recognised relate to core deposits, customer relationships, management
contracts and distribution relationships. These intangible items are amortised over their useful life, ranging between four and
Divisional performance
twenty years. The amortisation of these intangible assets (excluding capitalised software) is a cash earnings adjustment
because it is a non-cash flow item and does not affect cash distributions available to shareholders;
acquisition, transaction and integration expenses – Costs associated with the acquisition of Lloyds have been treated as a
cash earnings adjustment as they do not reflect the earnings expected from the acquired businesses following the
integration period;
Lloyds tax adjustments – Tax adjustments arising from the acquisition of Lloyds have been treated as a cash earnings
adjustment in line with our treatment of Lloyds acquisition and integration costs;
fair value on economic hedges (which do not qualify for hedge accounting under AAS) comprise:
– the unrealised fair value (gain)/loss on foreign exchange hedges of future New Zealand earnings impacting non-interest
income is reversed in deriving cash earnings as they may create a material timing difference on reported results but do
not affect the Group’s cash earnings over the life of the hedge; and
– the unrealised fair value (gain)/loss on hedges of accrual accounted term funding transactions are reversed in deriving
cash earnings as they may create a material timing difference on reported results but do not affect the Group’s cash
earnings over the life of the hedge.
ineffective hedges – The (gain)/loss on ineffective hedges is reversed in deriving cash earnings for the period because the
gain or loss arising from the fair value movement in these hedges reverses over time and does not affect the Group’s profits
Treasury shares – Under AAS, Westpac shares held by the Group in the managed funds and life businesses are deemed to
be Treasury shares and the results of holding these shares are not permitted to be recognised as income in the reported
results. In deriving cash earnings, these results are included to ensure there is no asymmetrical impact on the Group’s
profits because the Treasury shares support policyholder liabilities and equity derivative transactions which are re-valued in
buyback of Government guaranteed debt – The Group has bought back certain Government guaranteed debt issues which
reduced Government guarantee fees (70 basis points) paid. In undertaking the buybacks, a cost was incurred reflecting the
difference between current interest rates and the rate at which the debt was initially issued. In the reported result, the cost
incurred was recognised at the time of the buyback. In cash earnings, the cost incurred was being amortised over the
original term of the debt that was bought back, consistent with a 70 basis point saving being effectively spread over the
remaining life of the issue. The cash earnings adjustment gives effect to the timing difference between reported results and
Westpac Bicentennial Foundation grant – During 2014, the Group provided a grant to establish the Westpac Bicentennial
Foundation. The grant was treated as a cash earnings adjustment due to its size and because it does not reflect ongoing
cash earnings;
operations;
prior period tax provisions – During 2011, the Group raised provisions for certain tax positions for transactions previously
undertaken by the Group. A number of these matters have now been resolved, resulting in a release of the provisions which
were no longer required. As the provisions raised were treated as a cash earnings adjustment, the release was treated in a
Bell litigation provision – During 2012, the Group recognised additional provisions in respect of the long running Bell
litigation. This was treated as a cash earnings adjustment at the time due to its size, historical nature and because it did not
reflect ongoing operations. In 2014, the Bell litigation was settled and the release of provisions no longer required was
treated as a cash earnings adjustment;
fair value amortisation of financial instruments – The accounting for the merger with St.George resulted in the recognition of
fair value adjustments on the St.George retail bank loans, deposits, wholesale funding and associated hedges, with these
fair value adjustments being amortised over the life of the underlying transactions. The amortisation of these adjustments is
considered to be a timing difference relating to non-cash flow items that do not affect cash distributions available to
shareholders and therefore, have been treated as a cash earnings adjustment; and
accounting reclassifications between individual line items that do not impact reported results comprise:
– policyholder tax recoveries – Income and tax amounts that are grossed up to comply with the AAS accounting standard
covering Life Insurance Business (policyholder tax recoveries) are reversed in deriving income and taxation expense on a
cash earnings basis; and
earnings basis.
presenting this information.
– operating leases – Under AAS rental income on operating leases is presented gross of the depreciation of the assets
subject to the lease. These amounts are offset in deriving non-interest income and operating expenses on a cash
The guidance provided in Australian Securities and Investments Commission Regulatory Guide 230 has been followed when
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89
Divisional performance
Divisional performance – 2015 v 2014
In 2015 our operations comprised five primary customer-facing business divisions:
Westpac Retail & Business Banking, which we refer to as Westpac RBB;
St.George Banking Group, which we refer to as St.George;
BT Financial Group (Australia), which we refer to as BTFG;
Westpac Institutional Bank, which we refer to as WIB; and
Westpac New Zealand.
Although Westpac announced in June 2015 that it would implement a new organisational structure for its Australian retail and
business banking operations, up to 30 September 2015 the accounting and financial performance continued to be reported
(both internally and externally) on the basis of the existing structure. From 1 October 2015, Westpac will report under the new
structure, comprising the following five primary customer-facing business divisions:
Consumer Bank: responsible for all Australian consumer relationships across all brands;
Commercial & Business Bank: responsible for all Australian business and commercial consumer relationships across all
brands;
BT Financial Group: the Group's wealth management, insurance and private banking businesses;
Westpac Institutional Bank: responsible for the relationship with institutional and corporate customers, along with the Group's
International operations including Asia and the Pacific; and
Westpac New Zealand: responsible for all customer segments in New Zealand.
Other divisions in the Group include Customer & Business Services, Treasury, Group Technology and Core Support.
The accounting standard AASB 8 Operating Segments requires segment results to be presented on a basis that is consistent
with information provided internally to Westpac’s key decision makers. In assessing financial performance, including divisional
results, Westpac uses a measure of performance referred to as ‘cash earnings’. Cash earnings is not a measure of cash flow or
net profit determined on a cash accounting basis, as it includes non-cash items reflected in net profit determined in accordance
with AAS. To calculate cash earnings, the specific adjustments to the net profit attributable to owners of Westpac Banking
Corporation include both cash and non-cash items and are outlined below. Cash earnings is viewed as a measure of the level
of profit that is generated by ongoing operations and is therefore available for distribution to shareholders. Management
believes this allows the Group to more effectively assess performance for the current period against prior periods and to
compare performance across business divisions and across peer companies.
A reconciliation of cash earnings to net profit attributable to owners of Westpac Banking Corporation for each business division
is set out in Note 2 to the financial statements.
Three categories of adjustments are made to statutory results to determine cash earnings:
material items that key decision makers at Westpac believe do not reflect ongoing operations;
items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of Treasury
shares and economic hedging impacts; and
accounting reclassifications between individual line items that do not impact statutory results.
The discussion of our divisional performance in this section is presented on a cash earnings basis unless otherwise stated.
Cash earnings is not directly comparable to statutory results presented in other parts of this Annual Report.
Outlined below are the cash earnings adjustments to the reported result:
partial sale of BTIM – During 2015 the Group recognised a significant gain following the partial sale and deconsolidation of
the Group’s shareholding in BTIM. This gain has been treated as a cash earnings adjustment given its size and that it does
not reflect ongoing operations;
capitalised technology cost balances – Following changes to the Group’s technology and digital strategy, rapid changes in
technology and evolving regulatory requirements, a number of accounting changes have been introduced, including moving
to an accelerated amortisation methodology for most existing assets with a useful life of greater than 3 years, writing off the
capitalised cost of regulatory program assets where the regulatory requirements have changed and directly expensing more
project costs. The expense recognised this year to reduce the carrying value of impacted assets has been treated as a cash
earnings adjustment given its size and that it does not reflect ongoing operations;
amortisation of intangible assets – The merger with St.George, the acquisition of J O Hambro Capital Management
(JOHCM) and the acquisition of Lloyds resulted in the recognition of identifiable intangible assets. The commencement of
equity accounting for BTIM also resulted in the recognition of notional identifiable intangible assets within the investments in
associate’s carrying value. The intangible assets recognised relate to core deposits, customer relationships, management
contracts and distribution relationships. These intangible items are amortised over their useful life, ranging between four and
Divisional performance
twenty years. The amortisation of these intangible assets (excluding capitalised software) is a cash earnings adjustment
because it is a non-cash flow item and does not affect cash distributions available to shareholders;
acquisition, transaction and integration expenses – Costs associated with the acquisition of Lloyds have been treated as a
cash earnings adjustment as they do not reflect the earnings expected from the acquired businesses following the
integration period;
Lloyds tax adjustments – Tax adjustments arising from the acquisition of Lloyds have been treated as a cash earnings
adjustment in line with our treatment of Lloyds acquisition and integration costs;
fair value on economic hedges (which do not qualify for hedge accounting under AAS) comprise:
– the unrealised fair value (gain)/loss on foreign exchange hedges of future New Zealand earnings impacting non-interest
income is reversed in deriving cash earnings as they may create a material timing difference on reported results but do
not affect the Group’s cash earnings over the life of the hedge; and
– the unrealised fair value (gain)/loss on hedges of accrual accounted term funding transactions are reversed in deriving
cash earnings as they may create a material timing difference on reported results but do not affect the Group’s cash
earnings over the life of the hedge.
ineffective hedges – The (gain)/loss on ineffective hedges is reversed in deriving cash earnings for the period because the
gain or loss arising from the fair value movement in these hedges reverses over time and does not affect the Group’s profits
over time;
Treasury shares – Under AAS, Westpac shares held by the Group in the managed funds and life businesses are deemed to
be Treasury shares and the results of holding these shares are not permitted to be recognised as income in the reported
results. In deriving cash earnings, these results are included to ensure there is no asymmetrical impact on the Group’s
profits because the Treasury shares support policyholder liabilities and equity derivative transactions which are re-valued in
determining income;
buyback of Government guaranteed debt – The Group has bought back certain Government guaranteed debt issues which
reduced Government guarantee fees (70 basis points) paid. In undertaking the buybacks, a cost was incurred reflecting the
difference between current interest rates and the rate at which the debt was initially issued. In the reported result, the cost
incurred was recognised at the time of the buyback. In cash earnings, the cost incurred was being amortised over the
original term of the debt that was bought back, consistent with a 70 basis point saving being effectively spread over the
remaining life of the issue. The cash earnings adjustment gives effect to the timing difference between reported results and
cash earnings;
Westpac Bicentennial Foundation grant – During 2014, the Group provided a grant to establish the Westpac Bicentennial
Foundation. The grant was treated as a cash earnings adjustment due to its size and because it does not reflect ongoing
operations;
prior period tax provisions – During 2011, the Group raised provisions for certain tax positions for transactions previously
undertaken by the Group. A number of these matters have now been resolved, resulting in a release of the provisions which
were no longer required. As the provisions raised were treated as a cash earnings adjustment, the release was treated in a
consistent manner;
Bell litigation provision – During 2012, the Group recognised additional provisions in respect of the long running Bell
litigation. This was treated as a cash earnings adjustment at the time due to its size, historical nature and because it did not
reflect ongoing operations. In 2014, the Bell litigation was settled and the release of provisions no longer required was
treated as a cash earnings adjustment;
fair value amortisation of financial instruments – The accounting for the merger with St.George resulted in the recognition of
fair value adjustments on the St.George retail bank loans, deposits, wholesale funding and associated hedges, with these
fair value adjustments being amortised over the life of the underlying transactions. The amortisation of these adjustments is
considered to be a timing difference relating to non-cash flow items that do not affect cash distributions available to
shareholders and therefore, have been treated as a cash earnings adjustment; and
accounting reclassifications between individual line items that do not impact reported results comprise:
– policyholder tax recoveries – Income and tax amounts that are grossed up to comply with the AAS accounting standard
covering Life Insurance Business (policyholder tax recoveries) are reversed in deriving income and taxation expense on a
cash earnings basis; and
– operating leases – Under AAS rental income on operating leases is presented gross of the depreciation of the assets
subject to the lease. These amounts are offset in deriving non-interest income and operating expenses on a cash
earnings basis.
The guidance provided in Australian Securities and Investments Commission Regulatory Guide 230 has been followed when
presenting this information.
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89
2
Cash earnings and assets by division
The following tables present, for each of the key divisions of our business, the cash earnings and total assets at the end of the
financial years ended 30 September 2015, 2014 and 2013. Refer to Note 2 to the financial statements for the disclosure of our
geographic and business segments and the reconciliation to net profit attributable to owners of Westpac Banking Corporation.
Cash earnings by business division
$m
Westpac Retail & Business Banking
St.George Banking Group
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Other divisions
Total Cash Earnings
1 Prior comparative period has been restated to reflect business structure changes in 2015.
Total assets by business division
$bn
Westpac Retail & Business Banking
St.George Banking Group
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Other divisions
Total assets
Years Ended 30 September
2015
2,788
1,688
904
1,286
851
303
7,820
20141
2,583
1,575
900
1,467
790
313
7,628
Years Ended 30 September
2015
291.6
188.1
35.8
123.7
71.5
101.5
812.2
2014
276.6
175.3
31.8
118.9
65.9
102.3
770.8
2013
2,360
1,387
778
1,570
632
336
7,063
2013
261.9
159.7
32.2
97.3
61.5
88.5
701.1
In presenting divisional results on a management reporting basis, internal charges and transfer pricing adjustments are
included in the performance of each division reflecting the management structure rather than the legal entity (these results
cannot be compared to results for individual legal entities). Where management reporting structures or accounting
classifications have changed, financial results for comparative periods have been revised and may differ from results
previously reported.
Our internal transfer pricing frameworks facilitate risk transfer, profitability measurement, capital allocation and business unit
alignment, tailored to the jurisdictions in which we operate. Transfer pricing allows us to measure the relative contribution of our
products and divisions to the Group’s interest margin, and other dimensions of performance. Key components of our transfer
pricing frameworks are funds transfer pricing for interest rate and liquidity risk, and allocation of basis and contingent liquidity
costs, including capital allocation.
Westpac Retail & Business Banking
Westpac Retail & Business Banking (Westpac RBB) is responsible for sales and service to consumer, SME, commercial and
agribusiness customers (with turnover of up to around $100 million) in Australia under the Westpac brand.
Activities are conducted through Westpac RBB’s network of branches, call centres, ATMs, EFTPOS terminals, internet and
mobile banking services, business banking centres and via the division’s specialised consumer and business relationship
managers. Support is also provided by cash flow, trade finance, transactional banking, financial markets, property finance and
wealth specialists.
Westpac RBB also works in an integrated way with BTFG and WIB in the sales and service of select financial services
products. Much of the associated revenue from these products is retained by the product originators, BTFG and WIB.
Divisional performance
2015
6,395
1,457
7,852
(3,397)
(471)
3,984
(1,196)
2,788
-
2,788
$bn
173.8
286.0
291.6
2014
5,953
1,441
7,394
(3,266)
(436)
3,692
(1,109)
2,583
-
2,583
$bn
162.5
270.7
276.6
2013
5,649
1,359
7,008
(3,153)
(485)
3,370
(1,010)
2,360
-
2,360
$bn
149.2
256.4
261.9
Net operating income before operating expenses and impairment charges
Net profit attributable to owners of Westpac Banking Corporation
Performance of Westpac RBB
$m
Net interest income
Non-interest income
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Deposits and other borrowings
Loans
Total assets
2015 v 2014
interest margins:
Total operating expenses to net operating income ratio
43.3%
44.2%
45.0%
Westpac RBB increased cash earnings $205 million or 8%.
Net interest income increased 7% from a 4% rise in average interest-earning assets and a 7 basis point improvement in net
the rise in margins was due to improved deposit spreads as term deposit and savings rates were repriced. Margins were
also assisted by favourable deposit mix movements, together with lower wholesale funding costs;
asset spreads were lower from competition for new lending, across mortgages and business;
lending increased $15.3 billion or 6%. Mortgages were the main driver of the increase, rising $13.1 billion or 6%. Business
lending increased 4% with SME up 7%, while other lending was up $0.1 billion as growth in personal loans offset a decline in
credit card balances; and
deposits increased $11.3 billion or 7%, with growth in consumer and business transaction and online account balances
partially offset by a decline in term deposits. Mortgage offset accounts continued to grow, up 27%.
Non-interest income increased $16 million or 1% with most of the rise due to more consumers and businesses actively
managing their foreign exchange risks and an increase in business line fees from growth in business lending. The increases
were partly offset by lower credit card income following repricing in 2014.
Operating expenses increased 4% with most of the rise related to investment spending, including higher amortisation. Salary
and other annual increases were largely offset by productivity savings.
There were further improvements in asset quality with total stressed assets falling, and consumer delinquencies declining.
Impairment charges were up $35 million from lower write-backs and portfolio growth.
ROTE decreased 180 basis points as capital allocated to Westpac RBB increased 16%. The higher capital reflects modelling
changes to the amount of capital being applied to mortgages.
St.George Banking Group
St.George Banking Group (St.George) is responsible for sales and service to consumer, SME and corporate customers
(businesses with facilities up to $150 million) in Australia under the St.George, BankSA, Bank of Melbourne and RAMS brands.
Activities are conducted through St.George’s network of branches, third party distributors, call centres, ATMs, EFTPOS
terminals, internet and mobile banking services, business banking centres and specialised consumer and business relationship
managers. Support is provided by cash flow, trade finance, transactional banking, automotive and equipment finance, financial
markets, property finance, and wealth specialists.
St.George also works in an integrated way with BTFG and WIB in the sales and service of select financial services products.
Much of the associated revenue from these products is retained by the product originators, BTFG and WIB.
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91
Cash earnings and assets by division
The following tables present, for each of the key divisions of our business, the cash earnings and total assets at the end of the
financial years ended 30 September 2015, 2014 and 2013. Refer to Note 2 to the financial statements for the disclosure of our
geographic and business segments and the reconciliation to net profit attributable to owners of Westpac Banking Corporation.
Performance of Westpac RBB
$m
Net interest income
Non-interest income
Years Ended 30 September
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Deposits and other borrowings
Loans
Total assets
Total operating expenses to net operating income ratio
2015 v 2014
Westpac RBB increased cash earnings $205 million or 8%.
Divisional performance
2015
6,395
1,457
7,852
(3,397)
(471)
3,984
(1,196)
2,788
-
2,788
$bn
173.8
286.0
291.6
43.3%
2014
5,953
1,441
7,394
(3,266)
(436)
3,692
(1,109)
2,583
-
2,583
$bn
162.5
270.7
276.6
44.2%
2013
5,649
1,359
7,008
(3,153)
(485)
3,370
(1,010)
2,360
-
2,360
$bn
149.2
256.4
261.9
45.0%
Net interest income increased 7% from a 4% rise in average interest-earning assets and a 7 basis point improvement in net
interest margins:
the rise in margins was due to improved deposit spreads as term deposit and savings rates were repriced. Margins were
also assisted by favourable deposit mix movements, together with lower wholesale funding costs;
asset spreads were lower from competition for new lending, across mortgages and business;
lending increased $15.3 billion or 6%. Mortgages were the main driver of the increase, rising $13.1 billion or 6%. Business
lending increased 4% with SME up 7%, while other lending was up $0.1 billion as growth in personal loans offset a decline in
credit card balances; and
deposits increased $11.3 billion or 7%, with growth in consumer and business transaction and online account balances
partially offset by a decline in term deposits. Mortgage offset accounts continued to grow, up 27%.
Non-interest income increased $16 million or 1% with most of the rise due to more consumers and businesses actively
managing their foreign exchange risks and an increase in business line fees from growth in business lending. The increases
were partly offset by lower credit card income following repricing in 2014.
Operating expenses increased 4% with most of the rise related to investment spending, including higher amortisation. Salary
and other annual increases were largely offset by productivity savings.
There were further improvements in asset quality with total stressed assets falling, and consumer delinquencies declining.
Impairment charges were up $35 million from lower write-backs and portfolio growth.
ROTE decreased 180 basis points as capital allocated to Westpac RBB increased 16%. The higher capital reflects modelling
changes to the amount of capital being applied to mortgages.
St.George Banking Group
St.George Banking Group (St.George) is responsible for sales and service to consumer, SME and corporate customers
(businesses with facilities up to $150 million) in Australia under the St.George, BankSA, Bank of Melbourne and RAMS brands.
Activities are conducted through St.George’s network of branches, third party distributors, call centres, ATMs, EFTPOS
terminals, internet and mobile banking services, business banking centres and specialised consumer and business relationship
managers. Support is provided by cash flow, trade finance, transactional banking, automotive and equipment finance, financial
markets, property finance, and wealth specialists.
St.George also works in an integrated way with BTFG and WIB in the sales and service of select financial services products.
Much of the associated revenue from these products is retained by the product originators, BTFG and WIB.
1 Prior comparative period has been restated to reflect business structure changes in 2015.
Cash earnings by business division
$m
Westpac Retail & Business Banking
St.George Banking Group
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Other divisions
Total Cash Earnings
Total assets by business division
$bn
Westpac Retail & Business Banking
St.George Banking Group
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Other divisions
Total assets
2015
2,788
1,688
904
1,286
851
303
7,820
2015
291.6
188.1
35.8
123.7
71.5
101.5
812.2
20141
2,583
1,575
900
1,467
790
313
7,628
2014
276.6
175.3
31.8
118.9
65.9
102.3
770.8
Years Ended 30 September
2013
2,360
1,387
778
1,570
632
336
7,063
2013
261.9
159.7
32.2
97.3
61.5
88.5
701.1
In presenting divisional results on a management reporting basis, internal charges and transfer pricing adjustments are
included in the performance of each division reflecting the management structure rather than the legal entity (these results
cannot be compared to results for individual legal entities). Where management reporting structures or accounting
classifications have changed, financial results for comparative periods have been revised and may differ from results
previously reported.
Our internal transfer pricing frameworks facilitate risk transfer, profitability measurement, capital allocation and business unit
alignment, tailored to the jurisdictions in which we operate. Transfer pricing allows us to measure the relative contribution of our
products and divisions to the Group’s interest margin, and other dimensions of performance. Key components of our transfer
pricing frameworks are funds transfer pricing for interest rate and liquidity risk, and allocation of basis and contingent liquidity
costs, including capital allocation.
Westpac Retail & Business Banking
Westpac Retail & Business Banking (Westpac RBB) is responsible for sales and service to consumer, SME, commercial and
agribusiness customers (with turnover of up to around $100 million) in Australia under the Westpac brand.
Activities are conducted through Westpac RBB’s network of branches, call centres, ATMs, EFTPOS terminals, internet and
mobile banking services, business banking centres and via the division’s specialised consumer and business relationship
managers. Support is also provided by cash flow, trade finance, transactional banking, financial markets, property finance and
wealth specialists.
Westpac RBB also works in an integrated way with BTFG and WIB in the sales and service of select financial services
products. Much of the associated revenue from these products is retained by the product originators, BTFG and WIB.
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91
2
Performance of St.George
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Deposits and other borrowings
Loans
Total assets
Total operating expenses to net operating income ratio
2015
3,768
555
4,323
(1,629)
(280)
2,414
(726)
1,688
(126)
1,562
$bn
96.2
181.1
188.1
37.7%
2014
3,531
515
4,046
(1,559)
(236)
2,251
(676)
1,575
(125)
1,450
$bn
93.5
168.3
175.3
38.5%
2013
3,210
466
3,676
(1,401)
(293)
1,982
(595)
1,387
(128)
1,259
$bn
88.6
152.6
159.7
38.1%
BTFG’s brands include Advance, Ascalon Capital Managers, Asgard, Licensee Select, BT Select and Securitor, as well as the
Advice, Private Banking and Insurance operations of Westpac, St.George, Bank of Melbourne and BankSA. BTIM is 31%
owned by the Westpac Group and following the partial sale during 2015 is equity accounted in BTFG’s Funds Management
Divisional performance
Net operating income before operating expenses and impairment charges
(1,304)
(1,323)
(1,207)
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
2015 v 2014
St.George delivered cash earnings of $1,688 million, up 7%, driven by solid volume growth, well managed net interest margins
and the full period impact of Lloyds ($16 million).
Net interest income was up $237 million or 7%, supported by a 7% rise in average interest-earning assets with net interest
margin steady at 2.29%:
margins were unchanged over the year with improved deposit spreads (particularly term deposits) offset by a reduction in
Total operating expenses to net operating income ratio
asset spreads;
lending increased $12.8 billion or 8%:
– Mortgages increased $10.6 billion (or 8%). Growth was achieved across all brands and proprietary channels, particularly
in Bank of Melbourne which has continued to grow above system in Victoria;
– Investor property lending has eased in line with regulatory requirements;
– Business lending increased 4% over the period mostly from commercial property and SME; and
– Other lending increased 8% from growth in auto loans and credit cards.
deposits were up $2.7 billion or 3%, with most of the increase in at call savings and transaction accounts, including
mortgage offset accounts. Balance growth was more modest over the year as the division focused on maintaining margins
and prioritising growth in high LCR value deposits. This contributed to lower business term deposits.
Non-interest income was up $40 million or 8%, with around half of the rise due to an increase in business line fees. Other
lending fees were also up including the benefit of the full period impact of the Lloyds acquisition.
Operating expenses increased $70 million or 4%, with the full period impact of Lloyds contributing $29 million to the rise. Run
cost increases were offset by productivity benefits, with most of the expense increase due to higher investment including:
Bank of Melbourne expansion, which added around $32 million to expenses over the year including 12 new branches,
increased employee numbers and a rise in depreciation; and
roll-out of new branch formats (FreshStart) and the Business Connect model for serving SME customers.
Impairment charges were up $44 million or 19% with most of the rise reflecting lower write-backs and higher write-offs. Overall
asset quality improved further over the year, with total stressed assets to total committed exposure falling 49 basis points.
ROTE decreased 69 basis points as capital allocated to St.George increased 11%. The higher capital reflects modelling
changes to the amount of capital being applied to mortgages.
BT Financial Group (Australia)
BT Financial Group (BTFG) is the wealth management arm of the Westpac Group providing customers with a range of
wealth services.
BTFG’s funds management operations include the manufacturing and distribution of investment, superannuation, retirement
products, platforms including BT Wrap and Asgard, financial advice, private banking, margin lending and broking. BTFG’s
insurance covers the manufacturing and distribution of life, general and lenders mortgage insurance.
The partial sale of BTIM in June 2015 reduced the Group’s ownership to 31%. In considering the impact of the partial BTIM
sale, the contribution to cash earnings of the BTIM shares sold was $24 million in 2015. This contribution was wholly in the
Funds Management business.
BTIM is now equity accounted with the share of BTIM’s profit recorded in non-interest income, less tax Westpac is required
BTFG increased cash earnings by $4 million, with 7% growth in funds management cash earnings more than offset by a 13%
decline in insurance cash earnings due to a rise in insurance claims;
Funds management cash earnings were up $35 million or 7%, driven by higher FUM and FUA related income and growth in
Private Wealth. Average FUM (excluding BTIM) and FUA balances were up 14% and 12% respectively. The spot FUM
balance declined 48% with the partial sale of BTIM;
insurance cash earnings declined $42 million, or 13% from the impact of higher claims with more severe weather events
occurring in 2015 including, three major weather events (Brisbane hail storm, Cyclone Marcia, and a major NSW storm).
Catastrophe claims were $65 million higher than 2014. Net earned premiums increased $106 million, with Life Insurance in-
force premiums up 13% and a rise in gross written premiums of 6%; and
cash earnings from Capital and other increased $11 million, as higher stamp duty costs incurred in 2014 were not repeated.
business from July 2015.
Performance of BTFG
$m
Net interest income
Non-interest income
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Deposits and other borrowings
Loans
Total assets
Funds under management
Funds under administration
Cash earnings
$m
Funds management business
Insurance
Capital and other
Total cash earnings
to pay.
2015 v 2014
2015
448
2,192
2,640
4
1,340
(404)
(32)
904
(23)
881
$bn
23.4
17.2
35.8
46.3
2015
555
282
67
904
2014
406
2,257
2,663
2
1,342
(403)
(39)
900
(22)
878
$bn
22.4
15.9
31.8
89.0
2014
520
324
56
900
2013
402
1,930
2,332
(1)
1,124
(328)
(18)
778
(22)
756
$bn
20.3
14.6
32.2
76.2
102.7
51.8%
2013
420
273
85
778
121.9
49.4%
112.7
49.7%
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93
Net operating income before operating expenses and impairment charges
Performance of St.George
$m
Net interest income
Non-interest income
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Deposits and other borrowings
Loans
Total assets
2015 v 2014
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
2015
3,768
555
4,323
(1,629)
(280)
2,414
(726)
1,688
(126)
1,562
$bn
96.2
181.1
188.1
37.7%
2014
3,531
515
4,046
(1,559)
(236)
2,251
(676)
1,575
(125)
1,450
$bn
93.5
168.3
175.3
38.5%
2013
3,210
466
3,676
(1,401)
(293)
1,982
(595)
1,387
(128)
1,259
$bn
88.6
152.6
159.7
38.1%
St.George delivered cash earnings of $1,688 million, up 7%, driven by solid volume growth, well managed net interest margins
and the full period impact of Lloyds ($16 million).
Net interest income was up $237 million or 7%, supported by a 7% rise in average interest-earning assets with net interest
margins were unchanged over the year with improved deposit spreads (particularly term deposits) offset by a reduction in
margin steady at 2.29%:
asset spreads;
lending increased $12.8 billion or 8%:
– Mortgages increased $10.6 billion (or 8%). Growth was achieved across all brands and proprietary channels, particularly
in Bank of Melbourne which has continued to grow above system in Victoria;
– Investor property lending has eased in line with regulatory requirements;
– Business lending increased 4% over the period mostly from commercial property and SME; and
– Other lending increased 8% from growth in auto loans and credit cards.
deposits were up $2.7 billion or 3%, with most of the increase in at call savings and transaction accounts, including
mortgage offset accounts. Balance growth was more modest over the year as the division focused on maintaining margins
and prioritising growth in high LCR value deposits. This contributed to lower business term deposits.
Non-interest income was up $40 million or 8%, with around half of the rise due to an increase in business line fees. Other
lending fees were also up including the benefit of the full period impact of the Lloyds acquisition.
Operating expenses increased $70 million or 4%, with the full period impact of Lloyds contributing $29 million to the rise. Run
cost increases were offset by productivity benefits, with most of the expense increase due to higher investment including:
Bank of Melbourne expansion, which added around $32 million to expenses over the year including 12 new branches,
increased employee numbers and a rise in depreciation; and
roll-out of new branch formats (FreshStart) and the Business Connect model for serving SME customers.
Impairment charges were up $44 million or 19% with most of the rise reflecting lower write-backs and higher write-offs. Overall
asset quality improved further over the year, with total stressed assets to total committed exposure falling 49 basis points.
ROTE decreased 69 basis points as capital allocated to St.George increased 11%. The higher capital reflects modelling
changes to the amount of capital being applied to mortgages.
BT Financial Group (Australia)
wealth services.
BT Financial Group (BTFG) is the wealth management arm of the Westpac Group providing customers with a range of
BTFG’s funds management operations include the manufacturing and distribution of investment, superannuation, retirement
products, platforms including BT Wrap and Asgard, financial advice, private banking, margin lending and broking. BTFG’s
insurance covers the manufacturing and distribution of life, general and lenders mortgage insurance.
BTFG’s brands include Advance, Ascalon Capital Managers, Asgard, Licensee Select, BT Select and Securitor, as well as the
Advice, Private Banking and Insurance operations of Westpac, St.George, Bank of Melbourne and BankSA. BTIM is 31%
owned by the Westpac Group and following the partial sale during 2015 is equity accounted in BTFG’s Funds Management
business from July 2015.
Divisional performance
Performance of BTFG
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Deposits and other borrowings
Loans
Total assets
Funds under management
Funds under administration
Total operating expenses to net operating income ratio
Cash earnings
$m
Funds management business
Insurance
Capital and other
Total cash earnings
2015
448
2,192
2,640
(1,304)
4
1,340
(404)
(32)
904
(23)
881
$bn
23.4
17.2
35.8
46.3
121.9
49.4%
2015
555
282
67
904
2014
406
2,257
2,663
(1,323)
2
1,342
(403)
(39)
900
(22)
878
$bn
22.4
15.9
31.8
89.0
112.7
49.7%
2014
520
324
56
900
2013
402
1,930
2,332
(1,207)
(1)
1,124
(328)
(18)
778
(22)
756
$bn
20.3
14.6
32.2
76.2
102.7
51.8%
2013
420
273
85
778
The partial sale of BTIM in June 2015 reduced the Group’s ownership to 31%. In considering the impact of the partial BTIM
sale, the contribution to cash earnings of the BTIM shares sold was $24 million in 2015. This contribution was wholly in the
Funds Management business.
BTIM is now equity accounted with the share of BTIM’s profit recorded in non-interest income, less tax Westpac is required
to pay.
2015 v 2014
BTFG increased cash earnings by $4 million, with 7% growth in funds management cash earnings more than offset by a 13%
decline in insurance cash earnings due to a rise in insurance claims;
Funds management cash earnings were up $35 million or 7%, driven by higher FUM and FUA related income and growth in
Private Wealth. Average FUM (excluding BTIM) and FUA balances were up 14% and 12% respectively. The spot FUM
balance declined 48% with the partial sale of BTIM;
insurance cash earnings declined $42 million, or 13% from the impact of higher claims with more severe weather events
occurring in 2015 including, three major weather events (Brisbane hail storm, Cyclone Marcia, and a major NSW storm).
Catastrophe claims were $65 million higher than 2014. Net earned premiums increased $106 million, with Life Insurance in-
force premiums up 13% and a rise in gross written premiums of 6%; and
cash earnings from Capital and other increased $11 million, as higher stamp duty costs incurred in 2014 were not repeated.
92
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93
2
Funds management business
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
2015
402
1,664
2,066
(1,214)
4
856
(269)
(32)
555
(23)
532
58.8%
2014
365
1,692
2,057
(1,233)
2
826
(267)
(39)
520
(22)
498
59.9%
2013
339
1,426
1,765
(1,127)
(1)
637
(199)
(18)
420
(22)
398
63.9%
Cash earnings increased $35 million or 7%.
Net interest income was up 10% from higher lending and deposit volumes and improved margins.
Non-interest income decreased $28 million, or 2%:
BTIM performance fees were $84 million lower compared to 2014;
impacts associated with the partial sale of BTIM and move to equity accounting; partly offset by
FUM related revenue excluding BTIM increased $24 million, reflecting positive flows in BT Super for Life (Retail) and
Advance; and
FUA related revenue increased $27 million, driven by higher net flows on BT Wrap and Asgard platforms.
Operating expenses decreased $19 million or 2%, from a $45 million decrease in performance fee related payments in BTIM
and the partial sale of BTIM and move to equity accounting. These benefits were partly offset by higher investment related
costs associated with compliance programs and the continued development of the Panorama platform.
Tax and other non-controlling interests decreased $5 million or 2%, from the partial sale of BTIM and move to equity
accounting.
Insurance business
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
2015
4
487
491
(89)
402
(120)
282
-
282
18.1%
2014
6
534
540
(77)
463
(139)
324
-
324
14.3%
2013
6
446
452
(60)
392
(119)
273
-
273
13.3%
Cash earnings decreased $42 million, or 13% due to higher General Insurance claims from severe weather events, partly offset
by increased revenue from net earned premiums.
Net operating income decreased $49 million or 9%:
general insurance claims were $95 million higher. This was mostly due to the three severe events in 2015 being significantly
larger than events experienced in 2014;
life insurance net earned premiums increased $77 million, with in-force premiums rising 13%. General Insurance net earned
premium revenue increased $45 million with gross written premiums rising 6% from growth in home and contents sales;
higher premiums in Life Insurance were partially offset by a rise in claims consistent with the larger portfolio and a higher
loss ratio; and
Divisional performance
Lenders Mortgage Insurance (LMI) income increased from changes to LMI arrangements for mortgages where the LVR ratio
Operating expenses increased $12 million or 16%, in line with increased volumes and claims activity.
is >90%.
Westpac Institutional Bank
Westpac Institutional Bank (WIB) delivers a broad range of financial products and services to retail, commercial, corporate,
institutional and Government customers with connections to Australia and New Zealand.
WIB operates through dedicated industry relationship and specialist product teams, with expert knowledge in transactional
banking, financial and debt capital markets, specialised capital, and alternative investment solutions.
Customers are supported through branches and subsidiaries located in Australia, New Zealand, US, UK and Asia.
Net operating income before operating expenses and impairment charges
Performance of WIB
$m
Net interest income
Non-interest income
Operating expenses
Impairment (charges)/benefit
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Deposits and other borrowings1
Loans
Total assets
2015 v 2014
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
1 Refers to total customer deposits in this table and excludes Certificates of Deposit.
(1,289)
(1,174)
(1,086)
2015
1,645
1,458
3,103
39
1,853
(567)
1,286
-
1,286
$bn
77.4
74.4
123.7
41.5%
2014
1,658
1,470
3,128
135
2,089
(622)
1,467
-
1,467
$bn
78.1
66.2
118.9
37.5%
2013
1,646
1,584
3,230
88
2,232
(662)
1,570
-
1,570
$bn
73.7
56.6
97.3
33.6%
WIB delivered cash earnings of $1,286 million, down $181 million, or 12%. The lower result was largely due to methodology
changes to derivative valuations, which reduced revenue by $122 million, and a $96 million lower impairment benefit. These
items reduced cash earnings by $153 million.
Net interest income decreased $13 million, or 1%, with a 7% increase in average interest-earning assets offset by a 15 basis
point decline in net interest margin:
institutional margins continue to be impacted by higher levels of liquidity from global quantitative easing. This has contributed
to tightening asset spreads for new lending. Deposits spreads have tightened from competition for high quality LCR
deposits. Interest income on capital was also lower;
lending increased $8.2 billion or 12%, mainly from growth in Asia, securitisation deals and infrastructure; and
deposits were 1% lower with reductions in short term deposit balances offset by an increase in transactional balances as the
business sought to move towards deposits that are more efficient for LCR purposes.
Non-interest income decreased $12 million. 2015 included a $122 million negative impact from methodology changes to
derivative valuations. Excluding this impact, non-interest income was up $110 million reflecting:
a 4% rise in markets sales income from improved customer flows. Foreign exchange sales income increased, driven by
increased currency volatility encouraging more customers to actively manage their risks. Fixed income sales increased,
driven by a number of large project finance transactions;
higher trading income, particularly in the first half of the year;
Hastings non-interest income increased $54 million; partly offset by
a $22 million negative movement in CVA.
94
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95
Net operating income before operating expenses and impairment charges
Funds management business
$m
Net interest income
Non-interest income
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
(1,214)
(1,233)
(1,127)
2015
402
1,664
2,066
4
856
(269)
(32)
555
(23)
532
2014
365
1,692
2,057
2
826
(267)
(39)
520
(22)
498
2013
339
1,426
1,765
(1)
637
(199)
(18)
420
(22)
398
58.8%
59.9%
63.9%
Cash earnings increased $35 million or 7%.
Net interest income was up 10% from higher lending and deposit volumes and improved margins.
Non-interest income decreased $28 million, or 2%:
BTIM performance fees were $84 million lower compared to 2014;
impacts associated with the partial sale of BTIM and move to equity accounting; partly offset by
FUM related revenue excluding BTIM increased $24 million, reflecting positive flows in BT Super for Life (Retail) and
Advance; and
FUA related revenue increased $27 million, driven by higher net flows on BT Wrap and Asgard platforms.
Operating expenses decreased $19 million or 2%, from a $45 million decrease in performance fee related payments in BTIM
and the partial sale of BTIM and move to equity accounting. These benefits were partly offset by higher investment related
costs associated with compliance programs and the continued development of the Panorama platform.
Tax and other non-controlling interests decreased $5 million or 2%, from the partial sale of BTIM and move to equity
accounting.
Insurance business
$m
Net interest income
Non-interest income
Operating expenses
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net operating income before operating expenses and impairment charges
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
by increased revenue from net earned premiums.
Net operating income decreased $49 million or 9%:
Cash earnings decreased $42 million, or 13% due to higher General Insurance claims from severe weather events, partly offset
general insurance claims were $95 million higher. This was mostly due to the three severe events in 2015 being significantly
larger than events experienced in 2014;
life insurance net earned premiums increased $77 million, with in-force premiums rising 13%. General Insurance net earned
premium revenue increased $45 million with gross written premiums rising 6% from growth in home and contents sales;
higher premiums in Life Insurance were partially offset by a rise in claims consistent with the larger portfolio and a higher
loss ratio; and
Divisional performance
Lenders Mortgage Insurance (LMI) income increased from changes to LMI arrangements for mortgages where the LVR ratio
is >90%.
Operating expenses increased $12 million or 16%, in line with increased volumes and claims activity.
Westpac Institutional Bank
Westpac Institutional Bank (WIB) delivers a broad range of financial products and services to retail, commercial, corporate,
institutional and Government customers with connections to Australia and New Zealand.
WIB operates through dedicated industry relationship and specialist product teams, with expert knowledge in transactional
banking, financial and debt capital markets, specialised capital, and alternative investment solutions.
Customers are supported through branches and subsidiaries located in Australia, New Zealand, US, UK and Asia.
Performance of WIB
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefit
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Deposits and other borrowings1
Loans
Total assets
Total operating expenses to net operating income ratio
1 Refers to total customer deposits in this table and excludes Certificates of Deposit.
2015
1,645
1,458
3,103
(1,289)
39
1,853
(567)
1,286
-
1,286
$bn
77.4
74.4
123.7
41.5%
2014
1,658
1,470
3,128
(1,174)
135
2,089
(622)
1,467
-
1,467
$bn
78.1
66.2
118.9
37.5%
2013
1,646
1,584
3,230
(1,086)
88
2,232
(662)
1,570
-
1,570
$bn
73.7
56.6
97.3
33.6%
2015
4
487
491
(89)
402
(120)
282
-
282
2014
6
534
540
(77)
463
(139)
324
-
324
2013
6
446
452
(60)
392
(119)
273
-
273
2015 v 2014
WIB delivered cash earnings of $1,286 million, down $181 million, or 12%. The lower result was largely due to methodology
changes to derivative valuations, which reduced revenue by $122 million, and a $96 million lower impairment benefit. These
items reduced cash earnings by $153 million.
Net interest income decreased $13 million, or 1%, with a 7% increase in average interest-earning assets offset by a 15 basis
point decline in net interest margin:
institutional margins continue to be impacted by higher levels of liquidity from global quantitative easing. This has contributed
to tightening asset spreads for new lending. Deposits spreads have tightened from competition for high quality LCR
deposits. Interest income on capital was also lower;
lending increased $8.2 billion or 12%, mainly from growth in Asia, securitisation deals and infrastructure; and
deposits were 1% lower with reductions in short term deposit balances offset by an increase in transactional balances as the
business sought to move towards deposits that are more efficient for LCR purposes.
18.1%
14.3%
13.3%
Non-interest income decreased $12 million. 2015 included a $122 million negative impact from methodology changes to
derivative valuations. Excluding this impact, non-interest income was up $110 million reflecting:
a 4% rise in markets sales income from improved customer flows. Foreign exchange sales income increased, driven by
increased currency volatility encouraging more customers to actively manage their risks. Fixed income sales increased,
driven by a number of large project finance transactions;
higher trading income, particularly in the first half of the year;
Hastings non-interest income increased $54 million; partly offset by
a $22 million negative movement in CVA.
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95
2
Operating expenses increased $115 million or 10% from:
ongoing investment in Asia;
regulatory and compliance costs; and
investments in customer systems to drive improved service.
Asset quality improved over 2015, although the high level of write backs in 2014 was not repeated. WIB recorded an
impairment benefit of $39 million, compared to a $135 million benefit in 2014.
ROTE decreased 302 basis points from a 12% reduction in cash earnings and a 5% increase in capital allocated to WIB. The
higher capital is in line with growth in total committed exposures.
Westpac New Zealand
Westpac New Zealand is responsible for sales and service of banking, wealth and insurance products for consumers, business
and institutional customers in New Zealand.
Westpac conducts its New Zealand banking business through two banks in New Zealand: Westpac New Zealand Limited,
which is incorporated in New Zealand and Westpac Banking Corporation (New Zealand Branch), which is incorporated
in Australia.
Westpac New Zealand operates via an extensive network of branches and ATMs across both the North and South Islands.
Business and institutional customers are also served through relationship and specialist product teams. Banking products are
provided under the Westpac brand while insurance and wealth products are provided under Westpac Life and BT brands,
respectively. New Zealand also has its own infrastructure, including technology, operations and treasury.
Performance of Westpac New Zealand
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Deposits and other borrowings1
Loans
Total assets
Funds under management
Funds under administration
Total operating expenses to net operating income ratio
1 Refers to total customer deposits in this table.
2015
1,590
457
2,047
(832)
(44)
1,171
(317)
(3)
851
-
851
$bn
47.3
62.8
71.5
5.9
1.8
40.6%
2014
1,455
438
1,893
(776)
(24)
1,093
(300)
(3)
790
-
790
$bn
44.1
57.7
65.9
4.9
1.5
41.0%
2013
1,281
389
1,670
(697)
(97)
876
(241)
(3)
632
-
632
$bn
41.4
54.7
61.5
3.9
1.2
41.7%
2015 v 2014
Cash earnings increased $61 million or 8% with net profit before impairments and income tax up 9%. The results of Westpac
New Zealand were positively affected by the decline in value of the NZ$ to the A$.
Net interest income increased $135 million or 9%, with average interest-earning assets increasing 7% and net interest margin
increasing 4 basis points.
higher deposit spreads, lower wholesale funding costs and increased Treasury income were partly offset by lower asset
spreads from competition and a rise in the proportion of lower spread fixed rate loans.
total lending increased $5.1 billion or 9%:
– mortgages increased $2.8 billion or 8%, growing at 0.8 times system1, as the division prioritised maintaining margins; and
– business lending increased $2.2 billion or 11%, in line with system1, driven by growth across a number of sectors
including in agricultural lending, and food manufacturing.
deposits increased $3.2 billion, or 7%, with all growth in at call and transaction accounts.
Divisional performance
Non-interest income increased $19 million or 4% driven by:
foreign exchange impacts of $6 million;
an increase in gains on asset sales and asset recoveries;
increased wealth income with FUM and FUA balances both up 20%; and
this was partly offset by reduced cards income primarily in relation to the division’s implementation of the new Air New
Zealand Airpoints loyalty program.
higher depreciation and software amortisation.
Operating expenses increased $56 million or 7%, from annual salary increases and higher investment related costs including
Asset quality improved over the year across business and consumer segments. Despite this improvement, impairment charges
increased $20 million, as the 2014 charge of $24 million was particularly low and was supported by write-back and recoveries
that were not matched in 2015.
Other divisions
Other divisions comprise:
Westpac Pacific
Westpac Pacific provides banking services for retail and business customers in the Pacific. Branches, ATMs, telephone
banking and internet banking channels are used to deliver business activities in Fiji, Papua New Guinea (PNG), Solomon
Islands and Vanuatu. Westpac Pacific’s financial products include personal savings accounts, business transactional accounts,
personal and business lending products, business services and a range of international products.
Customer & Business Services, which encompasses banking operations, customer contact centres, product, marketing,
Customer & Business Services4
compliance, legal and property services.
Treasury
Treasury, the primary focus of which is the management of the Group’s interest rate risk and funding requirements by
managing the mismatch between Group assets and liabilities. Treasury’s earnings are primarily impacted by the hedging
decisions taken on behalf of the Group to manage net interest income outcomes and assist net interest income growth.
Core Support comprises those functions performed centrally, including finance, risk and human resources.
Core Support1
Group Items
Group Items includes earnings on capital not allocated to divisions, accounting entries for certain intra-group transactions that
facilitate the presentation of the performance of our operating segments, earnings from non-core asset sales and certain other
head office items such as centrally raised provisions.
Group Technology1
applications development and business integration.
Group Technology comprises functions responsible for technology strategy and architecture, infrastructure and operations,
96
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
97
Source: RBNZ.
1
4
Certain costs are allocated to other divisions in the Group.
Divisional performance
total lending increased $5.1 billion or 9%:
– mortgages increased $2.8 billion or 8%, growing at 0.8 times system1, as the division prioritised maintaining margins; and
– business lending increased $2.2 billion or 11%, in line with system1, driven by growth across a number of sectors
including in agricultural lending, and food manufacturing.
deposits increased $3.2 billion, or 7%, with all growth in at call and transaction accounts.
Non-interest income increased $19 million or 4% driven by:
foreign exchange impacts of $6 million;
an increase in gains on asset sales and asset recoveries;
increased wealth income with FUM and FUA balances both up 20%; and
this was partly offset by reduced cards income primarily in relation to the division’s implementation of the new Air New
Zealand Airpoints loyalty program.
Westpac conducts its New Zealand banking business through two banks in New Zealand: Westpac New Zealand Limited,
which is incorporated in New Zealand and Westpac Banking Corporation (New Zealand Branch), which is incorporated
Operating expenses increased $56 million or 7%, from annual salary increases and higher investment related costs including
higher depreciation and software amortisation.
Asset quality improved over the year across business and consumer segments. Despite this improvement, impairment charges
increased $20 million, as the 2014 charge of $24 million was particularly low and was supported by write-back and recoveries
that were not matched in 2015.
Other divisions
Other divisions comprise:
Westpac Pacific
Westpac Pacific provides banking services for retail and business customers in the Pacific. Branches, ATMs, telephone
banking and internet banking channels are used to deliver business activities in Fiji, Papua New Guinea (PNG), Solomon
Islands and Vanuatu. Westpac Pacific’s financial products include personal savings accounts, business transactional accounts,
personal and business lending products, business services and a range of international products.
Customer & Business Services4
Customer & Business Services, which encompasses banking operations, customer contact centres, product, marketing,
compliance, legal and property services.
Treasury
Treasury, the primary focus of which is the management of the Group’s interest rate risk and funding requirements by
managing the mismatch between Group assets and liabilities. Treasury’s earnings are primarily impacted by the hedging
decisions taken on behalf of the Group to manage net interest income outcomes and assist net interest income growth.
Core Support1
Core Support comprises those functions performed centrally, including finance, risk and human resources.
Group Items
Group Items includes earnings on capital not allocated to divisions, accounting entries for certain intra-group transactions that
facilitate the presentation of the performance of our operating segments, earnings from non-core asset sales and certain other
head office items such as centrally raised provisions.
Group Technology1
Group Technology comprises functions responsible for technology strategy and architecture, infrastructure and operations,
applications development and business integration.
Operating expenses increased $115 million or 10% from:
ongoing investment in Asia;
regulatory and compliance costs; and
investments in customer systems to drive improved service.
Asset quality improved over 2015, although the high level of write backs in 2014 was not repeated. WIB recorded an
impairment benefit of $39 million, compared to a $135 million benefit in 2014.
ROTE decreased 302 basis points from a 12% reduction in cash earnings and a 5% increase in capital allocated to WIB. The
higher capital is in line with growth in total committed exposures.
Westpac New Zealand is responsible for sales and service of banking, wealth and insurance products for consumers, business
Westpac New Zealand
and institutional customers in New Zealand.
in Australia.
Westpac New Zealand operates via an extensive network of branches and ATMs across both the North and South Islands.
Business and institutional customers are also served through relationship and specialist product teams. Banking products are
provided under the Westpac brand while insurance and wealth products are provided under Westpac Life and BT brands,
respectively. New Zealand also has its own infrastructure, including technology, operations and treasury.
Performance of Westpac New Zealand
Net operating income before operating expenses and impairment charges
$m
Net interest income
Non-interest income
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Deposits and other borrowings1
Loans
Total assets
Funds under management
Funds under administration
Total operating expenses to net operating income ratio
1 Refers to total customer deposits in this table.
2015 v 2014
2015
1,590
457
2,047
(832)
(44)
1,171
(317)
(3)
851
-
851
$bn
47.3
62.8
71.5
5.9
1.8
2014
1,455
438
1,893
(776)
(24)
1,093
(300)
(3)
790
-
790
$bn
44.1
57.7
65.9
4.9
1.5
2013
1,281
389
1,670
(697)
(97)
876
(241)
(3)
632
-
632
$bn
41.4
54.7
61.5
3.9
1.2
40.6%
41.0%
41.7%
Cash earnings increased $61 million or 8% with net profit before impairments and income tax up 9%. The results of Westpac
New Zealand were positively affected by the decline in value of the NZ$ to the A$.
Net interest income increased $135 million or 9%, with average interest-earning assets increasing 7% and net interest margin
increasing 4 basis points.
higher deposit spreads, lower wholesale funding costs and increased Treasury income were partly offset by lower asset
spreads from competition and a rise in the proportion of lower spread fixed rate loans.
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97
1
4
Source: RBNZ.
Certain costs are allocated to other divisions in the Group.
2
Performance of other divisions
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
2015 v 2014
Other divisions’ cash earnings were $303 million in 2015, down $10 million.
2015
393
182
575
(184)
(1)
390
(64)
(23)
303
341
644
2014
493
203
696
(148)
(91)
457
(120)
(24)
313
80
393
2013
724
193
917
(215)
(59)
643
(252)
(55)
336
(162)
174
Net operating income before operating expenses and impairment charges reduced $121 million compared with 2014, with a
reduction in Treasury income ($114 million decrease) related to lower returns on the liquid asset portfolio and balance sheet
management activities.
Operating expenses were $36 million higher in 2015 due to increased restructuring costs.
Impairment charges were lower in 2015 due to a large increase in central economic overlay provisions experienced in 2014, not
repeated in 2015.
The effective tax rate was lower in 2015 due to the finalisation of prior period taxation matters.
Risk and risk management
Risk factors
Our business is subject to risks that can adversely impact our financial performance, financial condition and future
performance. If any of the following risks occur, our business, prospects, financial performance or financial condition could be
materially adversely affected, with the result that the trading price of our securities could decline and as a security holder you
could lose all, or part, of your investment. You should carefully consider the risks described and the other information in this
Annual Report before investing in our securities. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties that we are unaware of, or that we currently deem to be immaterial, may also become
important factors that affect us.
Risks relating to our business
Our businesses are highly regulated and we could be adversely affected by failing to comply with existing laws and
regulations or by changes in laws, regulations or regulatory policy
As a financial institution, we are subject to detailed laws and regulations in each of the jurisdictions in which we operate or
obtain funding, including Australia, New Zealand, the United Kingdom, the United States and Asia. We are also supervised by a
number of different regulatory and supervisory authorities which have broad administrative powers over our businesses. In
Australia, the relevant regulatory authorities include the Australian Prudential Regulation Authority (APRA), Reserve Bank of
Australia (RBA), Australian Securities and Investments Commission (ASIC), Australian Securities Exchange (ASX), Australian
Competition and Consumer Commission (ACCC), the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the
Australian Taxation Office (ATO). The Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority (FMA) have
supervisory oversight of our New Zealand operations. In the United States we are subject to supervision and regulation by the
US Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Commodity
Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC). In the United Kingdom, we are
subject to supervision and regulation by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
In Asia, we are subject to supervision and regulation by local authorities, including the Monetary Authority of Singapore (MAS)
and the Hong Kong Monetary Authority (HKMA). In other jurisdictions in which we operate, including various Pacific countries,
we are also required to comply with relevant requirements of the local regulatory bodies.
We are responsible for ensuring that we comply with all applicable legal and regulatory requirements (including accounting
standards) and industry codes of practice in the jurisdictions in which we operate or obtain funding, as well as meeting our
ethical standards.
Compliance risk is the risk of legal or regulatory sanction, financial or reputational loss, arising from our failure to abide by
compliance obligations required of us. In Australia, an example of the broad administrative power available to regulatory
authorities is the power available to APRA under the Banking Act 1959 in certain circumstances to investigate our affairs and/or
issue a direction to us (such as a direction to comply with a prudential requirement, to conduct an audit, to remove a Director,
executive officer or employee or not to undertake transactions). Other regulators also have the power to investigate, including
looking into past conduct. In recent years, there have been significant increases in the nature and scale of regulatory
investigations, enforcement actions and the quantum of fines issued by global regulators. The nature of these reviews can be
wide ranging and, for example, currently include industry-wide investigations into potential manipulation in financial markets.
During the year, Westpac has received notices and requests for information from its regulators. Regulatory investigations, fines,
penalties or restrictions or regulator imposed conditions could adversely affect our business, reputation, prospects, financial
performance or financial condition.
As with other financial services providers, we face increasing supervision and regulation in most of the jurisdictions in which we
operate or obtain funding, particularly in the areas of funding, liquidity, capital adequacy, conduct and prudential regulation,
anti-bribery and corruption, anti-money laundering and counter-terrorism financing and trade sanctions. In December 2010 the
Basel Committee on Banking Supervision (BCBS) announced a revised global regulatory framework known as Basel III. Basel
III, among other things, increases the required quality and quantity of capital held by banks and introduces new standards for
the management of liquidity risk. APRA has now incorporated much of the framework into its prudential standards. Further
details on the Basel III framework are set out in ‘Significant developments' in Section 1.
During the year ended 30 September 2015, there were also a series of other regulatory releases from authorities in the various
jurisdictions in which we operate or obtain funding proposing significant regulatory change for financial institutions. This
includes new accounting and reporting standards which have been finalised, global OTC derivatives reform and the US Dodd-
Frank legislation, including the Volcker Rule promulgated thereunder. The latter is designed to reform the entire system for the
supervision and regulation of financial firms that operate in or have a connection with the US, including non-US banks like
Westpac. Other areas of proposed or potential change that could impact us include changes to tax legislation, including
franking, regulation relating to remuneration, consumer protection and competition legislation, privacy and data protection, anti-
bribery and corruption, anti-money laundering and counter-terrorism financing laws and trade sanctions. In addition, further
changes may occur driven by policy, prudential or political factors. In 2013, the Australian Government commissioned a
Financial System Inquiry with broad terms of reference. The FSI’s Final Report made 44 recommendations relating to a broad
number of matters across the financial sector. On 20 October 2015, the Government announced its final response to the FSI’s
recommendations. The Government endorsed the overwhelming majority of the recommendations across the five key areas
the FSI considered: Resilience; Superannuation; Innovation; Consumer Outcomes; and the Regulatory System. The
Government will establish a number of consultation processes to consider detailed implementation. The final impact of the FSI
is difficult to predict but may result in substantial regulatory changes, including changes to capital requirements which could
98
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99
Performance of other divisions
$m
Net interest income
Non-interest income
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net operating income before operating expenses and impairment charges
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
2015 v 2014
Other divisions’ cash earnings were $303 million in 2015, down $10 million.
2015
393
182
575
(184)
(1)
390
(64)
(23)
303
341
644
2014
493
203
696
(148)
(91)
457
(120)
(24)
313
80
393
2013
724
193
917
(215)
(59)
643
(252)
(55)
336
(162)
174
Net operating income before operating expenses and impairment charges reduced $121 million compared with 2014, with a
reduction in Treasury income ($114 million decrease) related to lower returns on the liquid asset portfolio and balance sheet
management activities.
repeated in 2015.
Operating expenses were $36 million higher in 2015 due to increased restructuring costs.
Impairment charges were lower in 2015 due to a large increase in central economic overlay provisions experienced in 2014, not
The effective tax rate was lower in 2015 due to the finalisation of prior period taxation matters.
Risk and risk management
Risk factors
Our business is subject to risks that can adversely impact our financial performance, financial condition and future
performance. If any of the following risks occur, our business, prospects, financial performance or financial condition could be
materially adversely affected, with the result that the trading price of our securities could decline and as a security holder you
could lose all, or part, of your investment. You should carefully consider the risks described and the other information in this
Annual Report before investing in our securities. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties that we are unaware of, or that we currently deem to be immaterial, may also become
important factors that affect us.
Risks relating to our business
Our businesses are highly regulated and we could be adversely affected by failing to comply with existing laws and
regulations or by changes in laws, regulations or regulatory policy
As a financial institution, we are subject to detailed laws and regulations in each of the jurisdictions in which we operate or
obtain funding, including Australia, New Zealand, the United Kingdom, the United States and Asia. We are also supervised by a
number of different regulatory and supervisory authorities which have broad administrative powers over our businesses. In
Australia, the relevant regulatory authorities include the Australian Prudential Regulation Authority (APRA), Reserve Bank of
Australia (RBA), Australian Securities and Investments Commission (ASIC), Australian Securities Exchange (ASX), Australian
Competition and Consumer Commission (ACCC), the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the
Australian Taxation Office (ATO). The Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority (FMA) have
supervisory oversight of our New Zealand operations. In the United States we are subject to supervision and regulation by the
US Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Commodity
Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC). In the United Kingdom, we are
subject to supervision and regulation by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
In Asia, we are subject to supervision and regulation by local authorities, including the Monetary Authority of Singapore (MAS)
and the Hong Kong Monetary Authority (HKMA). In other jurisdictions in which we operate, including various Pacific countries,
we are also required to comply with relevant requirements of the local regulatory bodies.
We are responsible for ensuring that we comply with all applicable legal and regulatory requirements (including accounting
standards) and industry codes of practice in the jurisdictions in which we operate or obtain funding, as well as meeting our
ethical standards.
Compliance risk is the risk of legal or regulatory sanction, financial or reputational loss, arising from our failure to abide by
compliance obligations required of us. In Australia, an example of the broad administrative power available to regulatory
authorities is the power available to APRA under the Banking Act 1959 in certain circumstances to investigate our affairs and/or
issue a direction to us (such as a direction to comply with a prudential requirement, to conduct an audit, to remove a Director,
executive officer or employee or not to undertake transactions). Other regulators also have the power to investigate, including
looking into past conduct. In recent years, there have been significant increases in the nature and scale of regulatory
investigations, enforcement actions and the quantum of fines issued by global regulators. The nature of these reviews can be
wide ranging and, for example, currently include industry-wide investigations into potential manipulation in financial markets.
During the year, Westpac has received notices and requests for information from its regulators. Regulatory investigations, fines,
penalties or restrictions or regulator imposed conditions could adversely affect our business, reputation, prospects, financial
performance or financial condition.
As with other financial services providers, we face increasing supervision and regulation in most of the jurisdictions in which we
operate or obtain funding, particularly in the areas of funding, liquidity, capital adequacy, conduct and prudential regulation,
anti-bribery and corruption, anti-money laundering and counter-terrorism financing and trade sanctions. In December 2010 the
Basel Committee on Banking Supervision (BCBS) announced a revised global regulatory framework known as Basel III. Basel
III, among other things, increases the required quality and quantity of capital held by banks and introduces new standards for
the management of liquidity risk. APRA has now incorporated much of the framework into its prudential standards. Further
details on the Basel III framework are set out in ‘Significant developments' in Section 1.
During the year ended 30 September 2015, there were also a series of other regulatory releases from authorities in the various
jurisdictions in which we operate or obtain funding proposing significant regulatory change for financial institutions. This
includes new accounting and reporting standards which have been finalised, global OTC derivatives reform and the US Dodd-
Frank legislation, including the Volcker Rule promulgated thereunder. The latter is designed to reform the entire system for the
supervision and regulation of financial firms that operate in or have a connection with the US, including non-US banks like
Westpac. Other areas of proposed or potential change that could impact us include changes to tax legislation, including
franking, regulation relating to remuneration, consumer protection and competition legislation, privacy and data protection, anti-
bribery and corruption, anti-money laundering and counter-terrorism financing laws and trade sanctions. In addition, further
changes may occur driven by policy, prudential or political factors. In 2013, the Australian Government commissioned a
Financial System Inquiry with broad terms of reference. The FSI’s Final Report made 44 recommendations relating to a broad
number of matters across the financial sector. On 20 October 2015, the Government announced its final response to the FSI’s
recommendations. The Government endorsed the overwhelming majority of the recommendations across the five key areas
the FSI considered: Resilience; Superannuation; Innovation; Consumer Outcomes; and the Regulatory System. The
Government will establish a number of consultation processes to consider detailed implementation. The final impact of the FSI
is difficult to predict but may result in substantial regulatory changes, including changes to capital requirements which could
98
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
99
2
have a material impact on our business, prospects, financial performance or financial condition. Further details on the FSI are
set out in ‘Significant developments' in Section 1.
Regulation is becoming increasingly extensive and complex. Some areas of potential regulatory change involve multiple
jurisdictions seeking to adopt a coordinated approach. This may result in conflicts with specific requirements of the jurisdictions
in which we operate and, in addition, such changes may be inconsistently introduced across jurisdictions.
Changes may also occur in the oversight approach of regulators. It is possible that governments in jurisdictions in which we
operate or obtain funding might revise their application of existing regulatory policies that apply to, or impact, Westpac’s
business, including for reasons relating to national interest and/or systemic stability.
Regulatory changes and the timing of their introduction continue to evolve and we currently manage our businesses in the
context of regulatory uncertainty. The nature and impact of future changes are not predictable and are beyond our control.
Regulatory compliance and the management of regulatory change is an increasingly important part of our strategic planning.
We expect that we will be required to continue to invest significantly in compliance and the management and implementation of
regulatory change and, at the same time, significant management attention and resources will be required to update existing or
implement new processes to comply with the new regulations.
Regulatory changes may also impact our operations by requiring us to have increased levels of liquidity and higher levels of,
and better quality, capital as well as place restrictions on the businesses we conduct,(including limiting our ability to provide
products and services to certain customers), require us to amend our corporate structure or require us to alter our product or
service offerings. If regulatory change has any such effect, it could adversely affect one or more of our businesses, restrict our
flexibility, require us to incur substantial costs and impact the profitability of one or more of our business lines. Any such costs
or restrictions could adversely affect our business, prospects, financial performance or financial condition.
For further information refer to ‘Significant developments’ in Section 1 and the sections ‘Critical accounting assumptions and
estimates’ and ‘Future developments in accounting standards’ in Note 1 to the financial statements.
Adverse credit and capital market conditions may significantly affect our ability to meet funding and liquidity needs
and may increase our cost of funding
We rely on credit and capital markets to fund our business and as a source of liquidity. Our liquidity and costs of obtaining
funding are related to credit and capital market conditions.
Global credit and capital markets can experience periods of extreme volatility, disruption and decreased liquidity as was
demonstrated during the Global Financial Crisis. While there have now been extended periods of stability in these markets, the
environment has become more volatile and unpredictable. The main risks we face are damage to market confidence, changes
to the access and cost of funding and a slowing in global activity or through other impacts on entities with whom we
do business.
As of 30 September 2015, approximately 33% of our total funding originated from domestic and international wholesale
markets, of this around 61% was sourced outside Australia and New Zealand.
effectively to any such event.
A shift in investment preferences of businesses and consumers away from bank deposits towards other asset or investment
classes could increase our need for funding from other, potentially less stable or more expensive forms of funding.
If market conditions deteriorate due to economic, financial, political or other reasons, our funding costs may be adversely
affected and our liquidity and our funding and lending activities may be constrained.
If our current sources of funding prove to be insufficient, we may be forced to seek alternative financing. The availability of such
alternative financing, and the terms on which it may be available, will depend on a variety of factors, including prevailing market
conditions, the availability of credit, our credit ratings and credit market capacity. Even if available, the cost of these alternatives
may be more expensive or on unfavourable terms, which could adversely affect our financial performance, liquidity, capital
resources and financial condition. There is no assurance that we will be able to obtain adequate funding and do so at
acceptable prices, nor that we will be able to recover any additional costs.
If Westpac is unable to source appropriate funding, we may also be forced to reduce our lending or begin selling liquid
securities. Such actions may adversely impact our business, prospects, liquidity, capital resources, financial performance or
financial condition.
Westpac enters into collateralised derivative obligations, which may require Westpac to post additional collateral based on
movements in market rates, which have the potential to adversely affect Westpac’s liquidity.
For a more detailed description of liquidity risk, refer to ‘Funding and Liquidity risk management’ in this section and in Note 22
to the financial statements.
Sovereign risk may destabilise financial markets adversely
Sovereign risk is the risk that foreign governments will default on their debt obligations, will be unable to refinance their debts
as they fall due, or will nationalise parts of their economy including assets of financial institutions such as Westpac.
Risk and risk management
Should one sovereign default, there could be a cascading effect to other markets and countries, the consequences of which,
while difficult to predict, may be similar to or worse than those experienced during the Global Financial Crisis. Such an event
could destabilise global financial markets adversely affecting our liquidity, financial performance or financial condition.
Failure to maintain credit ratings could adversely affect our cost of funds, liquidity, competitive position and access to
capital markets
Credit ratings are independent opinions on our creditworthiness. Our credit ratings affect the cost and availability of our funding
from capital markets and other funding sources and they may be important to customers or counterparties when evaluating our
products and services. Therefore, maintaining high quality credit ratings is important.
The credit ratings assigned to us by rating agencies are based on an evaluation of a number of factors, including our financial
strength, structural considerations regarding the Australian financial system and the credit rating of the Australian Government.
A credit rating downgrade could be driven by the occurrence of one or more of the other risks identified in this section or by
other events including changes to the methodologies used by the rating agencies to determine ratings.
Failure to maintain our current credit ratings could adversely affect our cost of funds and related margins, collateral
requirements, liquidity, competitive position and our access to capital markets. The extent and nature of these impacts would
depend on various factors, including the extent of any ratings change, whether our ratings differ among agencies (split ratings)
and whether any ratings changes also impact our peers or the sector.
A systemic shock in relation to the Australian, New Zealand or other financial systems could have adverse
consequences for Westpac or its customers or counterparties that would be difficult to predict and respond to
There is a risk that a major systemic shock could occur that causes an adverse impact on the Australian, New Zealand or other
As outlined above, during the past decade the financial services industry and capital markets have been, and may continue to
be, adversely affected by market volatility and the negative outlook for global economic conditions. A shock to one of the major
global economies could again result in currency and interest rate fluctuations and operational disruptions that negatively impact
financial systems.
the Group.
Any such market and economic disruptions could adversely affect financial institutions such as Westpac because consumer
and business spending may decrease, unemployment may rise and demand for the products and services we provide may
decline, thereby reducing our earnings. These conditions may also affect the ability of our borrowers to repay their loans or our
counterparties to meet their obligations, causing us to incur higher credit losses. These events could also result in the
undermining of confidence in the financial system, reducing liquidity, impairing our access to funding and impairing our
customers and counterparties and their businesses. If this were to occur, our business, prospects, financial performance or
financial condition could be adversely affected.
The nature and consequences of any such event are difficult to predict and there can be no certainty that we could respond
Declines in asset markets could adversely affect our operations or profitability
Declines in Australian, New Zealand or other asset markets, including equity, residential and commercial property and other
asset markets, could adversely affect our operations and profitability.
Declining asset prices also impact our wealth management business. Earnings in our wealth management business are, in
part, dependent on asset values because we typically receive fees based on the value of securities and/or assets held or
managed. A decline in asset prices could negatively impact the earnings of this business.
Declining asset prices could also impact customers and counterparties and the value of security (including residential and
commercial property) we hold against loans and derivatives which may impact our ability to recover amounts owing to us if
customers or counterparties were to default. It may also affect our level of provisioning which in turn impacts our profitability
and financial condition.
Our business is substantially dependent on the Australian and New Zealand economies
Our revenues and earnings are dependent on economic activity and the level of financial services our customers require. In
particular, lending is dependent on various factors including economic growth, business investment, business and consumer
sentiment, levels of employment, interest rates and trade flows in the countries in which we operate.
We conduct the majority of our business in Australia and New Zealand and, consequently, our performance is influenced by the
level and cyclical nature of lending in these countries. These factors are in turn impacted by both domestic and international
economic conditions, natural disasters and political events. A significant decrease in Australian and New Zealand housing
valuations could adversely impact our home lending activities because borrowers with loans in excess of their property value
show a higher propensity to default and in the event of defaults our security would be eroded, causing us to incur higher credit
losses. The demand for our home lending products may also decline due to buyer concerns about decreases in values.
Adverse changes to the economic and business conditions in Australia and New Zealand and other countries such as China,
India and Japan, could also adversely affect the Australian economy and our customers. In particular, due to the current
relationship between Australia and China, particularly in the mining and resources sectors, a slowdown in China’s economic
100
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101
have a material impact on our business, prospects, financial performance or financial condition. Further details on the FSI are
set out in ‘Significant developments' in Section 1.
Regulation is becoming increasingly extensive and complex. Some areas of potential regulatory change involve multiple
jurisdictions seeking to adopt a coordinated approach. This may result in conflicts with specific requirements of the jurisdictions
in which we operate and, in addition, such changes may be inconsistently introduced across jurisdictions.
Changes may also occur in the oversight approach of regulators. It is possible that governments in jurisdictions in which we
operate or obtain funding might revise their application of existing regulatory policies that apply to, or impact, Westpac’s
business, including for reasons relating to national interest and/or systemic stability.
Regulatory changes and the timing of their introduction continue to evolve and we currently manage our businesses in the
context of regulatory uncertainty. The nature and impact of future changes are not predictable and are beyond our control.
Regulatory compliance and the management of regulatory change is an increasingly important part of our strategic planning.
We expect that we will be required to continue to invest significantly in compliance and the management and implementation of
regulatory change and, at the same time, significant management attention and resources will be required to update existing or
implement new processes to comply with the new regulations.
Regulatory changes may also impact our operations by requiring us to have increased levels of liquidity and higher levels of,
and better quality, capital as well as place restrictions on the businesses we conduct,(including limiting our ability to provide
products and services to certain customers), require us to amend our corporate structure or require us to alter our product or
service offerings. If regulatory change has any such effect, it could adversely affect one or more of our businesses, restrict our
flexibility, require us to incur substantial costs and impact the profitability of one or more of our business lines. Any such costs
or restrictions could adversely affect our business, prospects, financial performance or financial condition.
For further information refer to ‘Significant developments’ in Section 1 and the sections ‘Critical accounting assumptions and
estimates’ and ‘Future developments in accounting standards’ in Note 1 to the financial statements.
Adverse credit and capital market conditions may significantly affect our ability to meet funding and liquidity needs
and may increase our cost of funding
We rely on credit and capital markets to fund our business and as a source of liquidity. Our liquidity and costs of obtaining
funding are related to credit and capital market conditions.
Global credit and capital markets can experience periods of extreme volatility, disruption and decreased liquidity as was
demonstrated during the Global Financial Crisis. While there have now been extended periods of stability in these markets, the
environment has become more volatile and unpredictable. The main risks we face are damage to market confidence, changes
to the access and cost of funding and a slowing in global activity or through other impacts on entities with whom we
do business.
As of 30 September 2015, approximately 33% of our total funding originated from domestic and international wholesale
markets, of this around 61% was sourced outside Australia and New Zealand.
A shift in investment preferences of businesses and consumers away from bank deposits towards other asset or investment
classes could increase our need for funding from other, potentially less stable or more expensive forms of funding.
If market conditions deteriorate due to economic, financial, political or other reasons, our funding costs may be adversely
affected and our liquidity and our funding and lending activities may be constrained.
If our current sources of funding prove to be insufficient, we may be forced to seek alternative financing. The availability of such
alternative financing, and the terms on which it may be available, will depend on a variety of factors, including prevailing market
conditions, the availability of credit, our credit ratings and credit market capacity. Even if available, the cost of these alternatives
may be more expensive or on unfavourable terms, which could adversely affect our financial performance, liquidity, capital
resources and financial condition. There is no assurance that we will be able to obtain adequate funding and do so at
acceptable prices, nor that we will be able to recover any additional costs.
If Westpac is unable to source appropriate funding, we may also be forced to reduce our lending or begin selling liquid
securities. Such actions may adversely impact our business, prospects, liquidity, capital resources, financial performance or
financial condition.
Westpac enters into collateralised derivative obligations, which may require Westpac to post additional collateral based on
movements in market rates, which have the potential to adversely affect Westpac’s liquidity.
For a more detailed description of liquidity risk, refer to ‘Funding and Liquidity risk management’ in this section and in Note 22
to the financial statements.
Sovereign risk may destabilise financial markets adversely
Sovereign risk is the risk that foreign governments will default on their debt obligations, will be unable to refinance their debts
as they fall due, or will nationalise parts of their economy including assets of financial institutions such as Westpac.
Risk and risk management
Should one sovereign default, there could be a cascading effect to other markets and countries, the consequences of which,
while difficult to predict, may be similar to or worse than those experienced during the Global Financial Crisis. Such an event
could destabilise global financial markets adversely affecting our liquidity, financial performance or financial condition.
Failure to maintain credit ratings could adversely affect our cost of funds, liquidity, competitive position and access to
capital markets
Credit ratings are independent opinions on our creditworthiness. Our credit ratings affect the cost and availability of our funding
from capital markets and other funding sources and they may be important to customers or counterparties when evaluating our
products and services. Therefore, maintaining high quality credit ratings is important.
The credit ratings assigned to us by rating agencies are based on an evaluation of a number of factors, including our financial
strength, structural considerations regarding the Australian financial system and the credit rating of the Australian Government.
A credit rating downgrade could be driven by the occurrence of one or more of the other risks identified in this section or by
other events including changes to the methodologies used by the rating agencies to determine ratings.
Failure to maintain our current credit ratings could adversely affect our cost of funds and related margins, collateral
requirements, liquidity, competitive position and our access to capital markets. The extent and nature of these impacts would
depend on various factors, including the extent of any ratings change, whether our ratings differ among agencies (split ratings)
and whether any ratings changes also impact our peers or the sector.
A systemic shock in relation to the Australian, New Zealand or other financial systems could have adverse
consequences for Westpac or its customers or counterparties that would be difficult to predict and respond to
There is a risk that a major systemic shock could occur that causes an adverse impact on the Australian, New Zealand or other
financial systems.
As outlined above, during the past decade the financial services industry and capital markets have been, and may continue to
be, adversely affected by market volatility and the negative outlook for global economic conditions. A shock to one of the major
global economies could again result in currency and interest rate fluctuations and operational disruptions that negatively impact
the Group.
Any such market and economic disruptions could adversely affect financial institutions such as Westpac because consumer
and business spending may decrease, unemployment may rise and demand for the products and services we provide may
decline, thereby reducing our earnings. These conditions may also affect the ability of our borrowers to repay their loans or our
counterparties to meet their obligations, causing us to incur higher credit losses. These events could also result in the
undermining of confidence in the financial system, reducing liquidity, impairing our access to funding and impairing our
customers and counterparties and their businesses. If this were to occur, our business, prospects, financial performance or
financial condition could be adversely affected.
The nature and consequences of any such event are difficult to predict and there can be no certainty that we could respond
effectively to any such event.
Declines in asset markets could adversely affect our operations or profitability
Declines in Australian, New Zealand or other asset markets, including equity, residential and commercial property and other
asset markets, could adversely affect our operations and profitability.
Declining asset prices also impact our wealth management business. Earnings in our wealth management business are, in
part, dependent on asset values because we typically receive fees based on the value of securities and/or assets held or
managed. A decline in asset prices could negatively impact the earnings of this business.
Declining asset prices could also impact customers and counterparties and the value of security (including residential and
commercial property) we hold against loans and derivatives which may impact our ability to recover amounts owing to us if
customers or counterparties were to default. It may also affect our level of provisioning which in turn impacts our profitability
and financial condition.
Our business is substantially dependent on the Australian and New Zealand economies
Our revenues and earnings are dependent on economic activity and the level of financial services our customers require. In
particular, lending is dependent on various factors including economic growth, business investment, business and consumer
sentiment, levels of employment, interest rates and trade flows in the countries in which we operate.
We conduct the majority of our business in Australia and New Zealand and, consequently, our performance is influenced by the
level and cyclical nature of lending in these countries. These factors are in turn impacted by both domestic and international
economic conditions, natural disasters and political events. A significant decrease in Australian and New Zealand housing
valuations could adversely impact our home lending activities because borrowers with loans in excess of their property value
show a higher propensity to default and in the event of defaults our security would be eroded, causing us to incur higher credit
losses. The demand for our home lending products may also decline due to buyer concerns about decreases in values.
Adverse changes to the economic and business conditions in Australia and New Zealand and other countries such as China,
India and Japan, could also adversely affect the Australian economy and our customers. In particular, due to the current
relationship between Australia and China, particularly in the mining and resources sectors, a slowdown in China’s economic
100
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2015 Westpac Group Annual Report
101
2
growth could negatively impact the Australian economy. Changes in economic conditions could in turn result in reduced
demand for our products and services and affect the ability of our borrowers to repay their loans. If this were to occur, it could
negatively impact our business, prospects, financial performance or financial condition.
An increase in defaults in credit exposures could adversely affect our liquidity, capital resources, financial
performance or financial condition
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac. It is
a significant risk and arises primarily from our lending and derivatives activities.
We establish provisions for credit impairment based on current information. If economic conditions deteriorate, some customers
and/or counterparties could experience higher levels of financial stress and we may experience a significant increase in
defaults and write-offs, and be required to increase our provisioning. Such events would diminish available capital and could
adversely affect our liquidity, capital resources, financial performance or financial condition.
Credit risk also arises from certain derivative contracts we enter into and from our dealings with, and holdings of, debt securities
issued by other banks, financial institutions, companies, governments and government bodies the financial conditions of which
may be affected to varying degrees by economic conditions in global financial markets.
For a discussion of our risk management procedures, including the management of credit risk, refer to the ‘Risk management’
section and Note 22 to the financial statements.
We face intense competition in all aspects of our business
The financial services industry is highly competitive. We compete, both domestically and internationally, with retail and
commercial banks, asset managers, investment banking firms, brokerage firms, other financial service firms and businesses in
other industries with emerging financial services aspirations. This includes specialist competitors that may not be subject to the
same capital and regulatory requirements and therefore may be able to operate more efficiently. Digital technologies are
changing consumer behaviour and the competitive environment. The use of digital channels by customers to conduct their
banking continues to rise and emerging competitors are increasingly utilising new technologies and seeking to disrupt existing
business models, including in relation to digital payment services. The Group faces competition from established providers of
financial services as well as the threat of competition from banking businesses developed by non-financial services companies.
If we are unable to compete effectively in our various businesses and markets, our market share may decline. Increased
competition may also adversely affect us by diverting business to our competitors or creating pressure to lower margins.
Increased competition for deposits could also increase our cost of funding and lead us to access other types of funding or
reduce lending. We rely on bank deposits to fund a significant portion of our balance sheet and deposits have been a relatively
stable source of funding. We compete with banks and other financial services firms for such deposits. To the extent that we are
not able to successfully compete for deposits, we would be forced to rely more heavily on other, potentially less stable or more
expensive forms of funding, or reduce lending.
We are also dependent on our ability to offer products and services that match evolving customer preferences. If we are not
successful in developing or introducing new products and services or responding or adapting to changes in customer
preferences and habits, we may lose customers to our competitors. This could adversely affect our business, prospects,
financial performance or financial condition.
For more detail on how we address competitive pressures refer to ‘Competition’ in Section 1.
We could suffer losses due to market volatility
We are exposed to market risk as a consequence of our trading activities in financial markets and through the asset and liability
management of our financial position. This is the risk of an adverse impact on earnings resulting from changes in market
factors, such as foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk in
the banking book, such as the risk to interest income from a mismatch between the duration of assets and liabilities that arises
in the normal course of business activities. If we were to suffer substantial losses due to any market volatility it may adversely
affect our business, prospects, liquidity, capital resources, financial performance or financial condition. For a discussion of our
risk management procedures, including the management of market risk, refer to the ‘Risk management’ section.
We could suffer losses due to conduct risk
Conduct risk is the risk arising from unfair or inappropriate behaviour or practices of the Westpac Group or its staff. We are
highly dependent on the conduct of our employees, contractors and external service providers. We could, for example, be
adversely affected in the event that an employee, contractor or external service provider engages in unfair or inappropriate
conduct. This could include losses from a failure to meet a professional obligation to specific clients, including fiduciary and
suitability requirements, or from the nature or design of a product. While we have policies and processes to manage employee,
contractor or external service provider misconduct, these policies and processes may not always be effective.
We could suffer losses due to operational risks
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events. It also includes, among other things, technology risk, model risk and outsourcing risk. While we have policies and
processes to manage the risk of human error these policies and processes may not always be effective.
Risk and risk management
We could incur losses from incorrect or fraudulent payments and settlements, particularly real-time payments. Fraudulent
conduct can also emerge from external parties seeking to access the bank’s systems and customers’ accounts. If systems,
procedures and protocols for managing fraud fail, or are ineffective, they could lead to loss which could adversely affect our
business, prospects, reputation, financial performance or financial condition.
As a financial services organisation, Westpac is heavily reliant on the use of data and models in the conduct of its business. We
are therefore exposed to model risk, being the risk of loss arising because of errors or inadequacies in data or a model, or in
the control and use of the model.
Westpac relies on a number of suppliers, both in Australia and overseas, to provide services to it and its customers. Failure by
these suppliers to deliver services as required could disrupt services and adversely impact Westpac’s operations, profitability
or reputation.
Operational risks could impact on our operations or adversely affect demand for our products and services.
Operational risks can directly impact our reputation and result in financial losses which would adversely affect our financial
performance or financial condition.
Entities within the Group may be involved from time to time in legal proceedings arising from the conduct of their business. The
Group’s material contingent liabilities are described in Note 31 to the financial statements. There is a risk that these contingent
liabilities may be larger than anticipated or that additional litigation or other contingent liabilities may arise.
For a discussion of our risk management procedures, including the management of operational risk, refer to the ‘Risk
management’ section.
We could suffer information security risks, including cyberattacks
The proliferation of new technologies, the increasing use of the internet and telecommunications to conduct financial
transactions and the growing sophistication and activities of organised crime have resulted in increased information security
risks for major financial institutions such as Westpac and our external service providers.
While Westpac has systems in place to detect and respond to cyberattacks, these systems may not always be effective and
there can be no assurance that we will not suffer losses from cyberattacks or other information security breaches in the future.
Our operations rely on the secure processing, storage and transmission of information on our computer systems and networks,
and the systems and networks of external suppliers. Although we implement measures to protect the security, integrity and
confidentiality of our information, there is a risk that the computer systems, software and networks on which we rely may be
subject to security breaches, unauthorised access, malicious software, external attacks or internal breaches that could have an
adverse impact on our confidential information or that of our customers and counterparties.
Major banks in other jurisdictions have suffered security breaches from sophisticated cyberattacks. Our external service
providers or other parties that facilitate our business activities (e.g. vendors, exchanges, clearing houses, central depositories
and financial intermediaries) are also subject to the risk of cyberattacks. Any such security breach could result in the loss of
customers and business opportunities, significant disruption to Westpac’s operations, misappropriation of Westpac’s
confidential information and/or that of our customers and damage to Westpac’s computers or systems and/or those of our
customers. Such a security breach could also result in reputational damage, claims for compensation and regulatory
investigations and penalties, which could adversely affect our business, prospects, financial performance, or financial condition.
Our risk and exposure to such threats remains heightened because of the evolving nature of technology, Westpac’s
prominence within the financial services industry, the prominence of our customers (including government, mining and health)
and our plans to continue to improve and expand our internet and mobile banking infrastructure.
We continue to seek to strengthen and enhance our cybersecurity systems and investigate or remediate information security
vulnerabilities, investing additional resources to endeavour to counter new and emerging threats as they continue to evolve.
We could suffer losses due to technology failures
The reliability and security of our information and technology infrastructure are crucial in maintaining our banking applications
and processes. There is a risk that our information and technology systems might fail to operate properly or become disabled
as a result of events that are wholly or partially beyond our control.
Further, our ability to develop and deliver products and services to customers is dependent upon technology that requires
periodic renewal. We are constantly managing technology projects including projects to consolidate technology platforms,
simplify and enhance our technology and operations environment, improve productivity and provide for a better customer
experience. Failure to implement these projects or manage associated change effectively could result in cost overruns, a failure
to achieve anticipated productivity, operational instability or reputational damage. In turn, this could place us at a competitive
disadvantage and adversely affect our financial performance.
We could suffer losses due to failures in governance or risk management strategies
We have implemented risk management strategies and internal controls involving processes and procedures intended to
identify, monitor and manage the risks to which we are subject, including liquidity risk, credit risk, market risk (such as interest
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growth could negatively impact the Australian economy. Changes in economic conditions could in turn result in reduced
demand for our products and services and affect the ability of our borrowers to repay their loans. If this were to occur, it could
negatively impact our business, prospects, financial performance or financial condition.
An increase in defaults in credit exposures could adversely affect our liquidity, capital resources, financial
performance or financial condition
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac. It is
a significant risk and arises primarily from our lending and derivatives activities.
We establish provisions for credit impairment based on current information. If economic conditions deteriorate, some customers
and/or counterparties could experience higher levels of financial stress and we may experience a significant increase in
defaults and write-offs, and be required to increase our provisioning. Such events would diminish available capital and could
adversely affect our liquidity, capital resources, financial performance or financial condition.
Credit risk also arises from certain derivative contracts we enter into and from our dealings with, and holdings of, debt securities
issued by other banks, financial institutions, companies, governments and government bodies the financial conditions of which
may be affected to varying degrees by economic conditions in global financial markets.
For a discussion of our risk management procedures, including the management of credit risk, refer to the ‘Risk management’
section and Note 22 to the financial statements.
We face intense competition in all aspects of our business
The financial services industry is highly competitive. We compete, both domestically and internationally, with retail and
commercial banks, asset managers, investment banking firms, brokerage firms, other financial service firms and businesses in
other industries with emerging financial services aspirations. This includes specialist competitors that may not be subject to the
same capital and regulatory requirements and therefore may be able to operate more efficiently. Digital technologies are
changing consumer behaviour and the competitive environment. The use of digital channels by customers to conduct their
banking continues to rise and emerging competitors are increasingly utilising new technologies and seeking to disrupt existing
business models, including in relation to digital payment services. The Group faces competition from established providers of
financial services as well as the threat of competition from banking businesses developed by non-financial services companies.
If we are unable to compete effectively in our various businesses and markets, our market share may decline. Increased
competition may also adversely affect us by diverting business to our competitors or creating pressure to lower margins.
Increased competition for deposits could also increase our cost of funding and lead us to access other types of funding or
reduce lending. We rely on bank deposits to fund a significant portion of our balance sheet and deposits have been a relatively
stable source of funding. We compete with banks and other financial services firms for such deposits. To the extent that we are
not able to successfully compete for deposits, we would be forced to rely more heavily on other, potentially less stable or more
expensive forms of funding, or reduce lending.
We are also dependent on our ability to offer products and services that match evolving customer preferences. If we are not
successful in developing or introducing new products and services or responding or adapting to changes in customer
preferences and habits, we may lose customers to our competitors. This could adversely affect our business, prospects,
financial performance or financial condition.
For more detail on how we address competitive pressures refer to ‘Competition’ in Section 1.
We could suffer losses due to market volatility
We are exposed to market risk as a consequence of our trading activities in financial markets and through the asset and liability
management of our financial position. This is the risk of an adverse impact on earnings resulting from changes in market
factors, such as foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk in
the banking book, such as the risk to interest income from a mismatch between the duration of assets and liabilities that arises
in the normal course of business activities. If we were to suffer substantial losses due to any market volatility it may adversely
affect our business, prospects, liquidity, capital resources, financial performance or financial condition. For a discussion of our
risk management procedures, including the management of market risk, refer to the ‘Risk management’ section.
We could suffer losses due to conduct risk
Conduct risk is the risk arising from unfair or inappropriate behaviour or practices of the Westpac Group or its staff. We are
highly dependent on the conduct of our employees, contractors and external service providers. We could, for example, be
adversely affected in the event that an employee, contractor or external service provider engages in unfair or inappropriate
conduct. This could include losses from a failure to meet a professional obligation to specific clients, including fiduciary and
suitability requirements, or from the nature or design of a product. While we have policies and processes to manage employee,
contractor or external service provider misconduct, these policies and processes may not always be effective.
We could suffer losses due to operational risks
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events. It also includes, among other things, technology risk, model risk and outsourcing risk. While we have policies and
processes to manage the risk of human error these policies and processes may not always be effective.
Risk and risk management
We could incur losses from incorrect or fraudulent payments and settlements, particularly real-time payments. Fraudulent
conduct can also emerge from external parties seeking to access the bank’s systems and customers’ accounts. If systems,
procedures and protocols for managing fraud fail, or are ineffective, they could lead to loss which could adversely affect our
business, prospects, reputation, financial performance or financial condition.
As a financial services organisation, Westpac is heavily reliant on the use of data and models in the conduct of its business. We
are therefore exposed to model risk, being the risk of loss arising because of errors or inadequacies in data or a model, or in
the control and use of the model.
Westpac relies on a number of suppliers, both in Australia and overseas, to provide services to it and its customers. Failure by
these suppliers to deliver services as required could disrupt services and adversely impact Westpac’s operations, profitability
or reputation.
Operational risks could impact on our operations or adversely affect demand for our products and services.
Operational risks can directly impact our reputation and result in financial losses which would adversely affect our financial
performance or financial condition.
Entities within the Group may be involved from time to time in legal proceedings arising from the conduct of their business. The
Group’s material contingent liabilities are described in Note 31 to the financial statements. There is a risk that these contingent
liabilities may be larger than anticipated or that additional litigation or other contingent liabilities may arise.
For a discussion of our risk management procedures, including the management of operational risk, refer to the ‘Risk
management’ section.
We could suffer information security risks, including cyberattacks
The proliferation of new technologies, the increasing use of the internet and telecommunications to conduct financial
transactions and the growing sophistication and activities of organised crime have resulted in increased information security
risks for major financial institutions such as Westpac and our external service providers.
While Westpac has systems in place to detect and respond to cyberattacks, these systems may not always be effective and
there can be no assurance that we will not suffer losses from cyberattacks or other information security breaches in the future.
Our operations rely on the secure processing, storage and transmission of information on our computer systems and networks,
and the systems and networks of external suppliers. Although we implement measures to protect the security, integrity and
confidentiality of our information, there is a risk that the computer systems, software and networks on which we rely may be
subject to security breaches, unauthorised access, malicious software, external attacks or internal breaches that could have an
adverse impact on our confidential information or that of our customers and counterparties.
Major banks in other jurisdictions have suffered security breaches from sophisticated cyberattacks. Our external service
providers or other parties that facilitate our business activities (e.g. vendors, exchanges, clearing houses, central depositories
and financial intermediaries) are also subject to the risk of cyberattacks. Any such security breach could result in the loss of
customers and business opportunities, significant disruption to Westpac’s operations, misappropriation of Westpac’s
confidential information and/or that of our customers and damage to Westpac’s computers or systems and/or those of our
customers. Such a security breach could also result in reputational damage, claims for compensation and regulatory
investigations and penalties, which could adversely affect our business, prospects, financial performance, or financial condition.
Our risk and exposure to such threats remains heightened because of the evolving nature of technology, Westpac’s
prominence within the financial services industry, the prominence of our customers (including government, mining and health)
and our plans to continue to improve and expand our internet and mobile banking infrastructure.
We continue to seek to strengthen and enhance our cybersecurity systems and investigate or remediate information security
vulnerabilities, investing additional resources to endeavour to counter new and emerging threats as they continue to evolve.
We could suffer losses due to technology failures
The reliability and security of our information and technology infrastructure are crucial in maintaining our banking applications
and processes. There is a risk that our information and technology systems might fail to operate properly or become disabled
as a result of events that are wholly or partially beyond our control.
Further, our ability to develop and deliver products and services to customers is dependent upon technology that requires
periodic renewal. We are constantly managing technology projects including projects to consolidate technology platforms,
simplify and enhance our technology and operations environment, improve productivity and provide for a better customer
experience. Failure to implement these projects or manage associated change effectively could result in cost overruns, a failure
to achieve anticipated productivity, operational instability or reputational damage. In turn, this could place us at a competitive
disadvantage and adversely affect our financial performance.
We could suffer losses due to failures in governance or risk management strategies
We have implemented risk management strategies and internal controls involving processes and procedures intended to
identify, monitor and manage the risks to which we are subject, including liquidity risk, credit risk, market risk (such as interest
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103
2
rate, foreign exchange and equity risk), compliance risk, conduct risk, insurance risk, sustainability risk, related entity
(contagion) risk and operational risk; all of which may impact the Group’s reputation.
However, there are inherent limitations with any risk management framework as there may exist, or emerge in the future, risks
that we have not anticipated or identified.
If any of our governance or risk management processes and procedures prove ineffective or inadequate or are otherwise not
appropriately implemented, we could suffer unexpected losses and reputational damage which could adversely affect our
business, prospects, financial performance or financial condition.
For a discussion of our risk management procedures, refer to the ‘Risk management’ section.
We could suffer losses due to insurance risk
We have exposure to insurance risk in our life insurance, general insurance and lenders mortgage insurance businesses, which
may adversely affect our business, operations and financial condition.
Insurance risk is the risk of mis-estimation of the expected cost of insured events, volatility in the number or severity of insured
events, and mis-estimation of the cost of incurred claims.
In the life insurance business, insurance risk arises primarily through mortality (death) and morbidity (illness and injury) risks
being greater than expected.
In the general insurance business, insurance risk arises mainly through environmental factors (including floods and bushfires)
and other calamities, such as earthquakes, tsunamis and volcanic activity, as well as general variability in home and contents
insurance claim amounts. Further details on environmental risk factors are discussed below.
In the lenders mortgage insurance business, insurance risk arises primarily from an unexpected downturn in
economic conditions.
We could also suffer losses if our reinsurance arrangements are not effective.
We could suffer losses due to environmental factors
We and our customers operate businesses and hold assets in a diverse range of geographic locations. Any significant
environmental change or external event (including fire, storm, flood, earthquake, pandemic or terrorism events) in any of these
locations has the potential to disrupt business activities, impact on our operations, damage property and otherwise affect the
value of assets held in the affected locations and our ability to recover amounts owing to us. In addition, such an event could
have an adverse impact on economic activity, consumer and investor confidence, or the levels of volatility in financial markets.
The risk of loss due to environmental factors is also relevant to our insurance business. The frequency and severity of external
events such as natural disasters is difficult to predict and it is possible that the amounts we reserve for such events may not be
adequate to cover actual claims that may arise, which could adversely affect our business, prospects, financial performance or
financial condition.
Reputational damage could harm our business and prospects
Our ability to attract and retain customers and our prospects could be adversely affected if our reputation is damaged.
Reputation risk is the risk to earnings or capital arising from negative public opinion resulting from the loss of reputation or
public trust and standing. It arises where there are differences between stakeholders’ current and emerging perceptions, beliefs
and expectations and our current and planned activities, performance and behaviours.
There are various potential sources of reputational damage, including failure to effectively manage risks in accordance with our
risk management frameworks, potential conflicts of interest, pricing policies, failure to comply with legal and regulatory
requirements, failure to meet our market disclosure obligations, regulatory investigations into past conduct, making inaccurate
public statements, environmental, social and ethical issues, engagement and conduct of external suppliers, failure to comply
with anti-money laundering and anti-bribery and corruption laws, trade sanctions and counter-terrorism finance legislation or
privacy laws, litigation, failure of information security systems, improper sales and trading practices, failure to comply with
personnel and supplier policies, improper conduct of companies in which we hold strategic investments, technology failures and
security breaches. Our reputation could also be adversely affected by the actions of the financial services industry in general or
from the actions of customers, suppliers and other counterparties.
Failure, or perceived failure, to appropriately address issues that could or do give rise to reputational risk could also impact the
regulatory change agenda, give rise to additional legal risk, subject us to regulatory investigations, regulatory enforcement
actions, fines and penalties, class actions or remediation costs, or harm our reputation among customers, investors and the
marketplace. This could lead to loss of business which could adversely affect our business, prospects, financial performance or
financial condition.
Risk and risk management
We could suffer losses due to impairment of capitalised software, goodwill and other intangible assets that may
adversely affect our business, operations and financial condition
In certain circumstances Westpac may be exposed to a reduction in the value of intangible assets. As at 30 September 2015,
Westpac carried goodwill principally related to its investments in Australia, other intangible assets principally relating to assets
recognised on acquisition of subsidiaries and capitalised software balances.
Westpac is required to assess the recoverability of the goodwill balances on at least an annual basis or wherever an indicator
of impairment exists. For this purpose Westpac uses a discounted cash flow calculation. Changes in the methodology or
assumptions upon which the calculation is based, together with expected changes in future cash flows, could materially impact
this assessment, resulting in the potential write-off of part or all of the goodwill balances.
Capitalised software and other intangible assets are assessed for indicators of impairment at least annually or on indication of
impairment. In the event that an asset is no longer in use, or that the cash flows generated by the asset do not support the
carrying value, an impairment will be recorded, adversely impacting the Group’s financial condition. The estimates and
assumptions used in assessing the useful life of an asset can be affected by a range of factors including changes in strategy
and the rate of external changes in technology and regulatory requirements.
We could suffer losses if we fail to syndicate or sell down underwritten securities
As a financial intermediary we underwrite listed and unlisted debt and equity securities. Underwriting activities include the
development of solutions for corporate and institutional customers who need capital and investor customers who have an
appetite for certain investment products. We may guarantee the pricing and placement of these facilities. We could suffer
losses if we fail to syndicate or sell down our risk to other market participants. This risk is more pronounced in times of
heightened market volatility.
Certain strategic decisions may have adverse effects on our business
Westpac, at times, evaluates and may implement strategic decisions and objectives including diversification, innovation,
divestment or business expansion initiatives, including acquisitions of businesses. The expansion or integration of a new
business can be complex and costly and may require Westpac to comply with additional local or foreign regulatory
requirements which may carry additional risks. These decisions may, for a variety of reasons, not deliver the anticipated
positive business results and could have a negative impact on our business, prospects, engagement with regulators, financial
performance or financial condition.
Risk management
prosper and grow.
Westpac’s vision is to be one of the world’s great service companies, helping our customers, communities and people to
Effective risk management is one of the keys to achieving this goal. It influences our customer experiences and public
perceptions, our financial performance, reputation and shareholder expectations, and thus our future success. We regard
managing risk as a fundamental activity, performed at all levels of the Group.
The Risk Management Strategy is approved by the Board and reviewed by the Board Risk and Compliance Committee (BRCC)
on an annual basis or more frequently where required by a material business or strategy change or a material change to the
Group’s risk profile. It is owned by the Chief Executive Officer.
For further information regarding the role and responsibilities of the BRCC and other Board committees in managing risk, refer
to Westpac’s Corporate Governance Statement.
The CEO and Executive Team are responsible for implementing our Risk Management Strategy and frameworks, and for
developing policies, controls, processes and procedures for identifying and managing risk in all of Westpac’s activities.
We adopt a Three Lines of Defence approach to risk management which reflects our culture of ‘risk is everyone’s business’ and
that all employees are responsible for identifying and managing risk and operating within the Group’s desired risk profile.
For a discussion of the risks to which Westpac is exposed, and its policies to manage these risks, refer to Westpac’s Corporate
Governance Statement and Note 22 to the financial statements.
Credit risk
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac.
We have a framework and supporting policies for managing the credit risk associated with lending across our business
divisions. The framework and policies encompass all stages of the credit cycle – origination, evaluation, approval,
documentation, settlement, ongoing administration and problem management. For example, we have established product-
based standards for lending to individuals, with key controls including minimum serviceability standards and maximum loan to
security value ratios. We offer residential property loans to both owner-occupiers and investors at both fixed and variable rates,
secured by a mortgage over the property or other acceptable collateral. Where we lend to higher loan to value ratios, we
typically also require lenders mortgage insurance. Similarly, we have established criteria for business, commercial, corporate
and institutional lending, which can vary by industry segment. In this area we focus on the performance of key financial risk
ratios, including interest coverage, debt serviceability and balance sheet structure. When providing finance to smaller business,
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rate, foreign exchange and equity risk), compliance risk, conduct risk, insurance risk, sustainability risk, related entity
(contagion) risk and operational risk; all of which may impact the Group’s reputation.
However, there are inherent limitations with any risk management framework as there may exist, or emerge in the future, risks
that we have not anticipated or identified.
If any of our governance or risk management processes and procedures prove ineffective or inadequate or are otherwise not
appropriately implemented, we could suffer unexpected losses and reputational damage which could adversely affect our
business, prospects, financial performance or financial condition.
For a discussion of our risk management procedures, refer to the ‘Risk management’ section.
We could suffer losses due to insurance risk
We have exposure to insurance risk in our life insurance, general insurance and lenders mortgage insurance businesses, which
may adversely affect our business, operations and financial condition.
Insurance risk is the risk of mis-estimation of the expected cost of insured events, volatility in the number or severity of insured
events, and mis-estimation of the cost of incurred claims.
In the life insurance business, insurance risk arises primarily through mortality (death) and morbidity (illness and injury) risks
being greater than expected.
In the general insurance business, insurance risk arises mainly through environmental factors (including floods and bushfires)
and other calamities, such as earthquakes, tsunamis and volcanic activity, as well as general variability in home and contents
insurance claim amounts. Further details on environmental risk factors are discussed below.
In the lenders mortgage insurance business, insurance risk arises primarily from an unexpected downturn in
economic conditions.
We could also suffer losses if our reinsurance arrangements are not effective.
We could suffer losses due to environmental factors
We and our customers operate businesses and hold assets in a diverse range of geographic locations. Any significant
environmental change or external event (including fire, storm, flood, earthquake, pandemic or terrorism events) in any of these
locations has the potential to disrupt business activities, impact on our operations, damage property and otherwise affect the
value of assets held in the affected locations and our ability to recover amounts owing to us. In addition, such an event could
have an adverse impact on economic activity, consumer and investor confidence, or the levels of volatility in financial markets.
The risk of loss due to environmental factors is also relevant to our insurance business. The frequency and severity of external
events such as natural disasters is difficult to predict and it is possible that the amounts we reserve for such events may not be
adequate to cover actual claims that may arise, which could adversely affect our business, prospects, financial performance or
financial condition.
Reputational damage could harm our business and prospects
Our ability to attract and retain customers and our prospects could be adversely affected if our reputation is damaged.
Reputation risk is the risk to earnings or capital arising from negative public opinion resulting from the loss of reputation or
public trust and standing. It arises where there are differences between stakeholders’ current and emerging perceptions, beliefs
and expectations and our current and planned activities, performance and behaviours.
There are various potential sources of reputational damage, including failure to effectively manage risks in accordance with our
risk management frameworks, potential conflicts of interest, pricing policies, failure to comply with legal and regulatory
requirements, failure to meet our market disclosure obligations, regulatory investigations into past conduct, making inaccurate
public statements, environmental, social and ethical issues, engagement and conduct of external suppliers, failure to comply
with anti-money laundering and anti-bribery and corruption laws, trade sanctions and counter-terrorism finance legislation or
privacy laws, litigation, failure of information security systems, improper sales and trading practices, failure to comply with
personnel and supplier policies, improper conduct of companies in which we hold strategic investments, technology failures and
security breaches. Our reputation could also be adversely affected by the actions of the financial services industry in general or
from the actions of customers, suppliers and other counterparties.
Failure, or perceived failure, to appropriately address issues that could or do give rise to reputational risk could also impact the
regulatory change agenda, give rise to additional legal risk, subject us to regulatory investigations, regulatory enforcement
actions, fines and penalties, class actions or remediation costs, or harm our reputation among customers, investors and the
marketplace. This could lead to loss of business which could adversely affect our business, prospects, financial performance or
financial condition.
Risk and risk management
We could suffer losses due to impairment of capitalised software, goodwill and other intangible assets that may
adversely affect our business, operations and financial condition
In certain circumstances Westpac may be exposed to a reduction in the value of intangible assets. As at 30 September 2015,
Westpac carried goodwill principally related to its investments in Australia, other intangible assets principally relating to assets
recognised on acquisition of subsidiaries and capitalised software balances.
Westpac is required to assess the recoverability of the goodwill balances on at least an annual basis or wherever an indicator
of impairment exists. For this purpose Westpac uses a discounted cash flow calculation. Changes in the methodology or
assumptions upon which the calculation is based, together with expected changes in future cash flows, could materially impact
this assessment, resulting in the potential write-off of part or all of the goodwill balances.
Capitalised software and other intangible assets are assessed for indicators of impairment at least annually or on indication of
impairment. In the event that an asset is no longer in use, or that the cash flows generated by the asset do not support the
carrying value, an impairment will be recorded, adversely impacting the Group’s financial condition. The estimates and
assumptions used in assessing the useful life of an asset can be affected by a range of factors including changes in strategy
and the rate of external changes in technology and regulatory requirements.
We could suffer losses if we fail to syndicate or sell down underwritten securities
As a financial intermediary we underwrite listed and unlisted debt and equity securities. Underwriting activities include the
development of solutions for corporate and institutional customers who need capital and investor customers who have an
appetite for certain investment products. We may guarantee the pricing and placement of these facilities. We could suffer
losses if we fail to syndicate or sell down our risk to other market participants. This risk is more pronounced in times of
heightened market volatility.
Certain strategic decisions may have adverse effects on our business
Westpac, at times, evaluates and may implement strategic decisions and objectives including diversification, innovation,
divestment or business expansion initiatives, including acquisitions of businesses. The expansion or integration of a new
business can be complex and costly and may require Westpac to comply with additional local or foreign regulatory
requirements which may carry additional risks. These decisions may, for a variety of reasons, not deliver the anticipated
positive business results and could have a negative impact on our business, prospects, engagement with regulators, financial
performance or financial condition.
Risk management
Westpac’s vision is to be one of the world’s great service companies, helping our customers, communities and people to
prosper and grow.
Effective risk management is one of the keys to achieving this goal. It influences our customer experiences and public
perceptions, our financial performance, reputation and shareholder expectations, and thus our future success. We regard
managing risk as a fundamental activity, performed at all levels of the Group.
The Risk Management Strategy is approved by the Board and reviewed by the Board Risk and Compliance Committee (BRCC)
on an annual basis or more frequently where required by a material business or strategy change or a material change to the
Group’s risk profile. It is owned by the Chief Executive Officer.
For further information regarding the role and responsibilities of the BRCC and other Board committees in managing risk, refer
to Westpac’s Corporate Governance Statement.
The CEO and Executive Team are responsible for implementing our Risk Management Strategy and frameworks, and for
developing policies, controls, processes and procedures for identifying and managing risk in all of Westpac’s activities.
We adopt a Three Lines of Defence approach to risk management which reflects our culture of ‘risk is everyone’s business’ and
that all employees are responsible for identifying and managing risk and operating within the Group’s desired risk profile.
For a discussion of the risks to which Westpac is exposed, and its policies to manage these risks, refer to Westpac’s Corporate
Governance Statement and Note 22 to the financial statements.
Credit risk
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac.
We have a framework and supporting policies for managing the credit risk associated with lending across our business
divisions. The framework and policies encompass all stages of the credit cycle – origination, evaluation, approval,
documentation, settlement, ongoing administration and problem management. For example, we have established product-
based standards for lending to individuals, with key controls including minimum serviceability standards and maximum loan to
security value ratios. We offer residential property loans to both owner-occupiers and investors at both fixed and variable rates,
secured by a mortgage over the property or other acceptable collateral. Where we lend to higher loan to value ratios, we
typically also require lenders mortgage insurance. Similarly, we have established criteria for business, commercial, corporate
and institutional lending, which can vary by industry segment. In this area we focus on the performance of key financial risk
ratios, including interest coverage, debt serviceability and balance sheet structure. When providing finance to smaller business,
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2
commercial and corporate borrowers we typically obtain security, such as a mortgage over property and/or a general security
agreement over business assets. For larger corporates and institutions we typically also require compliance with selected
financial ratios and undertakings and may hold security. In respect of commercial property lending we maintain loan origination
and ongoing risk management standards, including specialised management for higher value loans. We consider factors such
as the nature, location, quality and expected demand for the asset, tenancy profile and experience and quality of management.
We actively monitor the Australian and New Zealand property markets and the composition of our commercial property loan
book across the Group.
The extension of credit is underpinned by the Group’s Principles of Responsible Lending. This is reflected in our commitment to
comply with all local legislation, codes of practice and relevant guidelines and obligations to market our products responsibly
and stay in touch with the expectations of customers and the community.
Refer to Note 22 to the financial statements for details of our credit risk management policies.
Provisions for impairment charges on loans
For information on the basis for determining the provision for impairment charges on loans refer to ‘Critical accounting
assumptions and estimates’ in Note 1 to the financial statements.
Credit risk concentrations
We monitor our credit portfolio to manage risk concentrations. At 30 September 2015, our exposure to consumers comprised
71% (2014: 71%, 2013: 71%) of our on-balance sheet loans and 57% (2014: 57%, 2013: 57%) of total credit commitments. At
30 September 2015, 90% (2014: 90%, 2013: 90%) of our exposure to consumers was supported by residential real estate
mortgages. The consumer category includes investment property loans to individuals, credit cards, personal loans, overdrafts
and lines of credit. Our consumer credit risks are diversified, with substantial consumer market share in every state and territory
in Australia, New Zealand and the Pacific region. Moreover, these customers service their debts with incomes derived from a
wide range of occupations, in city as well as country areas.
Exposures to businesses, government and other financial institutions are classified into a number of industry clusters based on
groupings of related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored against
industry risk limits. The level of industry risk is measured and monitored on a dynamic basis. We also control the concentration
risks that can arise from large exposures to individual borrowers.
Liquidity risk
Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due. This risk could
potentially arise as a result of:
an inability to meet both expected and unexpected current and future cashflows and collateral needs without affecting either
daily operations or the financial condition of the bank; and/or
inadequate market depth or market disruption impacting the ability to offset or eliminate a position at the market price.
The Westpac Group has a liquidity risk management framework designed with the objective of meeting cash flow obligations
under a wide range of market conditions, including name specific and market-wide scenarios as well as meeting the
requirements of the Liquidity Coverage Ratio (LCR).
Refer to Note 22 to the financial statements for a more detailed discussion of our liquidity risk management policies.
company, and Westpac NZ Covered Bond Limited.
Westpac debt programs and issuing shelves
and issuing shelves as at 30 September 2015:
Access in a timely and flexible manner to a diverse range of debt markets and investors is provided by the following programs
Risk and risk management
Australia
No limit
Euro Market
USD 7.5 billion
USD 40 billion
EUR 5 billion
Japan
JPY 750 billion
JPY 750 billion
United States
No limit
No limit
New Zealand
parent company.
Market risk
Program Limit
Issuer(s)
Program/Issuing Shelf Type
WBC
Debt Issuance Program
USD 2.5 billion
WBC
Euro Transferable Certificate of Deposit Program
USD 20 billion
WBC/WSNZL1
Euro Commercial Paper and Certificate of Deposit Program
USD 70 billion
WBC
Euro Medium Term Note Program
WSNZL1
WBC2
WSNZL3
WBC
WBC
Euro Medium Term Note Program
Global Covered Bond Program
Global Covered Bond Program
Samurai shelf
Uridashi shelf
USD 45 billion
WBC
US Commercial Paper Program
USD 10 billion
WSNZL1
US Commercial Paper Program
USD 35 billion
WBC
US MTN Program
WBC (NY Branch) Certificate of Deposit Program
WBC
US Securities and Exchange Commission registered shelf
No limit
WNZL
Medium Term Note and Registered Certificate of Deposit Program
1 Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its
2 Notes issued under this program are guaranteed by BNY Trust Company of Australia Limited as trustee of the Westpac Covered Bond Trust.
3 Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its parent
Market risk is the risk of an adverse impact on earnings resulting from changes in market factors, such as foreign exchange
rates, interest rates, commodity prices and equity prices. Market risk arises in both trading and banking book activities.
Our trading activities are conducted in our Financial Markets and Treasury businesses. Financial Market’s trading book activity
represents dealings that encompass book running and distribution activity. Treasury’s trading activity represents dealings that
include the management of interest rate, foreign exchange (FX) and credit spread risk associated with wholesale funding, liquid
asset portfolios and hedging of foreign currency earnings and capital deployed offshore.
Refer to Note 22 to the financial statements for a more detailed discussion of our market risk management policies.
106
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107
commercial and corporate borrowers we typically obtain security, such as a mortgage over property and/or a general security
agreement over business assets. For larger corporates and institutions we typically also require compliance with selected
financial ratios and undertakings and may hold security. In respect of commercial property lending we maintain loan origination
and ongoing risk management standards, including specialised management for higher value loans. We consider factors such
as the nature, location, quality and expected demand for the asset, tenancy profile and experience and quality of management.
We actively monitor the Australian and New Zealand property markets and the composition of our commercial property loan
book across the Group.
The extension of credit is underpinned by the Group’s Principles of Responsible Lending. This is reflected in our commitment to
comply with all local legislation, codes of practice and relevant guidelines and obligations to market our products responsibly
and stay in touch with the expectations of customers and the community.
Refer to Note 22 to the financial statements for details of our credit risk management policies.
Provisions for impairment charges on loans
For information on the basis for determining the provision for impairment charges on loans refer to ‘Critical accounting
assumptions and estimates’ in Note 1 to the financial statements.
Credit risk concentrations
We monitor our credit portfolio to manage risk concentrations. At 30 September 2015, our exposure to consumers comprised
71% (2014: 71%, 2013: 71%) of our on-balance sheet loans and 57% (2014: 57%, 2013: 57%) of total credit commitments. At
30 September 2015, 90% (2014: 90%, 2013: 90%) of our exposure to consumers was supported by residential real estate
mortgages. The consumer category includes investment property loans to individuals, credit cards, personal loans, overdrafts
and lines of credit. Our consumer credit risks are diversified, with substantial consumer market share in every state and territory
in Australia, New Zealand and the Pacific region. Moreover, these customers service their debts with incomes derived from a
wide range of occupations, in city as well as country areas.
Exposures to businesses, government and other financial institutions are classified into a number of industry clusters based on
groupings of related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored against
industry risk limits. The level of industry risk is measured and monitored on a dynamic basis. We also control the concentration
risks that can arise from large exposures to individual borrowers.
Liquidity risk
potentially arise as a result of:
Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due. This risk could
an inability to meet both expected and unexpected current and future cashflows and collateral needs without affecting either
daily operations or the financial condition of the bank; and/or
inadequate market depth or market disruption impacting the ability to offset or eliminate a position at the market price.
The Westpac Group has a liquidity risk management framework designed with the objective of meeting cash flow obligations
under a wide range of market conditions, including name specific and market-wide scenarios as well as meeting the
requirements of the Liquidity Coverage Ratio (LCR).
Refer to Note 22 to the financial statements for a more detailed discussion of our liquidity risk management policies.
Westpac debt programs and issuing shelves
Access in a timely and flexible manner to a diverse range of debt markets and investors is provided by the following programs
and issuing shelves as at 30 September 2015:
Risk and risk management
Program Limit
Issuer(s)
Program/Issuing Shelf Type
Australia
No limit
Euro Market
USD 2.5 billion
USD 20 billion
USD 70 billion
USD 7.5 billion
USD 40 billion
EUR 5 billion
Japan
JPY 750 billion
JPY 750 billion
United States
USD 45 billion
USD 10 billion
WBC
Debt Issuance Program
WBC
WBC/WSNZL1
Euro Transferable Certificate of Deposit Program
Euro Commercial Paper and Certificate of Deposit Program
WBC
WSNZL1
WBC2
WSNZL3
WBC
WBC
WBC
WSNZL1
Euro Medium Term Note Program
Euro Medium Term Note Program
Global Covered Bond Program
Global Covered Bond Program
Samurai shelf
Uridashi shelf
US Commercial Paper Program
US Commercial Paper Program
USD 35 billion
WBC
US MTN Program
No limit
No limit
New Zealand
WBC (NY Branch) Certificate of Deposit Program
WBC
US Securities and Exchange Commission registered shelf
No limit
1 Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its
Medium Term Note and Registered Certificate of Deposit Program
WNZL
parent company.
2 Notes issued under this program are guaranteed by BNY Trust Company of Australia Limited as trustee of the Westpac Covered Bond Trust.
3 Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its parent
company, and Westpac NZ Covered Bond Limited.
Market risk
Market risk is the risk of an adverse impact on earnings resulting from changes in market factors, such as foreign exchange
rates, interest rates, commodity prices and equity prices. Market risk arises in both trading and banking book activities.
Our trading activities are conducted in our Financial Markets and Treasury businesses. Financial Market’s trading book activity
represents dealings that encompass book running and distribution activity. Treasury’s trading activity represents dealings that
include the management of interest rate, foreign exchange (FX) and credit spread risk associated with wholesale funding, liquid
asset portfolios and hedging of foreign currency earnings and capital deployed offshore.
Refer to Note 22 to the financial statements for a more detailed discussion of our market risk management policies.
106
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107
2
The table below depicts the aggregate Value at Risk (VaR), by risk type, for the year ended 30 September:
Includes electricity risk.
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
Consolidated and Parent Entity
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
1
2
2015
2014
2013
High
18.1
11.8
0.6
5.7
6.7
n/a
23.5
Low Average
11.4
3.6
0.3
7.0
0.5
0.1
1.7
2.9
n/a
9.0
3.1
4.6
(7.2)
15.8
High
30.7
7.6
0.7
2.9
11.3
n/a
40.2
Low Average
15.6
3.0
0.3
6.3
1.2
0.1
1.3
5.4
n/a
9.5
2.0
9.2
(8.2)
22.0
High
30.8
5.7
0.8
6.1
13.0
n/a
35.4
Low Average
16.7
2.1
0.3
9.1
0.5
0.1
1.2
5.8
n/a
12.5
2.9
7.9
(10.7)
19.2
Risk and risk management
Compliance is focused on meeting our legal and regulatory obligations in each of the jurisdictions in which we operate by
proactively managing compliance risk. Refer to Westpac’s Corporate Governance Statement for information on our
management of operational and compliance risk.
The Group’s Operational Risk Management Framework and Compliance Management Framework assists all divisions to
achieve their objectives through the effective identification, assessment, measurement, management, monitoring, reporting,
control and mitigation of their risks. The Operational Risk Management Framework defines the organisational and governance
structures, roles and responsibilities, principles, policies, processes and systems that we use to manage operational risk. The
Compliance Management Framework sets out the approach of Westpac Group to managing compliance obligations and
mitigating compliance risk, in order to operate within our compliance appetite and achieve our compliance objective. This is
discussed in further detail in Note 22 to the financial statements.
Other risks
Business risk
Conduct risk
The risk associated with the vulnerability of a line of business to changes in the business environment.
The Westpac Group Code of Conduct describes the standards of conduct expected of our people, both employees and
contractors. It is supported by policies and procedures to manage conduct-related risks including through our dealings in
financial markets, and through managing our statutory and professional obligations to specific clients, including fiduciary and
suitability requirements, and product management and design.
Sustainability risks
The risk of damage to Westpac’s reputation or financial performance due to failure to recognise or address material existing or
emerging sustainability-related environmental, social or governance issues.
The Group has in place a Sustainability Risk Management Framework that is supported by a suite of key supporting policies
and position statements. These include the Principles for Doing Business, Principles for Responsible Lending, ESG Credit Risk
Policy, Climate Change and Environment Position Statement and Action Plan and sensitive sector position statements, and
Sustainable Supply Chain Management Code of Conduct and Framework, many of which are publicly available. The
Sustainability Risk Management Framework was reviewed and updated in 2014.
Westpac is also a signatory to a number of voluntary principles-based frameworks that guide the integration of ESG-related
issues into investment analysis. These include the Equator Principles covering project finance activities and the Principles for
Responsible Investment covering investment analysis.
Equity risk
The potential for financial loss arising from movements in equity values. Equity risk may be direct, indirect or contingent.
The Group’s direct equity risk arises from principal investments or net trading or underwriting positions in listed or unlisted
equities. It also includes seed funding, debt for equity swaps, equity derivatives and other situations where the value of
Westpac’s investment is directly affected by the change in value of the equity instrument to the full extent of that change.
Our indirect equity risk arises from movements in the equity markets that affect business performance e.g. income derived as a
result of managing or administering equity investments on behalf of other parties where fee income is based on the amount of
Our contingent equity risk arises from normal lending activities secured by or with recourse to listed and/or unlisted equities and
the borrower, or to another equity like source of risk protection. Contingent risk materialises when there is a default, and a
subsequent shortfall from the realisation of equity related assets that is not covered from other sources of recourse.
The Group has in place various policies, limits and controls to manage these risks and the conflicts of interest that can
potentially arise.
Insurance risk
The risk of misestimation of the expected cost of insured events, volatility in the number or severity of insured events, and
misestimation of the cost of incurred claims.
Subsidiaries within the Group undertake life insurance, general insurance and lenders mortgage insurance. They are governed
by independent boards and are subject to separate regulatory oversight and controls. These subsidiaries have comprehensive
reinsurance arrangements in place to transfer risk and protect against catastrophic events. They are capitalised to a level that
exceeds the minimum required by the relevant regulator.
Related entity (contagion) risk
in the Westpac Group.
The risk that problems arising in other Westpac Group members compromise the financial and operational position of the ADI
The graph below compares the actual profit and loss from trading activities on a daily basis to VaR1 over the reporting period:
The risk arising from unfair or inappropriate behaviour or practices of the Westpac Group or its staff.
Traded Risk: Actual Profit and Loss vs. VaR
01 October 2014 to 30 September 2015
30
20
10
-
(10)
(20)
)
m
$
(
s
s
o
L
d
n
a
t
i
f
o
r
P
y
l
i
a
D
l
a
u
t
c
A
(30)
5
10
15
20
25
Daily Value at Risk ($m)
funds under management.
Each point on the graph represents one day’s profit or loss from trading activities. The result is placed on the graph relative to
the associated VaR utilisation. The downward sloping line represents the point where a loss is equal to VaR utilisation.
Therefore, any point below the line represents a back-test exception (i.e. where the loss is greater than VaR).
Operational risk and compliance risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external
events including legal risk but excluding strategic and reputation risk. It also includes, among other things, technology risk,
model risk and outsourcing risk.
The way operational risk is managed has the potential to positively or negatively impact our customers, our employees, our
financial performance and our reputation.
Compliance risk is the risk of legal or regulatory sanction, financial or reputational loss, arising from our failure to abide by the
compliance obligations required of us.
1
Westpac estimates VaR as the potential loss in earnings from adverse market movements and is calculated over a 1-day time horizon to a 99%
confidence level using 1 year of historical data.
108
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
109
The table below depicts the aggregate Value at Risk (VaR), by risk type, for the year ended 30 September:
Consolidated and Parent Entity
2015
2014
2013
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
Includes electricity risk.
1
2
Low Average
Low Average
Low Average
High
18.1
11.8
0.6
5.7
6.7
n/a
23.5
7.0
0.5
0.1
1.7
2.9
n/a
9.0
11.4
3.6
0.3
3.1
4.6
(7.2)
15.8
High
30.7
7.6
0.7
2.9
11.3
n/a
40.2
6.3
1.2
0.1
1.3
5.4
n/a
9.5
15.6
3.0
0.3
2.0
9.2
(8.2)
22.0
High
30.8
5.7
0.8
6.1
13.0
n/a
35.4
9.1
0.5
0.1
1.2
5.8
n/a
12.5
16.7
2.1
0.3
2.9
7.9
(10.7)
19.2
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
The graph below compares the actual profit and loss from trading activities on a daily basis to VaR1 over the reporting period:
Traded Risk: Actual Profit and Loss vs. VaR
01 October 2014 to 30 September 2015
30
20
10
-
(10)
(20)
)
m
$
(
s
s
o
L
d
n
a
t
i
f
o
r
P
y
l
i
a
D
l
a
u
t
c
A
(30)
5
1
108
10
15
20
25
Daily Value at Risk ($m)
Each point on the graph represents one day’s profit or loss from trading activities. The result is placed on the graph relative to
the associated VaR utilisation. The downward sloping line represents the point where a loss is equal to VaR utilisation.
Therefore, any point below the line represents a back-test exception (i.e. where the loss is greater than VaR).
Operational risk and compliance risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external
events including legal risk but excluding strategic and reputation risk. It also includes, among other things, technology risk,
model risk and outsourcing risk.
financial performance and our reputation.
compliance obligations required of us.
The way operational risk is managed has the potential to positively or negatively impact our customers, our employees, our
Compliance risk is the risk of legal or regulatory sanction, financial or reputational loss, arising from our failure to abide by the
Westpac estimates VaR as the potential loss in earnings from adverse market movements and is calculated over a 1-day time horizon to a 99%
confidence level using 1 year of historical data.
Risk and risk management
Compliance is focused on meeting our legal and regulatory obligations in each of the jurisdictions in which we operate by
proactively managing compliance risk. Refer to Westpac’s Corporate Governance Statement for information on our
management of operational and compliance risk.
The Group’s Operational Risk Management Framework and Compliance Management Framework assists all divisions to
achieve their objectives through the effective identification, assessment, measurement, management, monitoring, reporting,
control and mitigation of their risks. The Operational Risk Management Framework defines the organisational and governance
structures, roles and responsibilities, principles, policies, processes and systems that we use to manage operational risk. The
Compliance Management Framework sets out the approach of Westpac Group to managing compliance obligations and
mitigating compliance risk, in order to operate within our compliance appetite and achieve our compliance objective. This is
discussed in further detail in Note 22 to the financial statements.
Other risks
Business risk
The risk associated with the vulnerability of a line of business to changes in the business environment.
Conduct risk
The risk arising from unfair or inappropriate behaviour or practices of the Westpac Group or its staff.
The Westpac Group Code of Conduct describes the standards of conduct expected of our people, both employees and
contractors. It is supported by policies and procedures to manage conduct-related risks including through our dealings in
financial markets, and through managing our statutory and professional obligations to specific clients, including fiduciary and
suitability requirements, and product management and design.
Sustainability risks
The risk of damage to Westpac’s reputation or financial performance due to failure to recognise or address material existing or
emerging sustainability-related environmental, social or governance issues.
The Group has in place a Sustainability Risk Management Framework that is supported by a suite of key supporting policies
and position statements. These include the Principles for Doing Business, Principles for Responsible Lending, ESG Credit Risk
Policy, Climate Change and Environment Position Statement and Action Plan and sensitive sector position statements, and
Sustainable Supply Chain Management Code of Conduct and Framework, many of which are publicly available. The
Sustainability Risk Management Framework was reviewed and updated in 2014.
Westpac is also a signatory to a number of voluntary principles-based frameworks that guide the integration of ESG-related
issues into investment analysis. These include the Equator Principles covering project finance activities and the Principles for
Responsible Investment covering investment analysis.
Equity risk
The potential for financial loss arising from movements in equity values. Equity risk may be direct, indirect or contingent.
The Group’s direct equity risk arises from principal investments or net trading or underwriting positions in listed or unlisted
equities. It also includes seed funding, debt for equity swaps, equity derivatives and other situations where the value of
Westpac’s investment is directly affected by the change in value of the equity instrument to the full extent of that change.
Our indirect equity risk arises from movements in the equity markets that affect business performance e.g. income derived as a
result of managing or administering equity investments on behalf of other parties where fee income is based on the amount of
funds under management.
Our contingent equity risk arises from normal lending activities secured by or with recourse to listed and/or unlisted equities and
the borrower, or to another equity like source of risk protection. Contingent risk materialises when there is a default, and a
subsequent shortfall from the realisation of equity related assets that is not covered from other sources of recourse.
The Group has in place various policies, limits and controls to manage these risks and the conflicts of interest that can
potentially arise.
Insurance risk
The risk of misestimation of the expected cost of insured events, volatility in the number or severity of insured events, and
misestimation of the cost of incurred claims.
Subsidiaries within the Group undertake life insurance, general insurance and lenders mortgage insurance. They are governed
by independent boards and are subject to separate regulatory oversight and controls. These subsidiaries have comprehensive
reinsurance arrangements in place to transfer risk and protect against catastrophic events. They are capitalised to a level that
exceeds the minimum required by the relevant regulator.
Related entity (contagion) risk
The risk that problems arising in other Westpac Group members compromise the financial and operational position of the ADI
in the Westpac Group.
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
109
2
Customer funding conduits
We arrange financing for certain customer transactions through a commercial paper conduit that provides customers with
access to the commercial paper market. As at 30 September 2015, we administered one significant conduit (2014: one), that
was created prior to 1 February 2003, with commercial paper outstanding of $0.8 billion (2014: $1.4 billion). We provide a letter
of credit facility as credit support to the commercial paper issued by the conduit. This facility is a variable interest in the conduit
that we administer and represents a maximum exposure to loss of $86 million as at 30 September 2015 (2014: $147 million).
Risk and risk management
The conduit is consolidated by the Group.
Refer to Note 25 to the financial statements for further details.
Structured finance transactions
We have entered into transactions with structured entities to provide financing to customers or to provide financing to the
Group. Any financing arrangements to customers are entered into under normal lending criteria and are subject to our normal
credit approval processes. The assets arising from these financing activities are generally included in receivables due from
other financial institutions or available-for-sale securities. The liabilities arising from these financing activities are generally
included in payables due to other financial institutions, debt issues or financial liabilities designated at fair value. Exposures in
the form of guarantees or undrawn credit lines are included within contingent liabilities and credit-related commitments.
Refer to Note 38 to the financial statements for details of our superannuation plans and Note 31 for details of our contingent
Other off-balance sheet arrangements
liabilities, contingent assets and credit commitments.
Financial reporting
Internal control over financial reporting
The US Congress passed the Public Company Accounting Reform and Investor Protection Act in July 2002, which is commonly
known as the Sarbanes-Oxley Act of 2002 (SOx). SOx is a wide ranging piece of US legislation concerned largely with financial
reporting and corporate governance. We are obligated to comply with SOx by virtue of being a foreign registrant with the SEC
and we have established procedures designed to comply with all applicable requirements of SOx.
Disclosure controls and procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the US Securities Exchange Act of 1934) as of
Based upon this evaluation, our CEO and CFO have concluded that the design and operation of our disclosure controls and
procedures were effective as of 30 September 2015.
Management’s Report on internal control over financial reporting
Rule 13a-15(a) under the US Securities Exchange Act of 1934 requires us to maintain an effective system of internal control
over financial reporting. Refer to the sections headed ‘Management’s report on internal control over financial reporting’ and
‘Report of independent registered public accounting firm’ in Section 3 for those reports.
Changes in our internal control over financial reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the US Securities
Exchange Act of 1934) for the year ended 30 September 2015 that has been identified that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
The Group has in place a Risk Management Framework and a suite of supporting policies and procedures governing the
control of dealings with, and activities that may be undertaken by, Group members. Controls include the measurement,
approval and monitoring of, and limitations on, the extent of intra-group credit exposures and other forms of parent entity
support, plus requirements related to control of Group badging, product distribution, promotional material, service-level
agreements and managing potential conflicts of interest.
Reputation risk
The risk to earnings or capital arising from negative public opinion resulting from the loss of reputation or public trust
and standing.
Reputation risk can arise from gaps between current and/or emerging stakeholder perceptions and expectations relative to our
current or planned activities, performance or behaviours. It can affect the Group’s brands and businesses positively or
negatively. Stakeholder perceptions can include (but are not limited to) views on financial performance, quality of products or
services, quality of management, leadership and governance, history and heritage and our approach to sustainability, social
responsibility and ethical behaviour.
We have a Reputation Risk Management Framework and key supporting policies in place covering the way we manage
reputation risk as one of our key risks across the Group, including the setting of risk appetite and roles and responsibilities for
risk identification, measurement and management, monitoring and reporting.
Structured entities
We are associated with a number of structured entities in the ordinary course of business, primarily to provide funding and
financial services products to our customers.
Structured entities are typically set up for a single, pre-defined purpose, have a limited life, generally are not operating entities
and do not have employees. The most common form of structured entity involves the acquisition of financial assets by the
structured entity that are funded by the issuance of securities to external investors (securitisation). Repayment of the securities
is determined by the performance of the assets acquired by the structured entity.
Under AAS, a structured entity is consolidated and reported as part of the Group if it is controlled by the parent entity in line
with AASB 10 Consolidated Financial Statements. The definition of control is based on the substance rather than the legal
form. Refer to Note 36 to the financial statements for a description of how we apply the requirements to evaluate whether to
consolidate structured entities and for information on both consolidated and unconsolidated structured entities.
In the ordinary course of business, we have established or sponsored the establishment of structured entities in relation to
securitisation, as detailed below.
30 September 2015.
Covered bond guarantors
Through our covered bond programs we assign our equitable interests in residential mortgage loans to a structured entity
covered bond guarantor which guarantees the obligations of our covered bonds. We provide arm’s length swaps to the covered
bond guarantor in accordance with relevant prudential guidelines. We have no obligation to repurchase any assets from the
covered bond guarantor, other than in certain circumstances where there is a breach of representation or warranty. We may
repurchase loans from the covered bond guarantor at our discretion, subject to the conditions set out in the
transaction documents.
As at 30 September 2015, the carrying value of assets pledged for the covered bond programs for the Group was $40.3 billion
(2014: $39.3 billion).
Refer to Note 25 to the financial statements for further details.
Securitisation structured entities
Through our securitisation programs we assign our equitable interests in assets (in respect of RMBS, principally residential
mortgage loans, and in respect of ABS, principally auto receivables) to structured entities, which issue securities to investors.
We provide arm’s length interest rate swaps and liquidity facilities to the structured entities in accordance with relevant
prudential guidelines. We have no obligation to repurchase any securitisation securities, other than in certain circumstances
(excluding impaired assets) where there is a breach of representation or warranty within 120 days of the initial sale (except in
respect of our program in New Zealand which imposes no such time limitation). We may remove assets from the program
where they cease to conform with the terms and conditions of the securitisation programs or through a program’s
clean-up features.
As at 30 September 2015, our assets securitised through a combination of privately or publicly placed issues to Australian, New
Zealand, European and United States investors was $12.1 billion (2014: $11.6 billion).
Under AAS substantially all of the structured entities involved in our loan securitisation programs are consolidated by
the Group.
Refer to Note 25 to the financial statements for further details.
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Risk and risk management
Customer funding conduits
We arrange financing for certain customer transactions through a commercial paper conduit that provides customers with
access to the commercial paper market. As at 30 September 2015, we administered one significant conduit (2014: one), that
was created prior to 1 February 2003, with commercial paper outstanding of $0.8 billion (2014: $1.4 billion). We provide a letter
of credit facility as credit support to the commercial paper issued by the conduit. This facility is a variable interest in the conduit
that we administer and represents a maximum exposure to loss of $86 million as at 30 September 2015 (2014: $147 million).
The conduit is consolidated by the Group.
Refer to Note 25 to the financial statements for further details.
Structured finance transactions
We have entered into transactions with structured entities to provide financing to customers or to provide financing to the
Group. Any financing arrangements to customers are entered into under normal lending criteria and are subject to our normal
credit approval processes. The assets arising from these financing activities are generally included in receivables due from
other financial institutions or available-for-sale securities. The liabilities arising from these financing activities are generally
included in payables due to other financial institutions, debt issues or financial liabilities designated at fair value. Exposures in
the form of guarantees or undrawn credit lines are included within contingent liabilities and credit-related commitments.
Other off-balance sheet arrangements
Refer to Note 38 to the financial statements for details of our superannuation plans and Note 31 for details of our contingent
liabilities, contingent assets and credit commitments.
Financial reporting
Internal control over financial reporting
The US Congress passed the Public Company Accounting Reform and Investor Protection Act in July 2002, which is commonly
known as the Sarbanes-Oxley Act of 2002 (SOx). SOx is a wide ranging piece of US legislation concerned largely with financial
reporting and corporate governance. We are obligated to comply with SOx by virtue of being a foreign registrant with the SEC
and we have established procedures designed to comply with all applicable requirements of SOx.
Disclosure controls and procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the US Securities Exchange Act of 1934) as of
30 September 2015.
Based upon this evaluation, our CEO and CFO have concluded that the design and operation of our disclosure controls and
procedures were effective as of 30 September 2015.
Management’s Report on internal control over financial reporting
Rule 13a-15(a) under the US Securities Exchange Act of 1934 requires us to maintain an effective system of internal control
over financial reporting. Refer to the sections headed ‘Management’s report on internal control over financial reporting’ and
‘Report of independent registered public accounting firm’ in Section 3 for those reports.
Changes in our internal control over financial reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the US Securities
Exchange Act of 1934) for the year ended 30 September 2015 that has been identified that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
The Group has in place a Risk Management Framework and a suite of supporting policies and procedures governing the
control of dealings with, and activities that may be undertaken by, Group members. Controls include the measurement,
approval and monitoring of, and limitations on, the extent of intra-group credit exposures and other forms of parent entity
support, plus requirements related to control of Group badging, product distribution, promotional material, service-level
agreements and managing potential conflicts of interest.
Reputation risk
and standing.
The risk to earnings or capital arising from negative public opinion resulting from the loss of reputation or public trust
Reputation risk can arise from gaps between current and/or emerging stakeholder perceptions and expectations relative to our
current or planned activities, performance or behaviours. It can affect the Group’s brands and businesses positively or
negatively. Stakeholder perceptions can include (but are not limited to) views on financial performance, quality of products or
services, quality of management, leadership and governance, history and heritage and our approach to sustainability, social
responsibility and ethical behaviour.
We have a Reputation Risk Management Framework and key supporting policies in place covering the way we manage
reputation risk as one of our key risks across the Group, including the setting of risk appetite and roles and responsibilities for
risk identification, measurement and management, monitoring and reporting.
Structured entities
financial services products to our customers.
We are associated with a number of structured entities in the ordinary course of business, primarily to provide funding and
Structured entities are typically set up for a single, pre-defined purpose, have a limited life, generally are not operating entities
and do not have employees. The most common form of structured entity involves the acquisition of financial assets by the
structured entity that are funded by the issuance of securities to external investors (securitisation). Repayment of the securities
is determined by the performance of the assets acquired by the structured entity.
Under AAS, a structured entity is consolidated and reported as part of the Group if it is controlled by the parent entity in line
with AASB 10 Consolidated Financial Statements. The definition of control is based on the substance rather than the legal
form. Refer to Note 36 to the financial statements for a description of how we apply the requirements to evaluate whether to
consolidate structured entities and for information on both consolidated and unconsolidated structured entities.
In the ordinary course of business, we have established or sponsored the establishment of structured entities in relation to
securitisation, as detailed below.
Covered bond guarantors
Through our covered bond programs we assign our equitable interests in residential mortgage loans to a structured entity
covered bond guarantor which guarantees the obligations of our covered bonds. We provide arm’s length swaps to the covered
bond guarantor in accordance with relevant prudential guidelines. We have no obligation to repurchase any assets from the
covered bond guarantor, other than in certain circumstances where there is a breach of representation or warranty. We may
repurchase loans from the covered bond guarantor at our discretion, subject to the conditions set out in the
As at 30 September 2015, the carrying value of assets pledged for the covered bond programs for the Group was $40.3 billion
transaction documents.
(2014: $39.3 billion).
Refer to Note 25 to the financial statements for further details.
Securitisation structured entities
Through our securitisation programs we assign our equitable interests in assets (in respect of RMBS, principally residential
mortgage loans, and in respect of ABS, principally auto receivables) to structured entities, which issue securities to investors.
We provide arm’s length interest rate swaps and liquidity facilities to the structured entities in accordance with relevant
prudential guidelines. We have no obligation to repurchase any securitisation securities, other than in certain circumstances
(excluding impaired assets) where there is a breach of representation or warranty within 120 days of the initial sale (except in
respect of our program in New Zealand which imposes no such time limitation). We may remove assets from the program
where they cease to conform with the terms and conditions of the securitisation programs or through a program’s
clean-up features.
the Group.
As at 30 September 2015, our assets securitised through a combination of privately or publicly placed issues to Australian, New
Zealand, European and United States investors was $12.1 billion (2014: $11.6 billion).
Under AAS substantially all of the structured entities involved in our loan securitisation programs are consolidated by
Refer to Note 25 to the financial statements for further details.
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111
2
Other Westpac business information
Employees
The number of employees in each area of business as at 30 September1:
Westpac RBB
St.George
BTFG
WIB
Westpac New Zealand
Other
Total employees
1 Total employees includes full-time, pro-rata part-time, overtime, temporary and contract staff.
2 Prior comparative periods have been restated to reflect business structures changes in 2015.
2015
9,397
5,396
4,041
1,710
4,375
10,322
35,241
20132
9,992
5,185
4,076
1,546
4,481
10,317
35,597
20142
10,052
5,492
4,062
1,643
4,342
10,782
36,373
Other Westpac business information
Auditor’s remuneration, including goods and services tax, to the external auditor for the years ended 30 September 2015 and
Auditor’s remuneration
2014 is provided in Note 39 to the financial statements.
Audit related services
Westpac Group Secretariat monitors the application of the pre-approval process in respect of audit, audit-related and non-audit
services provided by PricewaterhouseCoopers (PwC) and promptly brings to the attention of the BAC any exceptions that need
to be approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. The pre-approval guidelines are
communicated to Westpac’s divisions through publication on the Westpac intranet.
During the year ended 30 September 2015, there were no fees paid by Westpac to PwC that required approval by the BAC
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
2015 v 2014
Total employees decreased by 1,132 compared to 30 September 2014, from the partial sale and subsequent deconsolidation of
BTIM (237), the sale of operations in Cook Islands, Samoa and Tonga (201), and delivery of productivity programs. These were
partially offset by expansion in Asia (62) and additional Bank of Melbourne employees (79).
Property
We occupy premises primarily in Australia, New Zealand and the Pacific Islands including 1,430 branches, (2014: 1,534) as at
30 September 2015. As at 30 September 2015, we owned approximately 2.0% (2014: 2.0%) of the premises we occupied in
Australia, none (2014: none) in New Zealand and 38% (2014: 54%) in the Pacific Islands. The remainder of premises are held
under commercial lease with the terms generally averaging five years. As at 30 September 2015, the carrying value of our
directly owned premises and sites was approximately $113 million (2014: $228 million).
Westpac Place in the Sydney CBD is the Group’s head office. A new 12 year lease is currently under negotiation to continue to
occupy 275 Kent Street and to allow the early exit of levels 24-32.
We continue a corporate presence in Kogarah, in the Sydney metro area, which is a key corporate office of St.George. The
Kogarah office has a 2,319 seat capacity and is home to “The Hive”, our innovation centre. A lease commitment at this site
extends to 2021 with five five-year options to extend.
In November 2011, an Agreement for Lease for part of 150 Collins Street, Melbourne, was executed. The term of the lease is
12 years. Westpac’s first fully Agile workspace environment was opened in October 2015, with 1,000 staff now occupying our
new Melbourne Head Office.
In June 2013, an Agreement for Lease was executed with Westpac as anchor tenant for the T2 Tower at the Barangaroo South
development. The term of the lease is 15 years. Two major construction milestones have been achieved which resulted in
handing to Westpac the Ground Floor and Levels 1-15 and levels 17-28.
Relocation to Barangaroo began in early August 2015. By the end of February 2016 close to 6,000 personnel are expected to
move to Barangaroo.
‘Westpac on Takutai Square’ is Westpac New Zealand’s head office, located at the Eastern end of Britomart Precinct near
Customs Street in Auckland, contains 24,510 square metres of office space across two buildings and has a capacity of
approximately 2,110 seats. A lease commitment at this site extends to 2021, with two six-year options to extend.
Significant long term agreements
Westpac has no individual contracts, other than contracts entered into in the ordinary course of business, that would constitute
a material contract.
Related party disclosures
Details of our related party disclosures are set out in Note 40 to the financial statements and details of Directors’ interests in
securities are set out in the Remuneration Report included in the Directors’ Report. The related party disclosures relate
principally to transactions with our Directors and Director-related parties as we do not have individually significant shareholders
and our transactions with other related parties are not significant.
Other than as disclosed in Note 40 to the financial statements and the Remuneration Report, if applicable, loans made to
parties related to Directors and other key management personnel of Westpac are made in the ordinary course of business on
normal terms and conditions (including interest rates and collateral). Loans are made on the same terms and conditions
(including interest rates and collateral) as apply to other employees and certain customers in accordance with established
policy. These loans do not involve more than the normal risk of collectability or present any other unfavourable features.
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113
Other Westpac business information
Auditor’s remuneration
Auditor’s remuneration, including goods and services tax, to the external auditor for the years ended 30 September 2015 and
2014 is provided in Note 39 to the financial statements.
Audit related services
Westpac Group Secretariat monitors the application of the pre-approval process in respect of audit, audit-related and non-audit
services provided by PricewaterhouseCoopers (PwC) and promptly brings to the attention of the BAC any exceptions that need
to be approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. The pre-approval guidelines are
communicated to Westpac’s divisions through publication on the Westpac intranet.
During the year ended 30 September 2015, there were no fees paid by Westpac to PwC that required approval by the BAC
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Other Westpac business information
Employees
The number of employees in each area of business as at 30 September1:
2015
9,397
5,396
4,041
1,710
4,375
10,322
35,241
20142
10,052
5,492
4,062
1,643
4,342
10,782
36,373
20132
9,992
5,185
4,076
1,546
4,481
10,317
35,597
Westpac RBB
St.George
BTFG
WIB
Other
Westpac New Zealand
Total employees
2015 v 2014
Property
1 Total employees includes full-time, pro-rata part-time, overtime, temporary and contract staff.
2 Prior comparative periods have been restated to reflect business structures changes in 2015.
Total employees decreased by 1,132 compared to 30 September 2014, from the partial sale and subsequent deconsolidation of
BTIM (237), the sale of operations in Cook Islands, Samoa and Tonga (201), and delivery of productivity programs. These were
partially offset by expansion in Asia (62) and additional Bank of Melbourne employees (79).
We occupy premises primarily in Australia, New Zealand and the Pacific Islands including 1,430 branches, (2014: 1,534) as at
30 September 2015. As at 30 September 2015, we owned approximately 2.0% (2014: 2.0%) of the premises we occupied in
Australia, none (2014: none) in New Zealand and 38% (2014: 54%) in the Pacific Islands. The remainder of premises are held
under commercial lease with the terms generally averaging five years. As at 30 September 2015, the carrying value of our
directly owned premises and sites was approximately $113 million (2014: $228 million).
Westpac Place in the Sydney CBD is the Group’s head office. A new 12 year lease is currently under negotiation to continue to
occupy 275 Kent Street and to allow the early exit of levels 24-32.
We continue a corporate presence in Kogarah, in the Sydney metro area, which is a key corporate office of St.George. The
Kogarah office has a 2,319 seat capacity and is home to “The Hive”, our innovation centre. A lease commitment at this site
extends to 2021 with five five-year options to extend.
In November 2011, an Agreement for Lease for part of 150 Collins Street, Melbourne, was executed. The term of the lease is
12 years. Westpac’s first fully Agile workspace environment was opened in October 2015, with 1,000 staff now occupying our
new Melbourne Head Office.
In June 2013, an Agreement for Lease was executed with Westpac as anchor tenant for the T2 Tower at the Barangaroo South
development. The term of the lease is 15 years. Two major construction milestones have been achieved which resulted in
handing to Westpac the Ground Floor and Levels 1-15 and levels 17-28.
Relocation to Barangaroo began in early August 2015. By the end of February 2016 close to 6,000 personnel are expected to
move to Barangaroo.
‘Westpac on Takutai Square’ is Westpac New Zealand’s head office, located at the Eastern end of Britomart Precinct near
Customs Street in Auckland, contains 24,510 square metres of office space across two buildings and has a capacity of
approximately 2,110 seats. A lease commitment at this site extends to 2021, with two six-year options to extend.
Westpac has no individual contracts, other than contracts entered into in the ordinary course of business, that would constitute
Significant long term agreements
a material contract.
Related party disclosures
Details of our related party disclosures are set out in Note 40 to the financial statements and details of Directors’ interests in
securities are set out in the Remuneration Report included in the Directors’ Report. The related party disclosures relate
principally to transactions with our Directors and Director-related parties as we do not have individually significant shareholders
and our transactions with other related parties are not significant.
Other than as disclosed in Note 40 to the financial statements and the Remuneration Report, if applicable, loans made to
parties related to Directors and other key management personnel of Westpac are made in the ordinary course of business on
normal terms and conditions (including interest rates and collateral). Loans are made on the same terms and conditions
(including interest rates and collateral) as apply to other employees and certain customers in accordance with established
policy. These loans do not involve more than the normal risk of collectability or present any other unfavourable features.
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2
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114
2015 Westpac Group Annual Report
Note 1
Basis of preparation and critical accounting
Note 24 Offsetting financial assets and financial liabilities
Financial statements
Income statements
Statements of comprehensive income
Balance sheets
Statements of changes in equity
Cash flow statements
Notes to the financial statements
assumptions and estimates
Financial performance
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Segment reporting
Net interest income
Non-interest income
Operating expenses
Impairment charges
Income tax
Earnings per share
Average balance sheet and interest rates
Financial assets and financial liabilities
Note 10 Receivables due from other financial institutions
Note 11 Trading securities and financial assets
designated at fair value
Note 12 Available-for-sale securities
Note 13 Loans
Note 14 Provisions for impairment charges
Note 15 Life insurance assets and life
insurance liabilities
Note 16 Payables due to other financial institutions
Note 17 Deposits and other borrowings
Note 18 Other financial liabilities at fair value through
income statement
Note 19 Debt issues
Note 20 Loan capital
Note 21 Derivative financial instruments
Note 22 Financial risk
Note 23 Fair values of financial assets and financial
liabilities
Statutory statements
Directors’ declaration
Management’s report on internal control over financial reporting
Independent auditor’s report to the members of Westpac Banking Corporation
Report of independent registered public accounting firm
and collateral arrangements
Note 25 Securitisation and covered bonds
Other assets, other liabilities, commitments and
contingencies
Note 26 Goodwill and other intangible assets
Note 27 Other assets
Note 28 Provisions
Note 29 Other liabilities
Note 30 Operating lease commitments
Note 31 Contingent liabilities, contingent assets and
credit commitments
Capital and dividends
Note 32 Shareholders’ equity
Note 33 Capital adequacy
Note 34 Dividends
Group structure
Note 35
Investments in subsidiaries and associates
Note 36 Structured entities
Employee benefits
Note 37 Share-based payments
Note 38 Superannuation commitments
Other
Note 39 Auditor’s remuneration
Note 40 Related party disclosures
Note 41 Notes to the cash flow statements
Note 42 Subsequent events
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114
2015 Westpac Group Annual Report
Financial statements
Income statements
Statements of comprehensive income
Balance sheets
Statements of changes in equity
Cash flow statements
Notes to the financial statements
Note 1
Basis of preparation and critical accounting
assumptions and estimates
Financial performance
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Segment reporting
Net interest income
Non-interest income
Operating expenses
Impairment charges
Income tax
Earnings per share
Average balance sheet and interest rates
Financial assets and financial liabilities
Note 10 Receivables due from other financial institutions
Note 11 Trading securities and financial assets
designated at fair value
Note 12 Available-for-sale securities
Note 13 Loans
Note 14 Provisions for impairment charges
Note 15 Life insurance assets and life
insurance liabilities
Note 16 Payables due to other financial institutions
Note 17 Deposits and other borrowings
Note 18 Other financial liabilities at fair value through
income statement
Note 19 Debt issues
Note 20 Loan capital
Note 21 Derivative financial instruments
Note 22 Financial risk
Note 23 Fair values of financial assets and financial
liabilities
Statutory statements
Directors’ declaration
Management’s report on internal control over financial reporting
Independent auditor’s report to the members of Westpac Banking Corporation
Report of independent registered public accounting firm
Note 24 Offsetting financial assets and financial liabilities
and collateral arrangements
Note 25 Securitisation and covered bonds
Other assets, other liabilities, commitments and
contingencies
Note 26 Goodwill and other intangible assets
Note 27 Other assets
Note 28 Provisions
Note 29 Other liabilities
Note 30 Operating lease commitments
Note 31 Contingent liabilities, contingent assets and
credit commitments
Capital and dividends
Note 32 Shareholders’ equity
Note 33 Capital adequacy
Note 34 Dividends
Group structure
Note 35
Note 36 Structured entities
Investments in subsidiaries and associates
Employee benefits
Note 37 Share-based payments
Note 38 Superannuation commitments
Other
Note 39 Auditor’s remuneration
Note 40 Related party disclosures
Note 41 Notes to the cash flow statements
Note 42 Subsequent events
3
Financial statements
Income statements for the years ended 30 September
Westpac Banking Corporation
$m
Interest income
Interest expense
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net profit for the year
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
Earnings per share (cents)
Basic
Diluted
Consolidated
Parent Entity
Note
2015
2014
2013
2015
2014
$m
Statements of comprehensive income for the years ended 30 September
Westpac Banking Corporation
3
3
4
5
6
7
8
8
32,295
32,248
33,009
32,043
32,076
(18,028)
(18,706)
(20,188)
(20,502)
(21,012)
Net profit for the year
Other comprehensive income
14,267
7,375
21,642
(9,473)
(753)
11,416
(3,348)
8,068
(56)
8,012
13,542
6,395
19,937
(8,547)
(650)
10,740
(3,115)
7,625
(64)
7,561
256.3
249.3
243.7
238.7
12,821
5,774
18,595
(7,976)
(847)
9,772
11,541
5,722
17,263
(7,773)
(622)
8,868
11,064
5,905
16,969
(6,939)
(561)
9,469
(2,947)
(2,121)
(2,235)
6,747
7,234
-
-
6,747
7,234
6,825
(74)
6,751
218.3
213.5
The above income statements should be read in conjunction with the accompanying notes.
Financial statements
Consolidated
Parent Entity
Note
2015
8,068
2014
7,625
2013
6,825
2015
6,747
2014
7,234
(148)
(73)
(59)
(131)
15
67
54
-
5
160
111
1
263
(94)
(197)
41
61
(52)
47
-
-
11
(47)
33
57
(104)
(51)
(234)
114
15
85
(11)
-
44
247
162
(152)
(21)
140
(167)
33
53
8
-
-
160
115
169
8,069
7,658
6,987
6,916
7,289
8,013
7,594
6,913
6,916
7,289
56
64
74
-
8,069
7,658
6,987
6,916
7,289
222
9
(239)
90
14
(48)
45
11
(49)
55
-
-
-
Items that may be reclassified subsequently to profit or loss
Gains/(losses) on available-for-sale securities:
Recognised in equity
Transferred to income statements
Gains/(losses) on cash flow hedging instruments:
Recognised in equity
Transferred to income statements
Exchange differences on translation of foreign operations
Income tax on items taken to or transferred from equity:
Available-for-sale securities reserve
Cash flow hedging reserve
Foreign currency translation reserve
Share of associates' other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Own credit adjustment on financial liabilities designated at fair value (net of tax)
Remeasurement of defined benefit obligation recognised in equity (net of tax)
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Attributable to:
Owners of Westpac Banking Corporation
Non-controlling interests
Total comprehensive income for the year
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
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117
Financial statements
Income statements for the years ended 30 September
Westpac Banking Corporation
$m
Interest income
Interest expense
Net interest income
Non-interest income
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net profit for the year
Earnings per share (cents)
Basic
Diluted
Net operating income before operating expenses and impairment charges
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
3
3
4
5
6
7
8
8
11,541
5,722
17,263
(7,773)
(622)
8,868
11,064
5,905
16,969
(6,939)
(561)
9,469
6,747
7,234
-
-
6,747
7,234
(2,947)
(2,121)
(2,235)
14,267
7,375
21,642
(9,473)
(753)
11,416
(3,348)
8,068
(56)
8,012
13,542
6,395
19,937
(8,547)
(650)
10,740
(3,115)
7,625
(64)
7,561
256.3
249.3
243.7
238.7
12,821
5,774
18,595
(7,976)
(847)
9,772
6,825
(74)
6,751
218.3
213.5
The above income statements should be read in conjunction with the accompanying notes.
Consolidated
Parent Entity
Note
2015
2014
2013
2015
2014
$m
32,295
32,248
33,009
32,043
32,076
(18,028)
(18,706)
(20,188)
(20,502)
(21,012)
Net profit for the year
Other comprehensive income
Statements of comprehensive income for the years ended 30 September
Westpac Banking Corporation
Items that may be reclassified subsequently to profit or loss
Gains/(losses) on available-for-sale securities:
Recognised in equity
Transferred to income statements
Gains/(losses) on cash flow hedging instruments:
Recognised in equity
Transferred to income statements
Exchange differences on translation of foreign operations
Income tax on items taken to or transferred from equity:
Available-for-sale securities reserve
Cash flow hedging reserve
Foreign currency translation reserve
Share of associates' other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Own credit adjustment on financial liabilities designated at fair value (net of tax)
Remeasurement of defined benefit obligation recognised in equity (net of tax)
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Attributable to:
Owners of Westpac Banking Corporation
Non-controlling interests
Total comprehensive income for the year
Financial statements
Consolidated
Parent Entity
Note
2015
8,068
2014
7,625
2013
6,825
2015
6,747
2014
7,234
(148)
(73)
(59)
(131)
15
67
54
-
5
160
111
1
263
(94)
41
(197)
61
(52)
47
-
-
11
(47)
33
57
(104)
(51)
(234)
114
15
85
(11)
-
44
247
162
(152)
(21)
140
(167)
33
53
8
-
-
160
115
169
222
9
90
(239)
14
(48)
45
-
-
11
(49)
55
8,069
7,658
6,987
6,916
7,289
8,013
7,594
6,913
6,916
7,289
56
64
74
-
-
8,069
7,658
6,987
6,916
7,289
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
116
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
117
3
Balance sheets as at 30 September
Westpac Banking Corporation
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans
Life insurance assets
Regulatory deposits with central banks overseas
Due from subsidiaries
Investments in subsidiaries
Investments in associates
Property and equipment
Deferred tax assets
Goodwill and other intangible assets
Other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Current tax liabilities
Life insurance liabilities
Due to subsidiaries
Provisions
Deferred tax liabilities
Other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets
Shareholders’ equity
Share capital:
Ordinary share capital
Treasury shares and RSP treasury shares
Reserves
Retained profits
Convertible debentures
Total equity attributable to owners of Westpac Banking Corporation
Non-controlling interests
Total shareholders’ equity and non-controlling interests
Consolidated
Parent Entity
Consolidated
Note
2015
2014
2015
2014
Statements of changes in equity as at 30 September
Westpac Banking Corporation
41
10
11
21
12
13
15
35
7
26
27
16
17
18
21
19
15
28
7
29
20
32
32
32
32
32
14,770
9,583
27,454
48,173
54,833
25,760
7,424
45,909
41,404
36,024
13,372
8,741
24,896
47,540
50,344
23,400
5,483
44,324
41,307
32,009
623,316
580,343
546,075
505,604
13,125
1,309
-
-
756
1,592
1,377
11,574
4,294
11,007
1,528
-
1,152
-
1,389
-
-
-
1,452
1,397
12,606
5,988
145,560
140,098
4,585
-
1,354
1,463
9,180
3,294
4,687
-
1,113
1,322
9,715
5,017
812,156
770,842
857,556
815,468
18,731
475,328
9,226
48,304
171,054
539
11,559
-
1,489
55
8,116
744,401
13,840
758,241
53,915
29,280
(385)
1,031
23,172
-
53,098
817
53,915
18,636
460,822
19,236
39,539
152,251
662
9,637
18,133
425,509
9,226
48,050
144,715
518
-
18,411
414,183
19,155
39,141
127,846
614
-
-
143,885
135,066
1,618
55
8,191
710,647
10,858
721,505
49,337
26,943
(304)
1,176
20,641
-
48,456
881
49,337
1,332
-
6,433
797,801
13,840
811,641
45,915
1,403
-
6,409
762,228
10,858
773,086
42,382
29,280
26,943
(308)
940
15,248
755
45,915
-
(239)
921
14,002
755
42,382
-
45,915
42,382
Exercise of employee share options and rights
The above balance sheets should be read in conjunction with the accompanying notes.
Financial statements
Share
capital
(Note 32)
26,163
Reserves
(Note 32)
Retained
Banking
profits
Corporation
interests
(Note 32)
958
17,174
44,295
1,970
Total equity
attributable
to owners
Total
shareholders'
Non-
equity and
of Westpac
controlling
non-
controlling
interests
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
531
124
173
(162)
(61)
605
26,768
49
(127)
(51)
(129)
26,639
1,412
1,000
-
16
(91)
(81)
2,256
28,895
(129)
(129)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
130
(6)
124
953
-
69
69
156
(2)
154
1,176
(270)
(270)
141
(16)
125
1,031
6,751
291
7,042
(5,249)
(310)
296
(5,263)
18,953
7,561
(36)
7,525
(5,527)
(310)
(5,837)
20,641
8,012
271
8,283
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,751
162
6,913
(5,249)
(310)
531
296
130
124
173
(162)
(61)
-
(6)
(4,534)
46,674
7,561
33
7,594
(5,527)
(310)
156
49
(127)
(51)
(2)
(5,812)
48,456
8,012
1
8,013
1,412
1,000
141
16
(91)
(81)
-
(16)
(5,752)
(5,752)
(5,752)
23,172
(3,371)
53,098
(1,137)
(44)
(1,181)
863
64
64
74
74
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(46)
(46)
881
56
56
(105)
(15)
(120)
817
46,265
6,825
162
6,987
(5,249)
(310)
531
296
130
124
173
(162)
(61)
(1,137)
(50)
(5,715)
47,537
7,625
33
7,658
(5,527)
(310)
156
49
(127)
(51)
(48)
(5,858)
49,337
8,068
1
8,069
(5,752)
1,412
1,000
141
16
(91)
(81)
(105)
(31)
(3,491)
53,915
$m
Balance at 1 October 2012
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Special dividends on ordinary shares2
Dividend reinvestment plan
Realised gain on redemption of 2003 TPS
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Redemption of Westpac SPS
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Redemption of 2003 TPS
Other
Total contributions and distributions
Balance at 30 September 2013
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Special dividends on ordinary shares2
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2014
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Dividend reinvestment plan
Dividend reinvestment plan underwrite
Other equity movements
Share based payment arrangements
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Disposal of controlled entities
Other
Total contributions and distributions
Balance at 30 September 2015
118
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
119
1 2015 comprises 2015 interim dividend 93 cents and 2014 final dividend 92 cents per share (2014: 2014 interim dividend 90 cents and 2013 final
dividend 88 cents, 2013: 2013 interim dividend 86 cents and 2012 final dividend 84 cents), all fully franked at 30%.
2 2015 comprises nil cents per share (2014: 10 cents per share, 2013: 10 cents per share) fully franked at 30%.
Balance sheets as at 30 September
Westpac Banking Corporation
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Regulatory deposits with central banks overseas
Derivative financial instruments
Available-for-sale securities
Loans
Life insurance assets
Due from subsidiaries
Investments in subsidiaries
Investments in associates
Property and equipment
Deferred tax assets
Goodwill and other intangible assets
Other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Total liabilities excluding loan capital
Debt issues
Current tax liabilities
Life insurance liabilities
Due to subsidiaries
Provisions
Deferred tax liabilities
Other liabilities
Loan capital
Total liabilities
Net assets
Shareholders’ equity
Share capital:
Ordinary share capital
Reserves
Retained profits
Convertible debentures
Non-controlling interests
Treasury shares and RSP treasury shares
Total equity attributable to owners of Westpac Banking Corporation
623,316
580,343
546,075
505,604
812,156
770,842
857,556
815,468
171,054
152,251
144,715
127,846
-
143,885
135,066
1,332
1,403
41
10
11
21
12
13
15
35
7
26
27
16
17
18
21
19
15
28
7
29
20
32
32
32
32
32
14,770
9,583
27,454
48,173
54,833
13,125
1,309
-
-
756
1,592
1,377
11,574
4,294
18,731
475,328
9,226
48,304
539
11,559
-
1,489
55
8,116
744,401
13,840
758,241
53,915
29,280
(385)
1,031
23,172
-
53,098
817
53,915
25,760
7,424
45,909
41,404
36,024
11,007
1,528
-
-
-
1,452
1,397
12,606
5,988
18,636
460,822
19,236
39,539
662
9,637
1,618
55
8,191
710,647
10,858
721,505
49,337
26,943
(304)
1,176
20,641
-
48,456
881
49,337
13,372
8,741
24,896
47,540
50,344
23,400
5,483
44,324
41,307
32,009
1,152
1,389
145,560
140,098
4,585
4,687
1,354
1,463
9,180
3,294
1,113
1,322
9,715
5,017
18,133
425,509
9,226
48,050
18,411
414,183
19,155
39,141
518
614
-
-
-
-
-
-
-
-
6,433
797,801
13,840
811,641
45,915
6,409
762,228
10,858
773,086
42,382
29,280
26,943
(308)
940
15,248
755
45,915
-
(239)
921
14,002
755
42,382
-
Consolidated
Parent Entity
Consolidated
Note
2015
2014
2015
2014
Statements of changes in equity as at 30 September
Westpac Banking Corporation
$m
Balance at 1 October 2012
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Special dividends on ordinary shares2
Dividend reinvestment plan
Realised gain on redemption of 2003 TPS
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Redemption of Westpac SPS
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Redemption of 2003 TPS
Other
Total contributions and distributions
Balance at 30 September 2013
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Special dividends on ordinary shares2
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2014
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Dividend reinvestment plan
Dividend reinvestment plan underwrite
Other equity movements
Share based payment arrangements
Total shareholders’ equity and non-controlling interests
45,915
42,382
Exercise of employee share options and rights
The above balance sheets should be read in conjunction with the accompanying notes.
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Disposal of controlled entities
Other
Total contributions and distributions
Share
capital
(Note 32)
26,163
-
-
-
-
-
531
-
-
124
173
(162)
(61)
-
-
605
26,768
-
-
-
-
-
-
49
(127)
(51)
-
(129)
26,639
-
-
-
-
1,412
1,000
-
16
(91)
(81)
-
-
2,256
Financial statements
Total equity
attributable
to owners
of Westpac
Banking
Corporation
Total
shareholders'
equity and
non-
controlling
interests
Non-
controlling
interests
(Note 32)
Reserves
(Note 32)
Retained
profits
958
-
(129)
(129)
-
-
-
-
130
-
-
-
-
-
(6)
124
953
-
69
69
-
-
156
-
-
-
(2)
154
1,176
-
(270)
(270)
-
-
-
141
-
-
-
-
(16)
125
17,174
44,295
1,970
6,751
291
7,042
6,751
162
6,913
(5,249)
(5,249)
(310)
-
296
-
-
-
-
-
-
-
(5,263)
18,953
7,561
(36)
7,525
(5,527)
(310)
-
-
-
-
-
(5,837)
20,641
8,012
271
8,283
(310)
531
296
130
124
173
(162)
(61)
-
(6)
(4,534)
46,674
7,561
33
7,594
(5,527)
(310)
156
49
(127)
(51)
(2)
(5,812)
48,456
8,012
1
8,013
(5,752)
(5,752)
-
-
-
-
-
-
-
-
1,412
1,000
141
16
(91)
(81)
-
(16)
(5,752)
(3,371)
74
-
74
-
-
-
-
-
-
-
-
-
(1,137)
(44)
(1,181)
863
64
-
64
-
-
-
-
-
-
(46)
(46)
881
56
-
56
-
-
-
-
-
-
-
(105)
(15)
(120)
46,265
6,825
162
6,987
(5,249)
(310)
531
296
130
124
173
(162)
(61)
(1,137)
(50)
(5,715)
47,537
7,625
33
7,658
(5,527)
(310)
156
49
(127)
(51)
(48)
(5,858)
49,337
8,068
1
8,069
(5,752)
1,412
1,000
141
16
(91)
(81)
(105)
(31)
(3,491)
118
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
119
dividend 88 cents, 2013: 2013 interim dividend 86 cents and 2012 final dividend 84 cents), all fully franked at 30%.
2 2015 comprises nil cents per share (2014: 10 cents per share, 2013: 10 cents per share) fully franked at 30%.
Balance at 30 September 2015
1 2015 comprises 2015 interim dividend 93 cents and 2014 final dividend 92 cents per share (2014: 2014 interim dividend 90 cents and 2013 final
23,172
53,098
28,895
1,031
817
53,915
3
Statements of changes in equity as at 30 September (continued)
Westpac Banking Corporation
Parent
$m
Balance at 1 October 2013
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Special dividends on ordinary shares2
Distributions on convertible debentures
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Total contributions and distributions
Balance at 30 September 2014
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Dividend reinvestment plan
Dividend reinvestment plan underwrite
Distributions on convertible debentures
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Total contributions and distributions
Share
capital
(Note 32)
26,840
-
-
-
-
-
-
-
49
(127)
(58)
(136)
26,704
-
-
-
-
1,412
1,000
-
-
16
(91)
(69)
2,268
Reserves
(Note 32)
Retained
profits
Total equity
attributable
to owners
of Westpac
Banking
Corporation
40,197
7,234
55
7,289
12,666
7,234
(38)
7,196
(5,534)
(5,534)
(310)
(16)
-
-
-
-
(5,860)
14,002
6,747
275
7,022
(310)
(16)
137
49
(127)
(58)
(5,859)
41,627
6,747
169
6,916
(5,762)
(5,762)
-
-
(14)
-
-
-
-
1,412
1,000
(14)
125
16
(91)
(69)
Total
shareholders'
equity and
other equity
instruments
40,952
7,234
55
7,289
(5,534)
(310)
(16)
137
49
(127)
(58)
(5,859)
42,382
6,747
169
6,916
(5,762)
1,412
1,000
(14)
125
16
(91)
(69)
(3,383)
Convertible
debentures
(Note 32)
755
-
-
-
-
-
-
-
-
-
-
-
755
-
-
-
-
-
-
-
-
-
-
-
-
691
-
93
93
-
-
-
137
-
-
-
137
921
-
(106)
(106)
-
-
-
-
125
-
-
-
125
(5,776)
(3,383)
Balance at 30 September 2015
1 2015 comprises 2015 interim dividend 93 cents and 2014 final dividend 92 cents per share (2014: 2014 interim dividend 90 cents and 2013 final
28,972
15,248
45,160
755
940
45,915
dividend 88 cents), all fully franked at 30%.
2 2015 comprises nil cents per share (2014: 10 cents per share) fully franked at 30%.
Both of the above statements of changes in equity should be read in conjunction with the accompanying notes.
120
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
121
Cash flows from operating activities before changes in operating assets and liabilities
7,753
7,091
Cash flow statements1 for the years ended 30 September
Westpac Banking Corporation
Cash flows from operating activities
$m
Interest received
Interest paid
Dividends received excluding life business
Other non-interest income received
Operating expenses paid
Income tax paid excluding life business
Life business:
Receipts from policyholders and customers
Interest and other items of similar nature
Dividends received
Income tax paid
Payments to policyholders and suppliers
Net (increase)/decrease in:
Trading securities and financial assets designated at fair value
Loans
Receivables due from other financial institutions
Life insurance assets and liabilities
Regulatory deposits with central banks overseas
Derivative financial instruments
Other assets
Net increase/(decrease) in:
Other financial liabilities at fair value through income statement
Deposits and other borrowings
Payables due to other financial institutions
Other liabilities
Cash flows from investing activities
Proceeds from available-for-sale securities
Purchase of available-for-sale securities
Net (increase)/decrease in investments in controlled entities
Net movement in amounts due to/from controlled entities
Purchase of intangible assets
Purchase of property and equipment
Proceeds from disposal of property and equipment
Purchase of controlled entity, net of cash acquired
Proceeds from disposal of controlled entities, net of cash disposed
Cash flows from financing activities
Issue of loan capital (net of issue costs)
Redemption of loan capital
Net increase/(decrease) in debt issues
Dividend reinvestment plan underwrite
Proceeds from exercise of employee options
Purchase of shares on exercise of employee options and rights
Shares purchased for delivery of employee share plan
Purchase of RSP treasury shares
Net sale/(purchase) of other treasury shares
Payment of dividends
Payment of distributions to non-controlling interests
Redemption of 2003 Trust Preferred Securities
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents as at the beginning of the year
Cash and cash equivalents as at the end of the year
Financial statements
Consolidated
Parent Entity
Note
2015
2014
2013
2015
2014
32,377
32,136
33,048
32,151
32,029
(18,319)
(18,743)
(20,520)
(20,803)
(21,051)
12
11
10
5,289
5,732
6,618
1,519
3,985
1,651
2,766
(7,502)
(7,327)
(7,139)
(6,072)
(5,848)
(3,322)
(2,660)
(2,691)
(3,027)
(2,456)
1,921
1,694
1,759
33
328
48
297
45
301
(1,754)
(1,723)
(1,912)
(104)
8,959
(123)
9,342
(109)
9,410
-
-
-
-
-
-
-
-
-
-
21,538
1,724
(319)
22,668
1,083
(39,569)
(35,734)
(15,667)
(38,270)
(33,659)
(1,000)
(191)
497
3,932
(156)
126
(511)
(154)
489
(2,108)
3,966
-
511
-
145
11,730
(3,329)
9,126
11,497
(3,028)
95
121
425
729
667
(10,027)
9,079
266
(9,945)
8,992
8,526
34,229
22,155
6,548
32,244
(1,194)
95
9,419
(382)
363
(3)
(1,544)
158
9,280
(423)
8,471
6,768
5,043
4,993
4,910
(26,551)
(12,443)
(11,802)
(22,779)
(10,299)
-
-
(630)
(677)
24
-
648
-
-
-
(664)
(515)
17
(7,744)
41
41
-
-
7
-
-
102
173
3,288
(5,341)
(738)
(304)
(582)
(633)
5
-
16
6,155
1,000
16
(73)
(27)
(69)
-
-
-
-
2,244
1,768
1,958
2,244
-
(385)
(2,244)
3,678 (14,005)
6,826
1,000
16
(73)
(27)
(69)
(12)
(52)
-
-
49
(113)
(27)
(59)
8
(48)
-
124
(174)
-
-
(68)
7
(50)
(805)
(4,340)
(5,837)
(5,028)
(4,364)
(5,860)
5,513
(966)
(20,285)
4,882
(2,107)
(13,743)
12,824
(2,499)
(12,711)
12,714
2,753
1,237
1,675
2,683
25,760
11,699
12,523
23,400
1,177
9,509
41
14,770
25,760
11,699
13,372
23,400
(594)
(397)
11
-
-
1,768
(385)
2,519
-
49
(113)
(27)
(59)
1
-
-
Net cash (used in)/provided by operating activities
41
(541)
28,371
25,580
(2,003)
26,358
Net cash (used in)/provided by investing activities
(18,715)
(14,581)
(7,794)
(15,590)
(11,537)
1 Certain cash flows have been reclassified between operating activities and we have revised comparatives for consistency. These changes have had
no impact on the reported net increase/decrease in cash and cash equivalents.
The above cash flow statements should be read in conjunction with the accompanying notes. Details of the reconciliation of net
cash (used in)/provided by operating activities to net profit for the year are provided in Note 41.
Statements of changes in equity as at 30 September (continued)
Westpac Banking Corporation
Parent
$m
Balance at 1 October 2013
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Special dividends on ordinary shares2
Distributions on convertible debentures
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Total contributions and distributions
Balance at 30 September 2014
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Dividend reinvestment plan
Dividend reinvestment plan underwrite
Distributions on convertible debentures
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
(Acquisition)/Disposal of treasury shares
Total contributions and distributions
Balance at 30 September 2015
Total equity
attributable
to owners
Total
shareholders'
Reserves
(Note 32)
Retained
Banking
debentures
other equity
profits
Corporation
(Note 32)
instruments
of Westpac
Convertible
equity and
691
-
93
93
137
137
921
(106)
(106)
125
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,534)
(5,534)
12,666
7,234
(38)
7,196
(310)
(16)
(5,860)
14,002
6,747
275
7,022
(14)
-
-
-
-
-
-
-
-
-
-
40,197
7,234
55
7,289
(310)
(16)
137
49
(127)
(58)
(5,859)
41,627
6,747
169
6,916
1,412
1,000
(14)
125
16
(91)
(69)
(5,762)
(5,762)
755
755
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
40,952
7,234
55
7,289
(5,534)
(310)
(16)
137
49
(127)
(58)
(5,859)
42,382
6,747
169
6,916
(5,762)
1,412
1,000
(14)
125
16
(91)
(69)
(3,383)
45,915
Share
capital
(Note 32)
26,840
-
-
-
-
-
-
-
-
-
-
-
-
-
49
(127)
(58)
(136)
26,704
1,412
1,000
16
(91)
(69)
2,268
28,972
1 2015 comprises 2015 interim dividend 93 cents and 2014 final dividend 92 cents per share (2014: 2014 interim dividend 90 cents and 2013 final
dividend 88 cents), all fully franked at 30%.
2 2015 comprises nil cents per share (2014: 10 cents per share) fully franked at 30%.
Both of the above statements of changes in equity should be read in conjunction with the accompanying notes.
125
940
(5,776)
15,248
(3,383)
45,160
755
Cash flow statements1 for the years ended 30 September
Westpac Banking Corporation
$m
Cash flows from operating activities
Interest received
Interest paid
Dividends received excluding life business
Other non-interest income received
Operating expenses paid
Income tax paid excluding life business
Life business:
Receipts from policyholders and customers
Interest and other items of similar nature
Dividends received
Payments to policyholders and suppliers
Income tax paid
Cash flows from operating activities before changes in operating assets and liabilities
Net (increase)/decrease in:
Trading securities and financial assets designated at fair value
Loans
Receivables due from other financial institutions
Life insurance assets and liabilities
Regulatory deposits with central banks overseas
Derivative financial instruments
Other assets
Net increase/(decrease) in:
Other financial liabilities at fair value through income statement
Deposits and other borrowings
Payables due to other financial institutions
Other liabilities
Financial statements
Consolidated
Parent Entity
Note
2015
2014
2013
2015
2014
32,377
32,136
33,048
32,151
32,029
(18,319)
(18,743)
(20,520)
(20,803)
(21,051)
12
11
10
5,289
5,732
6,618
1,519
3,985
1,651
2,766
(7,502)
(7,327)
(7,139)
(6,072)
(5,848)
(3,322)
(2,660)
(2,691)
(3,027)
(2,456)
1,921
1,694
1,759
33
328
48
297
45
301
(1,754)
(1,723)
(1,912)
(104)
8,959
(123)
9,342
(109)
9,410
-
-
-
-
-
-
-
-
-
-
7,753
7,091
21,538
1,724
(319)
22,668
1,083
(39,569)
(35,734)
(15,667)
(38,270)
(33,659)
(1,000)
(191)
497
3,932
(156)
126
(511)
(154)
489
(2,108)
3,966
-
511
-
145
11,730
(3,329)
9,126
11,497
(3,028)
95
121
425
729
667
(10,027)
9,079
266
(9,945)
8,992
8,526
34,229
22,155
6,548
32,244
(1,194)
95
9,419
(382)
363
(3)
(1,544)
158
9,280
(423)
Net cash (used in)/provided by operating activities
41
(541)
28,371
25,580
(2,003)
26,358
Cash flows from investing activities
Proceeds from available-for-sale securities
Purchase of available-for-sale securities
Net (increase)/decrease in investments in controlled entities
Net movement in amounts due to/from controlled entities
Purchase of intangible assets
Purchase of property and equipment
Proceeds from disposal of property and equipment
Purchase of controlled entity, net of cash acquired
Proceeds from disposal of controlled entities, net of cash disposed
8,471
6,768
5,043
4,993
4,910
(26,551)
(12,443)
(11,802)
(22,779)
(10,299)
-
-
(630)
(677)
24
-
648
-
-
(664)
(515)
17
(7,744)
-
-
-
102
173
3,288
(5,341)
(738)
(304)
(582)
(633)
7
-
-
5
-
16
(594)
(397)
11
-
-
41
41
Net cash (used in)/provided by investing activities
(18,715)
(14,581)
(7,794)
(15,590)
(11,537)
Cash flows from financing activities
Issue of loan capital (net of issue costs)
Redemption of loan capital
Net increase/(decrease) in debt issues
Dividend reinvestment plan underwrite
Proceeds from exercise of employee options
Purchase of shares on exercise of employee options and rights
Shares purchased for delivery of employee share plan
Purchase of RSP treasury shares
Net sale/(purchase) of other treasury shares
Payment of dividends
Payment of distributions to non-controlling interests
Redemption of 2003 Trust Preferred Securities
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents as at the beginning of the year
2,244
1,768
1,958
2,244
-
(385)
(2,244)
6,826
1,000
16
(73)
(27)
(69)
(12)
3,678 (14,005)
-
49
(113)
(27)
(59)
8
-
124
(174)
-
(68)
7
-
6,155
1,000
16
(73)
(27)
(69)
-
1,768
(385)
2,519
-
49
(113)
(27)
(59)
1
(4,340)
(5,837)
(5,028)
(4,364)
(5,860)
(52)
-
(48)
-
(50)
(805)
-
-
5,513
(13,743)
(966)
12,824
(20,285)
(2,499)
4,882
(12,711)
2,753
1,237
1,675
2,683
25,760
11,699
12,523
23,400
-
-
(2,107)
12,714
1,177
9,509
120
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
121
no impact on the reported net increase/decrease in cash and cash equivalents.
The above cash flow statements should be read in conjunction with the accompanying notes. Details of the reconciliation of net
cash (used in)/provided by operating activities to net profit for the year are provided in Note 41.
Cash and cash equivalents as at the end of the year
23,400
1 Certain cash flows have been reclassified between operating activities and we have revised comparatives for consistency. These changes have had
13,372
14,770
25,760
11,699
41
3
Note 1. Basis of preparation and critical accounting assumptions and estimates
This financial report of Westpac Banking Corporation (the Parent Entity), together with its controlled entities (the Group or
Westpac), for the year ended 30 September 2015 was authorised for issue by the Board of Directors on 2 November 2015. The
Directors have the power to amend and reissue the financial report.
The principal accounting policies adopted in the preparation of the financial report are set out below and in the relevant notes to
the financial statements. These policies have been consistently applied to all the financial years presented, unless
otherwise stated.
a. Basis of preparation
(i) Basis of accounting
This financial report is a general purpose financial report prepared in accordance with the requirements for an authorised
deposit-taking institution under the Banking Act 1959 (as amended), Australian Accounting Standards (AAS) and
Interpretations as issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Westpac
Banking Corporation is a for-profit entity for the purposes of preparing this financial report.
The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB) and Interpretations as issued by the IFRS Interpretations Committee (IFRIC).
This financial report also includes additional disclosures required for foreign registrants by the United States Securities and
Exchange Commission.
The Group’s significant accounting policies relating to specific financial statement items are set out under the relevant notes.
Accounting policies that affect the financial statements as a whole and details of critical accounting assumptions and estimates
are set out below. Details of changes in accounting standards impacting the financial statements are set out in
Note (a) (v) below.
(ii) Historical cost convention
The financial report has been prepared under the historical cost convention, as modified by applying fair value accounting to
available-for-sale securities, and financial assets and liabilities (including derivative instruments) classified at fair value through
income statement.
(iii) Comparative revisions
Comparative information has been revised where appropriate to conform to changes in presentation in the current year to
enhance comparability.
(iv) Rounding of amounts
All amounts have been rounded in accordance with ASIC Class Order 98/100, to the nearest million dollars, unless
otherwise stated.
(v) Changes in accounting standards
The following standards and amendments have been adopted in the 2015 financial year:
AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities
The amendment was applied by the Group from 1 October 2014 and adds application guidance to AASB 132 Financial
Instruments: Presentation. It clarified the conditions for applying the offsetting criteria of AASB 132 including what
constitutes a currently legally enforceable right of set-off and the circumstances in which gross settlement systems may be
considered the equivalent to net settlement. The application of AASB 2012-3 has not resulted in any material changes to
the netting of balances presented on the Group's balance sheet.
AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101
AASB 2015-2 was issued on 28 January 2015 and is applicable for the 2017 financial year end unless early adopted. The
amendments clarify that preparers of financial statements should apply professional judgement in determining what
information is disclosed and the order of presentation in the financial statements. Westpac has early adopted the
amendments and as a result has changed the location of certain accounting policies within the notes, changed the order of
certain notes and removed or aggregated certain immaterial disclosures. In applying materiality to financial statement
disclosures, we consider both the amount and nature of each item. Comparatives have been restated where relevant.
b. Principles of consolidation
Westpac controls and accordingly consolidates an entity (subsidiaries) when it is exposed to, or has rights to, variable returns
from its involvement with the entity, and has the ability to affect those returns through its power over the entity.
All transactions between Group entities are eliminated. Non-controlling interests and equity of non-wholly-owned subsidiaries
are shown separately in the consolidated Income statement, Statement of comprehensive income, Balance sheet and
Statement of changes in equity. Subsidiaries are fully consolidated from the date on which control commences and are de-
consolidated from the date that control ceases.
Notes to the financial statements
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
(i) Business combinations
Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured
as the aggregate of the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of
acquisition. Acquisition-related costs are expensed as incurred (except for those arising on the issue of equity instruments
which are recognised directly in equity).
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair
value on the acquisition date. Goodwill is measured as the excess of the total consideration transferred, the amount of any non-
controlling interest and the fair value of any previous Westpac equity interest in the acquiree, over the fair value of the
identifiable net assets acquired.
(ii) Foreign currency translation
Functional and presentational currency
The consolidated financial statements are presented in Australian dollars which is the Parent Entity’s functional and
presentation currency. The functional currency of offshore entities is usually the main currency of the economy it operates in.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income
statement, except when deferred in other comprehensive income for qualifying cash flow hedges and qualifying net
investment hedges.
Foreign operations
Assets and liabilities of overseas branches and subsidiaries that have a functional currency other than the Australian dollar are
translated at exchange rates prevailing on the balance date. Income and expenses are translated at average exchange rates
prevailing during the period. Other equity balances are translated at historical exchange rates. The resulting exchange
differences are recognised in the foreign currency translation reserve.
On consolidation, exchange differences arising from the translation of borrowings and other foreign currency instruments
designated as hedges of the net investment in foreign operations are reflected in the foreign currency translation reserve. When
all or part of a foreign operation is disposed or borrowings that are part of the net investments are repaid, a proportionate share
of such exchange differences are recognised in the income statement as part of the gain or loss on disposal or repayment
Purchases and sales of financial assets, except for loans and receivables, are recognised on trade-date; the date on which the
Group commits to purchase or sell the asset. Loans and receivables are recognised on settlement date, when cash is
of borrowing.
c. Financial assets and financial liabilities
(i) Recognition
advanced to the borrowers.
Financial liabilities are recognised when an obligation arises.
(ii) Classification and measurement
The Group classifies its financial assets in the following categories: financial assets at fair value through income statement,
derivatives financial instruments, loans and receivables and available-for-sale securities. The Group has not classified any of its
financial assets as held-to-maturity investments.
The Group classifies significant financial liabilities in the following categories: payables due to other financial institutions,
deposits and other borrowings, other financial liabilities at fair value through income statement, derivative financial instruments,
debt issues and loan capital.
Financial assets and financial liabilities measured at fair value through income statement are recognised initially at fair value.
All other financial assets and financial liabilities are recognised initially at fair value plus directly attributable transaction costs.
The accounting policy for each category of financial asset or financial liability mentioned above is set out in the note for the
The Group’s policies for determining the fair value of financial assets and financial liabilities are set out in Note 23.
relevant item.
(iii) Derecognition
Financial assets are derecognised when the rights to receive cash flows from the asset have expired, or when the Group has
either transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in
full under a ‘pass through’ arrangement together with the transfer of substantially all the risks and rewards of ownership.
Where the Group has neither transferred nor retained substantially all the risks and rewards of ownership but has retained
control, the asset continues to be recognised on the balance sheet to the extent of the Group’s continuing involvement in
the asset.
122
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
123
Note 1. Basis of preparation and critical accounting assumptions and estimates
This financial report of Westpac Banking Corporation (the Parent Entity), together with its controlled entities (the Group or
Westpac), for the year ended 30 September 2015 was authorised for issue by the Board of Directors on 2 November 2015. The
Directors have the power to amend and reissue the financial report.
The principal accounting policies adopted in the preparation of the financial report are set out below and in the relevant notes to
the financial statements. These policies have been consistently applied to all the financial years presented, unless
otherwise stated.
a. Basis of preparation
(i) Basis of accounting
This financial report is a general purpose financial report prepared in accordance with the requirements for an authorised
deposit-taking institution under the Banking Act 1959 (as amended), Australian Accounting Standards (AAS) and
Interpretations as issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Westpac
Banking Corporation is a for-profit entity for the purposes of preparing this financial report.
The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB) and Interpretations as issued by the IFRS Interpretations Committee (IFRIC).
This financial report also includes additional disclosures required for foreign registrants by the United States Securities and
Exchange Commission.
The Group’s significant accounting policies relating to specific financial statement items are set out under the relevant notes.
Accounting policies that affect the financial statements as a whole and details of critical accounting assumptions and estimates
are set out below. Details of changes in accounting standards impacting the financial statements are set out in
The financial report has been prepared under the historical cost convention, as modified by applying fair value accounting to
available-for-sale securities, and financial assets and liabilities (including derivative instruments) classified at fair value through
Comparative information has been revised where appropriate to conform to changes in presentation in the current year to
Note (a) (v) below.
(ii) Historical cost convention
income statement.
(iii) Comparative revisions
enhance comparability.
(iv) Rounding of amounts
otherwise stated.
All amounts have been rounded in accordance with ASIC Class Order 98/100, to the nearest million dollars, unless
(v) Changes in accounting standards
The following standards and amendments have been adopted in the 2015 financial year:
AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities
The amendment was applied by the Group from 1 October 2014 and adds application guidance to AASB 132 Financial
Instruments: Presentation. It clarified the conditions for applying the offsetting criteria of AASB 132 including what
constitutes a currently legally enforceable right of set-off and the circumstances in which gross settlement systems may be
considered the equivalent to net settlement. The application of AASB 2012-3 has not resulted in any material changes to
the netting of balances presented on the Group's balance sheet.
AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101
AASB 2015-2 was issued on 28 January 2015 and is applicable for the 2017 financial year end unless early adopted. The
amendments clarify that preparers of financial statements should apply professional judgement in determining what
information is disclosed and the order of presentation in the financial statements. Westpac has early adopted the
amendments and as a result has changed the location of certain accounting policies within the notes, changed the order of
certain notes and removed or aggregated certain immaterial disclosures. In applying materiality to financial statement
disclosures, we consider both the amount and nature of each item. Comparatives have been restated where relevant.
b. Principles of consolidation
Westpac controls and accordingly consolidates an entity (subsidiaries) when it is exposed to, or has rights to, variable returns
from its involvement with the entity, and has the ability to affect those returns through its power over the entity.
All transactions between Group entities are eliminated. Non-controlling interests and equity of non-wholly-owned subsidiaries
are shown separately in the consolidated Income statement, Statement of comprehensive income, Balance sheet and
Statement of changes in equity. Subsidiaries are fully consolidated from the date on which control commences and are de-
consolidated from the date that control ceases.
Notes to the financial statements
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
(i) Business combinations
Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured
as the aggregate of the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of
acquisition. Acquisition-related costs are expensed as incurred (except for those arising on the issue of equity instruments
which are recognised directly in equity).
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair
value on the acquisition date. Goodwill is measured as the excess of the total consideration transferred, the amount of any non-
controlling interest and the fair value of any previous Westpac equity interest in the acquiree, over the fair value of the
identifiable net assets acquired.
(ii) Foreign currency translation
Functional and presentational currency
The consolidated financial statements are presented in Australian dollars which is the Parent Entity’s functional and
presentation currency. The functional currency of offshore entities is usually the main currency of the economy it operates in.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income
statement, except when deferred in other comprehensive income for qualifying cash flow hedges and qualifying net
investment hedges.
Foreign operations
Assets and liabilities of overseas branches and subsidiaries that have a functional currency other than the Australian dollar are
translated at exchange rates prevailing on the balance date. Income and expenses are translated at average exchange rates
prevailing during the period. Other equity balances are translated at historical exchange rates. The resulting exchange
differences are recognised in the foreign currency translation reserve.
On consolidation, exchange differences arising from the translation of borrowings and other foreign currency instruments
designated as hedges of the net investment in foreign operations are reflected in the foreign currency translation reserve. When
all or part of a foreign operation is disposed or borrowings that are part of the net investments are repaid, a proportionate share
of such exchange differences are recognised in the income statement as part of the gain or loss on disposal or repayment
of borrowing.
c. Financial assets and financial liabilities
(i) Recognition
Purchases and sales of financial assets, except for loans and receivables, are recognised on trade-date; the date on which the
Group commits to purchase or sell the asset. Loans and receivables are recognised on settlement date, when cash is
advanced to the borrowers.
Financial liabilities are recognised when an obligation arises.
(ii) Classification and measurement
The Group classifies its financial assets in the following categories: financial assets at fair value through income statement,
derivatives financial instruments, loans and receivables and available-for-sale securities. The Group has not classified any of its
financial assets as held-to-maturity investments.
The Group classifies significant financial liabilities in the following categories: payables due to other financial institutions,
deposits and other borrowings, other financial liabilities at fair value through income statement, derivative financial instruments,
debt issues and loan capital.
Financial assets and financial liabilities measured at fair value through income statement are recognised initially at fair value.
All other financial assets and financial liabilities are recognised initially at fair value plus directly attributable transaction costs.
The accounting policy for each category of financial asset or financial liability mentioned above is set out in the note for the
relevant item.
The Group’s policies for determining the fair value of financial assets and financial liabilities are set out in Note 23.
(iii) Derecognition
Financial assets are derecognised when the rights to receive cash flows from the asset have expired, or when the Group has
either transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in
full under a ‘pass through’ arrangement together with the transfer of substantially all the risks and rewards of ownership.
Where the Group has neither transferred nor retained substantially all the risks and rewards of ownership but has retained
control, the asset continues to be recognised on the balance sheet to the extent of the Group’s continuing involvement in
the asset.
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3
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. Where an existing financial liability
is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, the exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability,
with the difference in the respective carrying amounts recognised in profit or loss through the Income statement.
(iv) Repurchase and reverse repurchase agreements (including securities borrowed and lent)
Where securities are sold subject to an agreement to repurchase at a predetermined price (‘repos’), they remain recognised on
balance sheet in their original category (i.e. ‘Trading securities’ or ‘Available-for-sale’). A liability (‘Securities sold under
agreement to repurchase’) is recognised in respect of the cash consideration received. Where the underlying securities are part
of a trading portfolio, the associated liability is recognised as part of ‘Other financial liabilities at fair value through income
statement’. Where the underlying securities are classified as ‘Available-for-sale’, the associated liability is recognised in either
‘Payables due to other financial institutions’ or ‘Deposits and other borrowings’, depending on the counterparty.
Securities purchased under agreements to resell (‘reverse repos’) are not recognised on the balance sheet and the cash
consideration paid is recorded as part of ‘Trading securities and financial assets designated at fair value’.
As part of its trading activities, the Group also lends and borrows securities on a collateralised basis. Securities lent remain on
the Group’s balance sheet and securities borrowed are not reflected on the Group’s balance sheet, as the risk and rewards of
ownership remain with the initial holder. Where cash is provided as collateral, the amount advanced to or received from third
parties is recognised as a receivable or borrowing respectively.
Fees and interest relating to these transactions are recognised in interest income and interest expense using the effective
interest rate method, over the expected life of the agreements. Any fair value movements are recorded in trading income.
d. Critical accounting assumptions and estimates
The application of the Group’s accounting policies necessarily requires the use of judgment, estimates and assumptions.
Should different assumptions or estimates be applied, the resulting values would change, impacting the net assets and income
of the Group. The nature of significant assumptions and estimates used are noted below.
(i) Fair value of financial instruments
Financial instruments classified as held-for-trading (including derivatives) or designated at fair value through income statement
and financial assets classified as available-for-sale are recognised in the financial statements at fair value.
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants on the measurement date.
The best evidence of fair value is a quoted price in an active market. Wherever possible the Group determines the fair value of
a financial instrument based on the quoted price.
Where no direct quoted price in an active market is available, the Group applies present value estimates or other market
accepted valuation techniques. The use of a market accepted valuation technique will typically involve the use of a valuation
model and appropriate inputs to the model.
The majority of models used by the Group employ only observable market data as inputs. However, for certain financial
instruments data may be employed which is not readily observable in current markets.
Various factors influence the availability of observable inputs and these may vary from product to product and change over
time. Factors include the depth of activity in the relevant market, the type of product, whether the product is new and not widely
traded in the marketplace, the maturity of market modelling and the nature and complexity of the transaction (bespoke or
generic). To the extent that valuation is based on models or inputs that are not observable in the market, the determination of
fair value can require more judgement, dependent on the significance of the unobservable input to the overall valuation.
Unobservable inputs are determined based on the best information available. These inputs are generally derived and
extrapolated from other relevant market data and calibrated against industry standards, economic models and observed
transaction prices.
In order to determine a reliable fair value for a financial instrument, where appropriate, management may apply adjustments to
the techniques used above. These adjustments reflect the Group’s assessment of factors that market participants would
consider in setting the fair value.
In determining the fair value of derivatives, the Group adjusts the mid-market valuations produced by derivative pricing models
to the appropriate exit price valuation. These adjustments incorporate bid/offer spreads and credit valuation adjustments. They
also include funding valuation adjustments on the uncollateralised derivative portfolio.
The fair value of financial instruments is provided in Note 23 as well as the mechanism by which fair value has been derived.
Notes to the financial statements
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
(ii) Provisions for impairment charges on loans and credit commitments
Provisions for credit impairment represent management’s estimate of the impairment charges incurred in the loan portfolios and
on undrawn contractually committed credit facilities and guarantees provided as at the balance sheet date. Changes to the
provisions are reported in the income statement as part of impairment charges on loans. The methodology and assumptions
used for estimating future cash flows are reviewed regularly by the Group to reduce differences between loss estimates and
actual loss experience.
Individual component
All impaired loans that exceed specified thresholds are individually assessed for impairment. Individually assessed loans
principally comprise the Group’s portfolio of commercial loans to medium and large businesses. Impairment is recognised
as the difference between the carrying value of the loan, the discounted value of management’s best estimate of future
cash repayments and proceeds from any security held (discounted at the loan’s original effective interest rate for fixed rate
loans and the loan’s current effective interest rate for variable rate loans). Relevant considerations that have a bearing on
the expected future cash flows are taken into account, including the business prospects for the customer, the realisable
value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost
and duration of the work-out process. Subjective judgments are made in this process. Furthermore, judgments can change
with time as new information becomes available or as work-out strategies evolve, resulting in revisions to the impairment
provision as individual decisions are taken.
Collective component
This is made up of two elements: loan impairment provisions for impaired loans that are below individual assessment
thresholds (collective impaired loan provisions) and loan impairments that have been incurred but have not been
separately identified at the balance sheet date (incurred but not reported provisions). These are established on a portfolio
basis taking into account the level of arrears, collateral and security, past loss experience, current economic conditions,
expected defaults and timing of recovery based on portfolio trends. The most significant factors in establishing these
provisions are the estimated loss rates and the related emergence periods. The emergence period for each loan product
type is determined through studies of loss emergence patterns. Loan files where losses have emerged are reviewed to
identify the average time period between observable loss indicator events and the loss becoming identifiable. The future
credit quality of these portfolios is subject to uncertainties that could cause actual credit losses to differ materially from
reported loan impairment provisions. These uncertainties include the economic environment, notably interest rates and
their effect on consumer spending, unemployment levels, payment behaviour and bankruptcy rates.
Details on the Group’s impairment charges are provided in Notes 6 and 14.
(iii) Goodwill
the acquisition.
The determination of the fair value of assets and liabilities of the acquired businesses requires the exercise of management
judgment. Different fair values would result in changes to the goodwill balance and to the post-acquisition performance of
To determine if goodwill is impaired, the carrying value of the identified Cash Generating Unit (CGU) to which the goodwill is
allocated, is compared to its recoverable amount, which is determined on a value-in-use basis. Value in use is the present
value of expected future cash flows from the CGU, and the determination of the appropriate cash flows and discount rates to
use is subjective. The key assumptions applied to determine if any impairment exists are outlined in Note 26.
(iv) Superannuation obligations
The Group operates a number of defined benefit plans as described in Note 38. For each of these plans, independent actuarial
valuations of the plan’s obligations using the projected unit credit method and the fair value measurements of the plan’s assets
are performed at least annually. The actuarial valuation of plan obligations is dependent upon a series of assumptions, the key
ones being price inflation, salaries growth, mortality, morbidity, investment returns and discount rate. Different assumptions
could significantly alter the amount of the difference between plan assets and obligations, and the superannuation cost charged
to the income statement. In the current year the discount rate applied to the Australian superannuation fund changed from a
blended interest rate of government bonds to the yield on high quality corporate bonds that have terms to maturity
approximating the terms of the superannuation liabilities.
(v) Provisions (other than loan impairment)
Provisions are held in respect of a range of obligations such as employee entitlements, restructuring costs, litigation provisions,
non-lending losses and onerous contracts (for example leases with surplus space). Provisions carried for long service leave are
supported by an independent actuarial report. Some of the provisions involve significant judgment about the likely outcome of
various events and estimated future cash flows. The deferral of these benefits involves the exercise of management judgments
about the ultimate outcomes of the transactions. Payments that are expected to be incurred after more than one year are
discounted at a rate which reflects both current interest rates and the risks specific to that provision. In the current year the
relevant discount rate used changed from a blended interest rate of government bonds to the yield on high quality corporate
bonds that have terms to maturity approximating the terms of the liabilities.
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Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. Where an existing financial liability
is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, the exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability,
with the difference in the respective carrying amounts recognised in profit or loss through the Income statement.
(iv) Repurchase and reverse repurchase agreements (including securities borrowed and lent)
Where securities are sold subject to an agreement to repurchase at a predetermined price (‘repos’), they remain recognised on
balance sheet in their original category (i.e. ‘Trading securities’ or ‘Available-for-sale’). A liability (‘Securities sold under
agreement to repurchase’) is recognised in respect of the cash consideration received. Where the underlying securities are part
of a trading portfolio, the associated liability is recognised as part of ‘Other financial liabilities at fair value through income
statement’. Where the underlying securities are classified as ‘Available-for-sale’, the associated liability is recognised in either
‘Payables due to other financial institutions’ or ‘Deposits and other borrowings’, depending on the counterparty.
Securities purchased under agreements to resell (‘reverse repos’) are not recognised on the balance sheet and the cash
consideration paid is recorded as part of ‘Trading securities and financial assets designated at fair value’.
As part of its trading activities, the Group also lends and borrows securities on a collateralised basis. Securities lent remain on
the Group’s balance sheet and securities borrowed are not reflected on the Group’s balance sheet, as the risk and rewards of
ownership remain with the initial holder. Where cash is provided as collateral, the amount advanced to or received from third
parties is recognised as a receivable or borrowing respectively.
Fees and interest relating to these transactions are recognised in interest income and interest expense using the effective
interest rate method, over the expected life of the agreements. Any fair value movements are recorded in trading income.
d. Critical accounting assumptions and estimates
The application of the Group’s accounting policies necessarily requires the use of judgment, estimates and assumptions.
Should different assumptions or estimates be applied, the resulting values would change, impacting the net assets and income
of the Group. The nature of significant assumptions and estimates used are noted below.
(i) Fair value of financial instruments
Financial instruments classified as held-for-trading (including derivatives) or designated at fair value through income statement
and financial assets classified as available-for-sale are recognised in the financial statements at fair value.
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants on the measurement date.
The best evidence of fair value is a quoted price in an active market. Wherever possible the Group determines the fair value of
a financial instrument based on the quoted price.
Where no direct quoted price in an active market is available, the Group applies present value estimates or other market
accepted valuation techniques. The use of a market accepted valuation technique will typically involve the use of a valuation
model and appropriate inputs to the model.
The majority of models used by the Group employ only observable market data as inputs. However, for certain financial
instruments data may be employed which is not readily observable in current markets.
Various factors influence the availability of observable inputs and these may vary from product to product and change over
time. Factors include the depth of activity in the relevant market, the type of product, whether the product is new and not widely
traded in the marketplace, the maturity of market modelling and the nature and complexity of the transaction (bespoke or
generic). To the extent that valuation is based on models or inputs that are not observable in the market, the determination of
fair value can require more judgement, dependent on the significance of the unobservable input to the overall valuation.
Unobservable inputs are determined based on the best information available. These inputs are generally derived and
extrapolated from other relevant market data and calibrated against industry standards, economic models and observed
transaction prices.
In order to determine a reliable fair value for a financial instrument, where appropriate, management may apply adjustments to
the techniques used above. These adjustments reflect the Group’s assessment of factors that market participants would
consider in setting the fair value.
In determining the fair value of derivatives, the Group adjusts the mid-market valuations produced by derivative pricing models
to the appropriate exit price valuation. These adjustments incorporate bid/offer spreads and credit valuation adjustments. They
also include funding valuation adjustments on the uncollateralised derivative portfolio.
The fair value of financial instruments is provided in Note 23 as well as the mechanism by which fair value has been derived.
Notes to the financial statements
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
(ii) Provisions for impairment charges on loans and credit commitments
Provisions for credit impairment represent management’s estimate of the impairment charges incurred in the loan portfolios and
on undrawn contractually committed credit facilities and guarantees provided as at the balance sheet date. Changes to the
provisions are reported in the income statement as part of impairment charges on loans. The methodology and assumptions
used for estimating future cash flows are reviewed regularly by the Group to reduce differences between loss estimates and
actual loss experience.
Individual component
All impaired loans that exceed specified thresholds are individually assessed for impairment. Individually assessed loans
principally comprise the Group’s portfolio of commercial loans to medium and large businesses. Impairment is recognised
as the difference between the carrying value of the loan, the discounted value of management’s best estimate of future
cash repayments and proceeds from any security held (discounted at the loan’s original effective interest rate for fixed rate
loans and the loan’s current effective interest rate for variable rate loans). Relevant considerations that have a bearing on
the expected future cash flows are taken into account, including the business prospects for the customer, the realisable
value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost
and duration of the work-out process. Subjective judgments are made in this process. Furthermore, judgments can change
with time as new information becomes available or as work-out strategies evolve, resulting in revisions to the impairment
provision as individual decisions are taken.
Collective component
This is made up of two elements: loan impairment provisions for impaired loans that are below individual assessment
thresholds (collective impaired loan provisions) and loan impairments that have been incurred but have not been
separately identified at the balance sheet date (incurred but not reported provisions). These are established on a portfolio
basis taking into account the level of arrears, collateral and security, past loss experience, current economic conditions,
expected defaults and timing of recovery based on portfolio trends. The most significant factors in establishing these
provisions are the estimated loss rates and the related emergence periods. The emergence period for each loan product
type is determined through studies of loss emergence patterns. Loan files where losses have emerged are reviewed to
identify the average time period between observable loss indicator events and the loss becoming identifiable. The future
credit quality of these portfolios is subject to uncertainties that could cause actual credit losses to differ materially from
reported loan impairment provisions. These uncertainties include the economic environment, notably interest rates and
their effect on consumer spending, unemployment levels, payment behaviour and bankruptcy rates.
Details on the Group’s impairment charges are provided in Notes 6 and 14.
(iii) Goodwill
The determination of the fair value of assets and liabilities of the acquired businesses requires the exercise of management
judgment. Different fair values would result in changes to the goodwill balance and to the post-acquisition performance of
the acquisition.
To determine if goodwill is impaired, the carrying value of the identified Cash Generating Unit (CGU) to which the goodwill is
allocated, is compared to its recoverable amount, which is determined on a value-in-use basis. Value in use is the present
value of expected future cash flows from the CGU, and the determination of the appropriate cash flows and discount rates to
use is subjective. The key assumptions applied to determine if any impairment exists are outlined in Note 26.
(iv) Superannuation obligations
The Group operates a number of defined benefit plans as described in Note 38. For each of these plans, independent actuarial
valuations of the plan’s obligations using the projected unit credit method and the fair value measurements of the plan’s assets
are performed at least annually. The actuarial valuation of plan obligations is dependent upon a series of assumptions, the key
ones being price inflation, salaries growth, mortality, morbidity, investment returns and discount rate. Different assumptions
could significantly alter the amount of the difference between plan assets and obligations, and the superannuation cost charged
to the income statement. In the current year the discount rate applied to the Australian superannuation fund changed from a
blended interest rate of government bonds to the yield on high quality corporate bonds that have terms to maturity
approximating the terms of the superannuation liabilities.
(v) Provisions (other than loan impairment)
Provisions are held in respect of a range of obligations such as employee entitlements, restructuring costs, litigation provisions,
non-lending losses and onerous contracts (for example leases with surplus space). Provisions carried for long service leave are
supported by an independent actuarial report. Some of the provisions involve significant judgment about the likely outcome of
various events and estimated future cash flows. The deferral of these benefits involves the exercise of management judgments
about the ultimate outcomes of the transactions. Payments that are expected to be incurred after more than one year are
discounted at a rate which reflects both current interest rates and the risks specific to that provision. In the current year the
relevant discount rate used changed from a blended interest rate of government bonds to the yield on high quality corporate
bonds that have terms to maturity approximating the terms of the liabilities.
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3
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
(vi) Income taxes
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgment is
required in determining the worldwide provision for income taxes, based on the Group’s understanding of the relevant tax law.
There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax
outcome is unclear. For these circumstances, we hold appropriate provisions. Where the final outcome of these matters is
different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in
the period where such determination is made. Refer to Note 7 for details of the Group’s deferred tax balances.
(vii) Life insurance contract liabilities
Life insurance contract liabilities are computed using statistical or mathematical methods, which are expected to give
approximately the same results as if an individual liability was calculated for each contract. These computations are made by
suitably qualified personnel on the basis of recognised actuarial methods, with due regard to relevant actuarial principles. The
methodology takes into account the risks and uncertainties of the particular classes of the life insurance business written.
Deferred policy acquisition costs are connected with the measurement basis of life insurance contract liabilities and are equally
sensitive to the factors that are considered in the liability measurement.
The key factors that affect the estimation of these liabilities and related assets are:
the cost of providing benefits and administrating the contracts;
mortality and morbidity experience, including enhancements to policyholder benefits;
discontinuance experience, which affects the Group’s ability to recover the cost of acquiring new business over the life of
the contracts; and
the rate at which projected future cash flows are discounted.
In addition, factors such as regulation, competition, interest rates, taxes, securities market conditions and general economic
conditions affect the level of these liabilities. In some contracts, the Group shares experience on investment results with its
customers, which can offset the impacts of these factors on the profitability of these products.
e. Future developments in accounting standards
The following new standards and interpretations which may have a material impact on the Group have been issued, but are not
yet effective and have not been early adopted by the Group:
AASB 9 Financial Instruments (December 2014) will replace AASB 139 Financial Instruments: Recognition and Measurement.
It includes a revised classification and measurement model, a forward looking ‘expected loss’ impairment model and modifies
the approach to hedge accounting. Unless early adopted the standard is effective for the 30 September 2019 financial year
end. The major changes under the standard are:
replaces the multiple classification and measurement models in AASB 139 with a single model that has two classification
categories: amortised cost and fair value;
a financial asset is measured at amortised cost if two criteria are met: a) the objective of the business model is to hold the
financial asset for the collection of the contractual cash flows, and b) the contractual cash flows under the instrument solely
represent the payment of principal and interest;
if a financial asset is eligible for amortised cost measurement, an entity can elect to measure it at fair value if it eliminates
or significantly reduces an accounting mismatch;
requires more timely recognition of expected credit losses using a three stage approach. For financial assets where there
has been no significant increase in credit risk since origination a provision for 12 months expected credit losses is required.
For financial assets where there has been a significant increase in credit risk or where the asset is credit impaired a
provision for full lifetime expected losses is required;
interest is calculated on the gross carrying amount of a financial assets, except where the asset is credit impaired;
there will be no separation of an embedded derivative where the instrument is a financial asset;
equity instruments must be measured at fair value, however an entity can elect on initial recognition to present the fair
value changes on non-trading equity investments directly in other comprehensive income. There is no subsequent
recycling of fair value gains and losses to profit or loss; however dividends from such investments will continue to be
recognised in profit or loss;
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Notes to the financial statements
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
if an entity holds an investment in asset-backed securities (ABS) it must determine the classification of that investment by
looking through to the underlying assets and assess the credit quality of the investment compared with the underlying
portfolio of assets. If an entity is unable to look through to the underlying assets, then the investment must be measured at
fair value;
where the fair value option is used for valuing financial liabilities the change in fair value relating to the entity’s own credit
risk is presented in other comprehensive income, except where it would create an accounting mismatch. If such a
mismatch is created or enlarged, all changes in fair value (including the effects of changes in the credit risk) is recognised
in profit or loss. The Group early adopted this amendment from 1 October 2013; and
aligns hedge accounting more closely with risk management activities by increasing the eligibility of both hedged items and
hedging instruments and introducing a more principles-based approach to assessing hedge effectiveness.
AASB 9 will impact the classification and measurement of the Group’s financial instruments when the remainder of the
standard is adopted.
statements has not yet been determined.
The Group is in the process of assessing the full impact of the application of AASB 9. The financial impact on the financial
AASB 15 Revenue from Contracts with Customers was issued on 28 May 2014 and will be effective for the 30 September 2019
financial year. The standard provides a single comprehensive model for revenue recognition. It replaces AASB 118 Revenue
and related interpretations. The application of AASB 15 is not expected to have a material impact on the Group.
FINANCIAL PERFORMANCE
Note 2. Segment reporting
Accounting policy
Operating segments are presented on a basis that is consistent with information provided internally to Westpac’s key decision
makers and reflects the management of the business, rather than the legal structure of the Group.
In assessing the financial performance of its divisions internally, Westpac uses a measure of performance it refers to as
‘cash earnings’.
Cash earnings is not a measure of cash flow or net profit determined on a cash accounting basis, as it includes non-cash items
reflected in net profit determined in accordance with AAS. The specific adjustments include both cash and non-cash items.
Cash earnings, as calculated by Westpac, is viewed as a measure of the level of profit that is generated by ongoing operations
and is therefore available for distribution to shareholders.
Management believes this allows the Group to more effectively assess performance for the current period against prior periods
and to compare performance across business divisions and across peer companies.
Three categories of adjustments are made to statutory results to determine cash earnings:
material items that key decision makers at Westpac believe do not reflect ongoing operations;
items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of
Treasury shares and economic hedging impacts; and
accounting reclassifications between individual line items that do not impact statutory results.
Internal charges and transfer pricing adjustments have been reflected in the performance of each operating segment. Inter-
segment pricing is determined on an arm’s length basis.
Reportable operating segments
In February 2015 following the appointment of Brian Hartzer as Chief Executive Officer, the Australian Financial Services
segment was discontinued. The three businesses which comprised this segment being Westpac Retail & Business Banking,
St.George Banking Group and BT Financial Group (Australia) are now individual reportable segments.
Although Westpac announced in June 2015 that it would implement a new organisational structure for its Australian Retail and
Business Banking operations, up to 30 September 2015 the accounting and financial performance continued to be reported
(both internally and externally) on the basis of the existing structure. Refer to Section 2 for further details.
The operating segments are defined by the customers they service and the services they provide:
Westpac Retail & Business Banking (Westpac RBB), which is responsible for sales and service for consumer, small-to-
medium enterprise (SME), commercial and agribusiness customers (with turnover of up to $100 million) in Australia under
the Westpac brand;
Notes to the financial statements
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
if an entity holds an investment in asset-backed securities (ABS) it must determine the classification of that investment by
looking through to the underlying assets and assess the credit quality of the investment compared with the underlying
portfolio of assets. If an entity is unable to look through to the underlying assets, then the investment must be measured at
fair value;
where the fair value option is used for valuing financial liabilities the change in fair value relating to the entity’s own credit
risk is presented in other comprehensive income, except where it would create an accounting mismatch. If such a
mismatch is created or enlarged, all changes in fair value (including the effects of changes in the credit risk) is recognised
in profit or loss. The Group early adopted this amendment from 1 October 2013; and
aligns hedge accounting more closely with risk management activities by increasing the eligibility of both hedged items and
hedging instruments and introducing a more principles-based approach to assessing hedge effectiveness.
AASB 9 will impact the classification and measurement of the Group’s financial instruments when the remainder of the
standard is adopted.
Deferred policy acquisition costs are connected with the measurement basis of life insurance contract liabilities and are equally
sensitive to the factors that are considered in the liability measurement.
The Group is in the process of assessing the full impact of the application of AASB 9. The financial impact on the financial
statements has not yet been determined.
AASB 15 Revenue from Contracts with Customers was issued on 28 May 2014 and will be effective for the 30 September 2019
financial year. The standard provides a single comprehensive model for revenue recognition. It replaces AASB 118 Revenue
and related interpretations. The application of AASB 15 is not expected to have a material impact on the Group.
FINANCIAL PERFORMANCE
Note 2. Segment reporting
Accounting policy
Operating segments are presented on a basis that is consistent with information provided internally to Westpac’s key decision
makers and reflects the management of the business, rather than the legal structure of the Group.
In assessing the financial performance of its divisions internally, Westpac uses a measure of performance it refers to as
‘cash earnings’.
Cash earnings is not a measure of cash flow or net profit determined on a cash accounting basis, as it includes non-cash items
reflected in net profit determined in accordance with AAS. The specific adjustments include both cash and non-cash items.
Cash earnings, as calculated by Westpac, is viewed as a measure of the level of profit that is generated by ongoing operations
and is therefore available for distribution to shareholders.
Management believes this allows the Group to more effectively assess performance for the current period against prior periods
and to compare performance across business divisions and across peer companies.
Three categories of adjustments are made to statutory results to determine cash earnings:
Note 1. Basis of preparation and critical accounting assumptions and estimates (continued)
(vi) Income taxes
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgment is
required in determining the worldwide provision for income taxes, based on the Group’s understanding of the relevant tax law.
There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax
outcome is unclear. For these circumstances, we hold appropriate provisions. Where the final outcome of these matters is
different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in
the period where such determination is made. Refer to Note 7 for details of the Group’s deferred tax balances.
(vii) Life insurance contract liabilities
Life insurance contract liabilities are computed using statistical or mathematical methods, which are expected to give
approximately the same results as if an individual liability was calculated for each contract. These computations are made by
suitably qualified personnel on the basis of recognised actuarial methods, with due regard to relevant actuarial principles. The
methodology takes into account the risks and uncertainties of the particular classes of the life insurance business written.
The key factors that affect the estimation of these liabilities and related assets are:
the cost of providing benefits and administrating the contracts;
mortality and morbidity experience, including enhancements to policyholder benefits;
discontinuance experience, which affects the Group’s ability to recover the cost of acquiring new business over the life of
the contracts; and
the rate at which projected future cash flows are discounted.
In addition, factors such as regulation, competition, interest rates, taxes, securities market conditions and general economic
conditions affect the level of these liabilities. In some contracts, the Group shares experience on investment results with its
customers, which can offset the impacts of these factors on the profitability of these products.
e. Future developments in accounting standards
The following new standards and interpretations which may have a material impact on the Group have been issued, but are not
yet effective and have not been early adopted by the Group:
AASB 9 Financial Instruments (December 2014) will replace AASB 139 Financial Instruments: Recognition and Measurement.
It includes a revised classification and measurement model, a forward looking ‘expected loss’ impairment model and modifies
the approach to hedge accounting. Unless early adopted the standard is effective for the 30 September 2019 financial year
end. The major changes under the standard are:
replaces the multiple classification and measurement models in AASB 139 with a single model that has two classification
categories: amortised cost and fair value;
a financial asset is measured at amortised cost if two criteria are met: a) the objective of the business model is to hold the
financial asset for the collection of the contractual cash flows, and b) the contractual cash flows under the instrument solely
represent the payment of principal and interest;
or significantly reduces an accounting mismatch;
if a financial asset is eligible for amortised cost measurement, an entity can elect to measure it at fair value if it eliminates
requires more timely recognition of expected credit losses using a three stage approach. For financial assets where there
has been no significant increase in credit risk since origination a provision for 12 months expected credit losses is required.
For financial assets where there has been a significant increase in credit risk or where the asset is credit impaired a
provision for full lifetime expected losses is required;
interest is calculated on the gross carrying amount of a financial assets, except where the asset is credit impaired;
there will be no separation of an embedded derivative where the instrument is a financial asset;
equity instruments must be measured at fair value, however an entity can elect on initial recognition to present the fair
value changes on non-trading equity investments directly in other comprehensive income. There is no subsequent
recycling of fair value gains and losses to profit or loss; however dividends from such investments will continue to be
recognised in profit or loss;
Reportable operating segments
In February 2015 following the appointment of Brian Hartzer as Chief Executive Officer, the Australian Financial Services
segment was discontinued. The three businesses which comprised this segment being Westpac Retail & Business Banking,
St.George Banking Group and BT Financial Group (Australia) are now individual reportable segments.
Although Westpac announced in June 2015 that it would implement a new organisational structure for its Australian Retail and
Business Banking operations, up to 30 September 2015 the accounting and financial performance continued to be reported
(both internally and externally) on the basis of the existing structure. Refer to Section 2 for further details.
The operating segments are defined by the customers they service and the services they provide:
Westpac Retail & Business Banking (Westpac RBB), which is responsible for sales and service for consumer, small-to-
medium enterprise (SME), commercial and agribusiness customers (with turnover of up to $100 million) in Australia under
the Westpac brand;
126
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127
Internal charges and transfer pricing adjustments have been reflected in the performance of each operating segment. Inter-
segment pricing is determined on an arm’s length basis.
items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of
Treasury shares and economic hedging impacts; and
accounting reclassifications between individual line items that do not impact statutory results.
material items that key decision makers at Westpac believe do not reflect ongoing operations;
3
Note 2. Segment reporting (continued)
St.George Banking Group (St.George), which is responsible for sales and service to consumer, SME and corporate
customers (businesses with facilities of up to $150 million) in Australia under the St.George, BankSA, Bank of Melbourne
and RAMS brands;
BT Financial Group (Australia) (BTFG), which is Westpac’s Australian wealth division. Its operations include the provision
of funds management, insurance, financial advice, margin lending, private banking and broking services. BTFG’s brands
include Advance, Ascalon Capital Managers, Asgard, Licensee Select, BT Select, and Securitor, as well as the Advice,
Private Banking and Insurance operations of Westpac, St.George, Bank of Melbourne and BankSA. BTFG also
incorporates the activities of BT Investment Management, which following Westpac’s partial sale is equity accounted from
July 2015;
Westpac Institutional Bank (WIB), which delivers a broad range of financial services to commercial, corporate, institutional
and government customers with connections to Australia and New Zealand. Customers are supported through branches
and subsidiaries located in Australia, New Zealand, US, UK and Asia; and
Westpac New Zealand, which is responsible for sales and service of banking, wealth and insurance products for
consumers, business and institutional customers in New Zealand. Banking products are provided under the Westpac
brand, while insurance and wealth products are provided under Westpac Life and BT brands respectively.
Other divisions in the Group include:
Westpac Pacific provides banking services for retail and business customers in four Pacific Island Nations. Prior to July
2015, Westpac Pacific also provided these services to customers in Samoa, Cook Islands and Tonga. On 10 July 2015,
Westpac sold its interest in these operations;
Group items, including earnings on capital not allocated to divisions, accounting entries for certain intra-group transactions
that facilitate the presentation of the performance of our operating segments, earnings from non core asset sales and
certain other head office items such as centrally raised provisions;
Treasury, which is primarily focused on the management of the Group’s interest rate risk and funding requirements by
managing the mismatch between Group assets and liabilities;
Customer & Business Services, which encompasses banking operations, customer contact centres, product, marketing,
compliance, legal and property services;
Group Technology, which comprises functions responsible for technology strategy and architecture, infrastructure and
operations, applications development and business integration; and
Core Support, which comprises those functions performed centrally including finance, risk and human resources.
Comparative changes
Prior period comparatives were restated for the following business structure transfers:
Private Bank Asia operations undertaken in Westpac Institutional Bank (WIB) to Westpac Retail & Business Banking
(Westpac RBB);
Relationship management of a number of clients from WIB to Westpac RBB;
BankSA general insurance activities from St.George to BT Financial Group (Australia); and
The presentation of depreciation, amortisation and impairments by segments for 2014 and 2013 have been restated to
conform with current year.
Note 2. Segment reporting (continued)
The tables below present the segment results on a cash earnings basis:
Notes to the financial statements
2015
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets1
Total liabilities
Additions of property
and equipment, goodwill
and other intangible assets
Westpac
Retail &
St.
BT
George
Financial
Westpac
Westpac
Business
Banking
Group
Institutional
New
Other
Banking
Group
(Australia)
Bank
Zealand
Divisions
6,395
1,457
3,768
555
448
2,192
1,645
1,458
1,590
457
Net cash
Net profit
earnings
for the
adjustment
year
28
14,267
1,074
7,375
7,852
(3,397)
(471)
3,984
(1,196)
2,788
-
-
4,323
(1,629)
(280)
2,414
(726)
-
1,688
(126)
2,640
(1,304)
4
1,340
(404)
(32)
904
(23)
881
3,103
(1,289)
39
1,853
(567)
1,286
-
-
1,286
2,047
(832)
(44)
1,171
(317)
(3)
851
-
851
2,788
1,562
644
8,012
1,102
(838)
-
264
(74)
2
192
21,642
(9,473)
(753)
11,416
(3,348)
(56)
8,012
Total
14,239
6,301
20,540
(8,635)
(753)
11,152
(3,274)
(58)
7,820
192
393
182
575
(184)
(1)
390
(64)
(23)
303
341
(5)
(16)
(42)
(123)
(93)
(1,180)
(1,459)
291,647
186,032
188,094
97,677
35,813
37,168
123,735
124,603
71,538
63,490
101,329
812,156
249,271
758,241
1 Total assets for BT Financial Group (Australia) include the equity accounted carrying value of the investment in BTIM of $756 million.
15
13
73
261
58
893
1,313
128
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2015 Westpac Group Annual Report
129
Note 2. Segment reporting (continued)
St.George Banking Group (St.George), which is responsible for sales and service to consumer, SME and corporate
customers (businesses with facilities of up to $150 million) in Australia under the St.George, BankSA, Bank of Melbourne
and RAMS brands;
BT Financial Group (Australia) (BTFG), which is Westpac’s Australian wealth division. Its operations include the provision
of funds management, insurance, financial advice, margin lending, private banking and broking services. BTFG’s brands
include Advance, Ascalon Capital Managers, Asgard, Licensee Select, BT Select, and Securitor, as well as the Advice,
Private Banking and Insurance operations of Westpac, St.George, Bank of Melbourne and BankSA. BTFG also
incorporates the activities of BT Investment Management, which following Westpac’s partial sale is equity accounted from
July 2015;
Westpac Institutional Bank (WIB), which delivers a broad range of financial services to commercial, corporate, institutional
and government customers with connections to Australia and New Zealand. Customers are supported through branches
and subsidiaries located in Australia, New Zealand, US, UK and Asia; and
Westpac New Zealand, which is responsible for sales and service of banking, wealth and insurance products for
consumers, business and institutional customers in New Zealand. Banking products are provided under the Westpac
brand, while insurance and wealth products are provided under Westpac Life and BT brands respectively.
Other divisions in the Group include:
Westpac Pacific provides banking services for retail and business customers in four Pacific Island Nations. Prior to July
2015, Westpac Pacific also provided these services to customers in Samoa, Cook Islands and Tonga. On 10 July 2015,
Westpac sold its interest in these operations;
Group items, including earnings on capital not allocated to divisions, accounting entries for certain intra-group transactions
that facilitate the presentation of the performance of our operating segments, earnings from non core asset sales and
certain other head office items such as centrally raised provisions;
Treasury, which is primarily focused on the management of the Group’s interest rate risk and funding requirements by
managing the mismatch between Group assets and liabilities;
Customer & Business Services, which encompasses banking operations, customer contact centres, product, marketing,
compliance, legal and property services;
Group Technology, which comprises functions responsible for technology strategy and architecture, infrastructure and
operations, applications development and business integration; and
Core Support, which comprises those functions performed centrally including finance, risk and human resources.
Comparative changes
Prior period comparatives were restated for the following business structure transfers:
Private Bank Asia operations undertaken in Westpac Institutional Bank (WIB) to Westpac Retail & Business Banking
(Westpac RBB);
Relationship management of a number of clients from WIB to Westpac RBB;
BankSA general insurance activities from St.George to BT Financial Group (Australia); and
The presentation of depreciation, amortisation and impairments by segments for 2014 and 2013 have been restated to
conform with current year.
Note 2. Segment reporting (continued)
The tables below present the segment results on a cash earnings basis:
Notes to the financial statements
2015
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets1
Total liabilities
Westpac
Retail &
Business
Banking
6,395
1,457
St.
George
Banking
Group
3,768
555
BT
Financial
Group
(Australia)
448
2,192
7,852
(3,397)
(471)
3,984
(1,196)
-
2,788
-
4,323
(1,629)
(280)
2,414
(726)
-
1,688
(126)
2,788
1,562
2,640
(1,304)
4
1,340
(404)
(32)
904
(23)
881
Westpac
Institutional
Bank
Westpac
New
Zealand
Other
Divisions
Net cash
earnings
adjustment
Net profit
for the
year
28
14,267
1,074
7,375
1,102
(838)
-
264
(74)
2
192
21,642
(9,473)
(753)
11,416
(3,348)
(56)
8,012
Total
14,239
6,301
20,540
(8,635)
(753)
11,152
(3,274)
(58)
7,820
192
393
182
575
(184)
(1)
390
(64)
(23)
303
341
644
8,012
1,645
1,458
1,590
457
3,103
(1,289)
39
1,853
(567)
-
1,286
-
1,286
2,047
(832)
(44)
1,171
(317)
(3)
851
-
851
(5)
(16)
(42)
(123)
(93)
(1,180)
(1,459)
291,647
186,032
188,094
97,677
35,813
37,168
123,735
124,603
71,538
63,490
101,329
812,156
249,271
758,241
Additions of property
and equipment, goodwill
and other intangible assets
1 Total assets for BT Financial Group (Australia) include the equity accounted carrying value of the investment in BTIM of $756 million.
1,313
893
261
13
73
15
58
128
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
129
3
Note 2. Segment reporting (continued)
Note 2. Segment reporting (continued)
2014
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets
Total liabilities
Additions of property
and equipment, goodwill
and other intangible assets
Westpac
Institutional
Bank
Westpac
New
Zealand
Other
Divisions
Westpac
Retail &
Business
Banking
5,953
1,441
St.
George
Banking
Group
3,531
515
BT
Financial
Group
(Australia)
406
2,257
7,394
(3,266)
(436)
3,692
(1,109)
-
2,583
-
4,046
(1,559)
(236)
2,251
(676)
-
1,575
(125)
2,583
1,450
2,663
(1,323)
2
1,342
(403)
(39)
900
(22)
878
1,658
1,470
1,455
438
3,128
(1,174)
135
2,089
(622)
-
1,467
-
1,467
1,893
(776)
(24)
1,093
(300)
(3)
790
-
790
Net cash
earnings
adjustment
Net profit
for the
year
46
71
13,542
6,395
117
(301)
19,937
(8,547)
-
(650)
(184)
115
10,740
(3,115)
2
(67)
(64)
7,561
Total
13,496
6,324
19,820
(8,246)
(650)
10,924
(3,230)
(66)
7,628
(67)
493
203
696
(148)
(91)
457
(120)
(24)
313
80
393
7,561
2,360
1,259
174
6,751
(3)
(17)
(45)
(83)
(80)
(575)
(803)
(3)
(15)
(44)
(47)
(51)
(523)
(683)
276,648
176,281
175,302
94,818
31,803
34,288
118,892
130,178
65,874
57,568
102,323
770,842
228,372
721,505
261,903
166,122
159,652
90,141
32,210
33,932
97,342
116,230
61,469
53,882
88,521
701,097
193,253
653,560
68
325
72
196
80
799
1,540
66
28
82
104
117
645
1,042
Notes to the financial statements
Westpac
Retail &
St.
BT
George
Financial
Westpac
Westpac
Business
Banking
Group
Institutional
New
Other
Banking
Group
(Australia)
Bank
Zealand
Divisions
5,649
1,359
3,210
466
402
1,930
1,646
1,584
1,281
389
Net cash
Net profit
earnings
for the
adjustment
year
(91)
(147)
12,821
5,774
Total
12,912
5,921
18,833
(7,759)
(847)
10,227
(3,088)
(76)
7,063
(312)
724
193
917
(215)
(59)
643
(252)
(55)
336
(162)
(238)
(217)
(455)
-
2
(312)
18,595
(7,976)
(847)
9,772
(74)
6,751
141
(2,947)
7,008
(3,153)
(485)
3,370
(1,010)
2,360
-
-
3,676
(1,401)
(293)
1,982
(595)
-
1,387
(128)
2,332
(1,207)
(1)
1,124
(328)
(18)
778
(22)
756
3,230
(1,086)
88
2,232
(662)
1,570
-
-
1,570
1,670
(697)
(97)
876
(241)
(3)
632
-
632
2013
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets
Total liabilities
Additions of property
and equipment, goodwill
and other intangible assets
130
2015 Westpac Group Annual Report
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131
Note 2. Segment reporting (continued)
Note 2. Segment reporting (continued)
Notes to the financial statements
2014
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets
Total liabilities
Additions of property
and equipment, goodwill
and other intangible assets
Westpac
Retail &
St.
BT
George
Financial
Westpac
Westpac
Business
Banking
Group
Institutional
New
Other
Banking
Group
(Australia)
Bank
Zealand
Divisions
5,953
1,441
3,531
515
406
2,257
1,658
1,470
1,455
438
Net cash
Net profit
earnings
for the
adjustment
year
46
71
13,542
6,395
7,394
(3,266)
(436)
3,692
(1,109)
2,583
-
-
4,046
(1,559)
(236)
2,251
(676)
-
1,575
(125)
2,663
(1,323)
2
1,342
(403)
(39)
900
(22)
878
3,128
(1,174)
135
2,089
(622)
1,467
-
-
1,467
1,893
(776)
(24)
1,093
(300)
(3)
790
-
790
2,583
1,450
393
7,561
117
(301)
19,937
(8,547)
-
(650)
(184)
115
10,740
(3,115)
2
(67)
(64)
7,561
Total
13,496
6,324
19,820
(8,246)
(650)
10,924
(3,230)
(66)
7,628
(67)
493
203
696
(148)
(91)
457
(120)
(24)
313
80
(3)
(17)
(45)
(83)
(80)
(575)
(803)
276,648
176,281
175,302
94,818
31,803
34,288
118,892
130,178
65,874
57,568
102,323
770,842
228,372
721,505
68
325
72
196
80
799
1,540
2013
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets
Total liabilities
Additions of property
and equipment, goodwill
and other intangible assets
Westpac
Retail &
Business
Banking
5,649
1,359
St.
George
Banking
Group
3,210
466
BT
Financial
Group
(Australia)
402
1,930
7,008
(3,153)
(485)
3,370
(1,010)
-
2,360
-
3,676
(1,401)
(293)
1,982
(595)
-
1,387
(128)
2,360
1,259
2,332
(1,207)
(1)
1,124
(328)
(18)
778
(22)
756
Westpac
Institutional
Bank
Westpac
New
Zealand
Other
Divisions
Net cash
earnings
adjustment
Net profit
for the
year
(91)
(147)
12,821
5,774
(238)
(217)
-
(455)
18,595
(7,976)
(847)
9,772
141
(2,947)
2
(312)
(74)
6,751
Total
12,912
5,921
18,833
(7,759)
(847)
10,227
(3,088)
(76)
7,063
(312)
724
193
917
(215)
(59)
643
(252)
(55)
336
(162)
174
6,751
1,646
1,584
1,281
389
3,230
(1,086)
88
2,232
(662)
-
1,570
-
1,570
1,670
(697)
(97)
876
(241)
(3)
632
-
632
(3)
(15)
(44)
(47)
(51)
(523)
(683)
261,903
166,122
159,652
90,141
32,210
33,932
97,342
116,230
61,469
53,882
88,521
701,097
193,253
653,560
66
28
82
104
117
645
1,042
130
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
131
3
Note 2. Segment reporting (continued)
Reconciliation of cash earnings to net profit
$m
Cash earnings for the year
Cash earnings adjustments:
Partial sale of BTIM
Capitalised technology cost balances
Amortisation of intangible assets
Acquisition, transaction and integration expenses
Lloyds tax adjustments
Fair value gain/(loss) on economic hedges
Ineffective hedges
Treasury shares
Buyback of government guaranteed debt
Westpac Bicentennial Foundation grant
Prior year tax provisions
Bell litigation provision
Fair value amortisation of financial instruments
TPS revaluations
2015
7,820
665
(354)
(149)
(66)
64
33
(1)
(1)
1
-
-
-
-
-
2014
7,628
-
-
(147)
(51)
-
105
(46)
(7)
42
(70)
70
54
(17)
-
Total Cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
192
8,012
(67)
7,561
2013
7,063
-
-
(150)
-
-
(21)
20
(42)
(43)
-
-
-
(67)
(9)
(312)
6,751
Further details of the above cash earnings adjustments, which are all net of tax is provided in Section 2.
Revenue from products and services
Details of revenue from external customers by product or service are disclosed in Notes 3 and 4. No single customer amounts
to greater than 10% of the Group’s revenue.
Geographic segments
Geographic segments are based on the location of the office in which the following items are recognised:
Revenue
Australia
New Zealand
Other1
Total
Non-current assets2
Australia
New Zealand
Other1
2015
$m
33,991
4,937
742
39,670
11,949
751
466
%
85.7
12.4
1.9
100.0
90.8
5.7
3.5
2014
$m
32,880
4,738
1,025
38,643
12,828
797
433
Total
1 Other includes Pacific Islands, Asia, the Americas and Europe.
2 Non-current assets include property and equipment, goodwill and other intangible assets.
13,166
100.0
14,058
%
85.1
12.3
2.6
100.0
91.2
5.7
3.1
100.0
2013
$m
34,159
3,885
739
38,783
12,324
786
405
13,515
%
88.1
10.0
1.9
100.0
91.2
5.8
3.0
100.0
Notes to the financial statements
Note 3. Net interest income
Accounting policy
Interest income and expense for all interest bearing financial assets and liabilities (including those instruments measured at fair
value) is recognised using the effective interest rate method. Net income related to treasury’s interest rate and liquidity
management activities is included in net interest income.
The effective interest rate method calculates the amortised cost of a financial instrument and allocates the interest income or
interest expense over its expected life. The effective interest rate is the rate that discounts estimated future cash payments or
receipts through the expected life of the financial instrument, or when appropriate, a shorter period, to the net carrying amount
of the financial asset or financial liability. When calculating the effective interest rate, cash flows are estimated based upon all
contractual terms of the financial instrument (for example, prepayment options) but do not consider future credit losses. The
calculation includes all fees and other amounts paid or received between parties to the contract that are an integral part of the
effective interest rate (e.g. loan establishment fees), transaction costs and all other premiums or discounts.
Interest relating to impaired loans is recognised using the loan’s original effective interest rate based on the net carrying value
of the impaired loan or for a variable rate loan, the current effective interest rate. This rate is also used to discount the future
cash flows for the purpose of measuring impairment charges.
Interest income on finance leases is brought to account progressively over the life of the lease, consistent with the outstanding
investment and unearned income balance.
$m
Interest income
Cash and balances with central banks
Receivables due from other financial institutions
Net ineffectiveness on qualifying hedges
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans
Regulatory deposits with central banks overseas
Payables due to other financial institutions
Deposits and other borrowings
Due from subsidiaries
Other interest income
Total interest income1
Interest expense
Trading liabilities
Debt issues
Due to subsidiaries
Loan capital
Other interest expense
Total interest expense2
Net interest income
Consolidated
Parent Entity
2015
2014
2013
2015
2014
219
87
(13)
1,032
1,634
12
-
17
225
84
(58)
1,482
1,386
18
-
7
102
113
31
1,732
1,226
23
-
1
29,307
29,104
29,781
(304)
(300)
(190)
(10,669)
(11,499)
(12,555)
(2,475)
(3,908)
-
(535)
(137)
(2,523)
(3,813)
-
(490)
(81)
(2,806)
(4,008)
-
(529)
(100)
170
50
(8)
956
1,445
24,468
4,933
12
17
(304)
(9,008)
(2,476)
(3,205)
(4,873)
(495)
(141)
182
35
(61)
1,413
1,231
24,666
18
4,585
7
(299)
(10,029)
(2,268)
(3,096)
(4,791)
(458)
(71)
32,295
32,248
33,009
32,043
32,076
(18,028)
(18,706)
(20,188)
(20,502)
(21,012)
14,267
13,542
12,821
11,541
11,064
1 Total interest income for financial assets that are not at fair value through profit or loss is $31,276 million (2014: $30,824 million, 2013:
$31,246 million) for the Group and $31,095 million (2014: $30,724 million) for the Parent Entity.
2 Total interest expense for financial liabilities that are not at fair value through profit or loss is $14,363 million (2014: $14,996 million,
2013: $16,116 million) for the Group and $16,923 million (2014: $17,636 million) for the Parent Entity.
132
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133
Note 2. Segment reporting (continued)
Reconciliation of cash earnings to net profit
$m
Cash earnings for the year
Cash earnings adjustments:
Partial sale of BTIM
Capitalised technology cost balances
Amortisation of intangible assets
Acquisition, transaction and integration expenses
Lloyds tax adjustments
Fair value gain/(loss) on economic hedges
Ineffective hedges
Treasury shares
Buyback of government guaranteed debt
Westpac Bicentennial Foundation grant
Prior year tax provisions
Bell litigation provision
Fair value amortisation of financial instruments
TPS revaluations
Total Cash earnings adjustments
Revenue from products and services
to greater than 10% of the Group’s revenue.
Geographic segments
2015
7,820
665
(354)
(149)
(66)
64
33
(1)
(1)
1
-
-
-
-
-
192
8,012
%
85.1
12.3
2.6
100.0
91.2
5.7
3.1
100.0
2014
7,628
-
-
-
(147)
(51)
105
(46)
(7)
42
(70)
70
54
(17)
-
(67)
7,561
34,159
3,885
739
38,783
12,324
786
405
13,515
2013
7,063
(150)
(21)
20
(42)
(43)
-
-
-
-
-
-
-
(67)
(9)
(312)
6,751
%
88.1
10.0
1.9
100.0
91.2
5.8
3.0
100.0
Net profit attributable to owners of Westpac Banking Corporation
Further details of the above cash earnings adjustments, which are all net of tax is provided in Section 2.
Details of revenue from external customers by product or service are disclosed in Notes 3 and 4. No single customer amounts
Geographic segments are based on the location of the office in which the following items are recognised:
2015
$m
2014
$m
2013
$m
Revenue
Australia
New Zealand
Other1
Total
Australia
New Zealand
Other1
Total
Non-current assets2
%
85.7
12.4
1.9
100.0
90.8
5.7
3.5
100.0
32,880
4,738
1,025
38,643
12,828
797
433
14,058
33,991
4,937
742
39,670
11,949
751
466
13,166
1 Other includes Pacific Islands, Asia, the Americas and Europe.
2 Non-current assets include property and equipment, goodwill and other intangible assets.
Notes to the financial statements
Note 3. Net interest income
Accounting policy
Interest income and expense for all interest bearing financial assets and liabilities (including those instruments measured at fair
value) is recognised using the effective interest rate method. Net income related to treasury’s interest rate and liquidity
management activities is included in net interest income.
The effective interest rate method calculates the amortised cost of a financial instrument and allocates the interest income or
interest expense over its expected life. The effective interest rate is the rate that discounts estimated future cash payments or
receipts through the expected life of the financial instrument, or when appropriate, a shorter period, to the net carrying amount
of the financial asset or financial liability. When calculating the effective interest rate, cash flows are estimated based upon all
contractual terms of the financial instrument (for example, prepayment options) but do not consider future credit losses. The
calculation includes all fees and other amounts paid or received between parties to the contract that are an integral part of the
effective interest rate (e.g. loan establishment fees), transaction costs and all other premiums or discounts.
Interest relating to impaired loans is recognised using the loan’s original effective interest rate based on the net carrying value
of the impaired loan or for a variable rate loan, the current effective interest rate. This rate is also used to discount the future
cash flows for the purpose of measuring impairment charges.
Interest income on finance leases is brought to account progressively over the life of the lease, consistent with the outstanding
investment and unearned income balance.
$m
Interest income
Cash and balances with central banks
Receivables due from other financial institutions
Net ineffectiveness on qualifying hedges
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans
Regulatory deposits with central banks overseas
Due from subsidiaries
Other interest income
Total interest income1
Interest expense
Payables due to other financial institutions
Deposits and other borrowings
Trading liabilities
Debt issues
Due to subsidiaries
Loan capital
Other interest expense
Total interest expense2
Consolidated
Parent Entity
2015
2014
2013
2015
2014
219
87
(13)
1,032
1,634
225
84
(58)
1,482
1,386
102
113
31
1,732
1,226
29,307
29,104
29,781
12
-
17
18
-
7
23
-
1
170
50
(8)
956
1,445
24,468
12
4,933
17
182
35
(61)
1,413
1,231
24,666
18
4,585
7
32,295
32,248
33,009
32,043
32,076
(304)
(300)
(190)
(10,669)
(11,499)
(12,555)
(2,475)
(3,908)
-
(535)
(137)
(2,523)
(3,813)
-
(490)
(81)
(2,806)
(4,008)
-
(529)
(100)
(304)
(9,008)
(2,476)
(3,205)
(4,873)
(495)
(141)
(299)
(10,029)
(2,268)
(3,096)
(4,791)
(458)
(71)
(18,028)
(18,706)
(20,188)
(20,502)
(21,012)
Net interest income
11,541
1 Total interest income for financial assets that are not at fair value through profit or loss is $31,276 million (2014: $30,824 million, 2013:
13,542
12,821
14,267
11,064
$31,246 million) for the Group and $31,095 million (2014: $30,724 million) for the Parent Entity.
2 Total interest expense for financial liabilities that are not at fair value through profit or loss is $14,363 million (2014: $14,996 million,
2013: $16,116 million) for the Group and $16,923 million (2014: $17,636 million) for the Parent Entity.
132
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133
3
Note 4. Non-interest income
Accounting policy
Fees and commission income is recognised as follows:
Income earned on the execution of a significant act is recognised when the act has been completed (for example, advisory
or arrangement services, placement services and underwriting services);
Income earned for providing ongoing services is recognised as the services are provided (for example, maintaining and
administering existing facilities); and
Income which forms an integral part of the effective interest rate of a financial instrument is recognised using the effective
interest method and recorded in interest income (for example, loan origination fees).
Premium income
Life insurance premiums with a regular due date are recognised as revenue on an accrual basis. Premiums with no due date
are recognised on a cash received basis.
Life investment premiums include a management fee component which is recognised as funds management income over the
period the service is provided. The deposit components of life insurance and investment contracts are not revenue and are
treated as movements in life insurance policy liabilities.
General insurance premium comprises amounts charged to policyholders, including fire service levies, but excludes taxes
collected on behalf of third parties. The earned portion of premiums received and receivable is recognised as revenue.
General insurance premium revenue is earned from the date of attachment of risk and over the term of the policies written,
based on actuarial assessment of the likely pattern in which risk will emerge. The portion not yet earned based on the pattern
assessment is recognised as unearned premium liability.
Claims expense
Life and general insurance contract claims are recognised as an expense when a liability has been established.
Claims incurred in respect of life investment contracts represent withdrawals and are recognised as a reduction in life
insurance liabilities.
Trading income
Realised and unrealised gains or losses arising from changes in the fair value of trading assets, liabilities and derivatives are
recognised in the period in which they arise except day one profits or losses which are deferred where certain valuation inputs
are unobservable. Dividend income on the trading portfolio is recorded as part of trading income. Net income related to
treasury’s interest rate and liquidity management activities is included in net interest income.
Dividend income
Dividends on quoted shares are recognised on the ex-dividend date. Dividends on unquoted shares are recognised when the
company’s right to receive payment is established.
Rental income on operating leases
Operating lease rental income is recognised on a straight line basis over the lease term.
Note 4. Non-interest income (continued)
$m
Fees and commissions
Facility fees
Transaction fees and commissions received
Other non-risk fee income
Transactions with subsidiaries
Total fees and commissions
Wealth management and insurance income
Life insurance and funds management net operating income
General insurance and lenders mortgage insurance net operating income
Total wealth management and insurance income
Net gain/(loss) on hedging overseas operations
Net gain/(loss) on derivatives held for risk management purposes1
Net gain/(loss) on financial instruments designated at fair value
Trading income
Foreign exchange income
Other trading products
Total trading income
Other income
Dividends received from subsidiaries
Dividends received from other entities
Net gain on disposal of assets
Net gain/(loss) on ineffective hedges
Gain on disposal of controlled entities
Rental income on operating leases
Share of associates net profit
Other
Total other income
Total non-interest income
Funds management income
Life insurance premium income
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2013
2015
2014
1,287
1,025
501
417
1,265
1,030
312
514
2,942
2,926
2,723
3,230
3,121
1,017
1,069
1,509
1,643
1,329
1,254
343
-
2,000
254
2,254
530
487
11
97
-
-
12
(27)
(14)
32
-
-
87
198
1,253
1,160
310
-
1,738
206
1,944
440
629
(118)
32
-
10
67
(1)
(6)
-
-
-
54
38
1,342
1,247
353
-
2,033
195
2,228
708
256
964
-
12
103
2
(1)
(27)
(10)
54
5
62
1,041
1,241
7,375
1,334
1,002
530
(833)
453
-
-
-
622
275
897
10
95
2
(77)
(27)
11
30
-
-
42
-
-
-
-
-
-
-
-
-
-
-
407
520
927
8
127
-
18
(27)
18
-
1
-
69
-
-
-
-
-
-
-
-
1,595
5,722
1,857
5,905
Wealth management and insurance income comprised
Life insurance commissions, investment income and other income
Life insurance claims and changes in life insurance liabilities
General insurance and lenders mortgage insurance net premiums earned
General insurance and lenders mortgage insurance investment, commissions and
other income
General insurance and lenders mortgage insurance claims incurred, underwriting
and commission expenses
Total wealth management and insurance income
6,395
5,774
1,337
881
639
(857)
426
1,149
761
1,125
(1,297)
402
30
22
25
(288)
2,228
(194)
2,254
(221)
1,944
1
Income from derivatives held for risk management purposes reflects impact of economic hedge of foreign currency capital and earnings where hedge
accounting is not achieved.
134
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2015 Westpac Group Annual Report
135
Note 4. Non-interest income
Accounting policy
Fees and commission income is recognised as follows:
Income earned on the execution of a significant act is recognised when the act has been completed (for example, advisory
or arrangement services, placement services and underwriting services);
Income earned for providing ongoing services is recognised as the services are provided (for example, maintaining and
administering existing facilities); and
Income which forms an integral part of the effective interest rate of a financial instrument is recognised using the effective
interest method and recorded in interest income (for example, loan origination fees).
Premium income
are recognised on a cash received basis.
Life insurance premiums with a regular due date are recognised as revenue on an accrual basis. Premiums with no due date
Life investment premiums include a management fee component which is recognised as funds management income over the
period the service is provided. The deposit components of life insurance and investment contracts are not revenue and are
treated as movements in life insurance policy liabilities.
General insurance premium comprises amounts charged to policyholders, including fire service levies, but excludes taxes
collected on behalf of third parties. The earned portion of premiums received and receivable is recognised as revenue.
General insurance premium revenue is earned from the date of attachment of risk and over the term of the policies written,
based on actuarial assessment of the likely pattern in which risk will emerge. The portion not yet earned based on the pattern
assessment is recognised as unearned premium liability.
Life and general insurance contract claims are recognised as an expense when a liability has been established.
Claims incurred in respect of life investment contracts represent withdrawals and are recognised as a reduction in life
Claims expense
insurance liabilities.
Trading income
Realised and unrealised gains or losses arising from changes in the fair value of trading assets, liabilities and derivatives are
recognised in the period in which they arise except day one profits or losses which are deferred where certain valuation inputs
are unobservable. Dividend income on the trading portfolio is recorded as part of trading income. Net income related to
treasury’s interest rate and liquidity management activities is included in net interest income.
Dividends on quoted shares are recognised on the ex-dividend date. Dividends on unquoted shares are recognised when the
Dividend income
company’s right to receive payment is established.
Rental income on operating leases
Operating lease rental income is recognised on a straight line basis over the lease term.
Note 4. Non-interest income (continued)
$m
Fees and commissions
Facility fees
Transaction fees and commissions received
Other non-risk fee income
Transactions with subsidiaries
Total fees and commissions
Wealth management and insurance income
Life insurance and funds management net operating income
General insurance and lenders mortgage insurance net operating income
Total wealth management and insurance income
Trading income
Foreign exchange income
Other trading products
Total trading income
Other income
Dividends received from subsidiaries
Dividends received from other entities
Net gain on disposal of assets
Net gain/(loss) on ineffective hedges
Net gain/(loss) on hedging overseas operations
Net gain/(loss) on derivatives held for risk management purposes1
Net gain/(loss) on financial instruments designated at fair value
Gain on disposal of controlled entities
Rental income on operating leases
Share of associates net profit
Other
Total other income
Total non-interest income
Wealth management and insurance income comprised
Funds management income
Life insurance premium income
Life insurance commissions, investment income and other income
Life insurance claims and changes in life insurance liabilities
General insurance and lenders mortgage insurance net premiums earned
General insurance and lenders mortgage insurance investment, commissions and
other income
General insurance and lenders mortgage insurance claims incurred, underwriting
and commission expenses
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2013
2015
2014
1,342
1,247
353
-
1,329
1,254
343
-
1,253
1,160
310
-
1,287
1,025
501
417
1,265
1,030
312
514
2,942
2,926
2,723
3,230
3,121
2,033
195
2,228
708
256
964
-
12
103
2
(1)
(27)
(10)
1,041
54
5
62
1,241
7,375
1,334
1,002
530
(833)
453
2,000
254
2,254
530
487
1,738
206
1,944
440
629
1,017
1,069
-
11
97
-
12
(27)
(14)
-
32
-
87
198
6,395
1,337
881
639
(857)
426
-
10
67
(1)
(6)
(118)
32
-
-
-
54
38
5,774
1,149
761
1,125
(1,297)
402
30
22
25
(288)
2,228
(194)
2,254
(221)
1,944
-
-
-
622
275
897
-
-
-
407
520
927
1,509
1,643
10
95
2
(77)
(27)
11
-
30
-
42
8
127
-
18
(27)
18
-
1
-
69
1,595
5,722
1,857
5,905
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total wealth management and insurance income
1
Income from derivatives held for risk management purposes reflects impact of economic hedge of foreign currency capital and earnings where hedge
accounting is not achieved.
134
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2015 Westpac Group Annual Report
135
3
Note 5. Operating expenses
Accounting policy
Operating expenses are recognised as the relevant service is rendered or asset is consumed or once a liability is incurred.
Salaries and other staff expenses
Salaries and wages are recognised over the period the employee renders the service to receive the benefit.
The accounting policies for share-based payments and superannuation benefits are included in Note 37 and
Note 38 respectively. The accounting policies for other employee benefits are included in Note 28.
Operating lease rentals
Operating lease payments are recognised in the income statement as an expense on a straight-line basis over the lease term
unless another systematic basis is more representative of the time pattern of the benefit received. Incentives received on
entering into operating leases are recorded as liabilities and amortised as a reduction of rental expense on a straight-line basis
over the lease term.
Depreciation, amortisation and impairment
Useful lives for each category of assets are as follows:
Premises and sites
Leasehold improvements
Furniture and equipment
IT equipment
Assets under lease
Computer software
Core deposit intangible
Other intangibles
Computer software assets and directly related hardware are amortised over their useful life of 3 to 10 years using either the
straight-line or the diminishing balance method (using the Sum of Years Digits). The useful life and amortisation method applied
are based on an assessment of the benefits expected to be received from each asset.
Up to 50 years
Up to 10 years
3 to 15 years
3 to 5 years
Up to 7 years
3 to 10 years
9 years
3 to 8 years
Depreciation and amortisation for all other asset categories is calculated using the straight-line method to allocate the cost of
assets less any residual value over their estimated useful lives.
In the current period the Group reviewed both the depreciation method and useful life of certain technology assets. This
resulted in increased depreciation, amortisation and impairment of technology assets in the current period of $505 million which
otherwise would have been recognised over the forthcoming 8 years.
An impairment charge is recognised as part of operating expenses whenever the carrying amount of the asset exceeds its
recoverable amount.
Wealth management acquisition costs
Deferred acquisition costs are the variable costs that are directly related to and incremental to the acquisition of new business
principally in relation to the Group’s life insurance and retail funds management business. These costs are recorded as an
asset and are amortised in the income statement on the same basis as the recognition of related revenue.
Note 5. Operating expenses (continued)
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2013
2015
2014
$m
Salaries and other staff expenses
Employee remuneration, entitlements and on-costs
Superannuation expense1
Equity based compensation
Restructuring costs
Total salaries and other staff expenses
Equipment and occupancy expenses
Operating lease rentals
Depreciation of property and equipment
Other
Total equipment and occupancy expenses
Technology expenses
Depreciation and impairment of IT equipment
Amortisation and impairment of software assets
Software maintenance and licences
Technology services
Data processing
Telecommunications
Total technology expenses
Other expenses
Amortisation and impairment of intangible assets
and deferred expenditure
Impairment on investments in subsidiaries
Non-lending losses
Credit card loyalty programs
Professional services
Postage and stationery
Advertising
Westpac Bicentennial Foundation grant
Other expenses
Total other expenses
Operating expenses2
for consistency.
Note 6. Impairment charges
Accounting policy
3,990
336
184
61
4,571
565
199
140
904
105
493
199
541
69
167
223
-
(23)
136
580
205
159
100
118
3,762
324
155
28
4,269
565
183
125
873
94
403
220
483
64
142
224
-
43
135
526
222
164
-
114
3,199
294
119
71
3,683
507
190
113
810
152
927
181
432
65
178
207
19
64
134
425
159
117
-
220
3,120
272
133
57
3,582
481
156
111
748
91
413
159
442
68
139
207
22
(33)
136
377
158
114
100
216
2,288
1,574
1,406
1,935
1,312
4,094
362
174
74
4,704
586
229
139
954
170
1,051
221
575
67
204
221
-
74
134
615
204
150
-
129
1,527
9,473
1 Refer to Note 38 for details of defined benefit expense.
2 The presentation of operating expenses has been revised to better reflect the nature of our business and we have revised comparatives
1,498
8,547
1,428
7,976
1,345
7,773
1,297
6,939
The Group assesses at each balance date whether there is any objective evidence of impairment of its loan portfolio. An
impairment charge is incurred if there is objective evidence of impairment as a result of one or more loss events which have an
impact on the estimated cash flows of the financial asset that can be reliably estimated. Objective evidence includes significant
financial difficulties of an obligor, adverse changes in the payment status of borrowers or national, local economic conditions
that correlate with defaults on a group of loans. The amount of the charge is measured as the difference between the asset’s
carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the loan’s original effective interest rate. The carrying amount of the loan is reduced through the use of
a provision account which is either individually assessed or collectively assessed (refer Note 14) and the amount of the loss is
recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment is the
current effective interest rate.
136
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137
Operating expenses are recognised as the relevant service is rendered or asset is consumed or once a liability is incurred.
$m
Note 5. Operating expenses (continued)
Salaries and other staff expenses
Employee remuneration, entitlements and on-costs
Superannuation expense1
Equity based compensation
Restructuring costs
Total salaries and other staff expenses
Equipment and occupancy expenses
Operating lease rentals
Depreciation of property and equipment
Other
Total equipment and occupancy expenses
Technology expenses
Depreciation and impairment of IT equipment
Amortisation and impairment of software assets
Software maintenance and licences
Technology services
Data processing
Telecommunications
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2013
2015
2014
4,094
362
174
74
4,704
586
229
139
954
170
1,051
221
575
67
204
3,990
336
184
61
4,571
565
199
140
904
105
493
199
541
69
167
3,762
324
155
28
4,269
565
183
125
873
94
403
220
483
64
142
3,199
294
119
71
3,683
507
190
113
810
152
927
181
432
65
178
3,120
272
133
57
3,582
481
156
111
748
91
413
159
442
68
139
Total technology expenses
2,288
1,574
1,406
1,935
1,312
Note 5. Operating expenses
Accounting policy
Salaries and other staff expenses
Salaries and wages are recognised over the period the employee renders the service to receive the benefit.
The accounting policies for share-based payments and superannuation benefits are included in Note 37 and
Note 38 respectively. The accounting policies for other employee benefits are included in Note 28.
Operating lease rentals
Operating lease payments are recognised in the income statement as an expense on a straight-line basis over the lease term
unless another systematic basis is more representative of the time pattern of the benefit received. Incentives received on
entering into operating leases are recorded as liabilities and amortised as a reduction of rental expense on a straight-line basis
over the lease term.
Depreciation, amortisation and impairment
Useful lives for each category of assets are as follows:
Premises and sites
Leasehold improvements
Furniture and equipment
IT equipment
Assets under lease
Computer software
Core deposit intangible
Other intangibles
Up to 50 years
Up to 10 years
3 to 15 years
3 to 5 years
Up to 7 years
3 to 10 years
9 years
3 to 8 years
Computer software assets and directly related hardware are amortised over their useful life of 3 to 10 years using either the
straight-line or the diminishing balance method (using the Sum of Years Digits). The useful life and amortisation method applied
are based on an assessment of the benefits expected to be received from each asset.
Depreciation and amortisation for all other asset categories is calculated using the straight-line method to allocate the cost of
assets less any residual value over their estimated useful lives.
In the current period the Group reviewed both the depreciation method and useful life of certain technology assets. This
resulted in increased depreciation, amortisation and impairment of technology assets in the current period of $505 million which
otherwise would have been recognised over the forthcoming 8 years.
An impairment charge is recognised as part of operating expenses whenever the carrying amount of the asset exceeds its
recoverable amount.
Wealth management acquisition costs
Deferred acquisition costs are the variable costs that are directly related to and incremental to the acquisition of new business
principally in relation to the Group’s life insurance and retail funds management business. These costs are recorded as an
asset and are amortised in the income statement on the same basis as the recognition of related revenue.
Other expenses
Amortisation and impairment of intangible assets
and deferred expenditure
Impairment on investments in subsidiaries
Non-lending losses
Credit card loyalty programs
Professional services
Postage and stationery
Advertising
Westpac Bicentennial Foundation grant
Other expenses
221
-
74
134
615
204
150
-
129
223
-
(23)
136
580
205
159
100
118
224
-
43
135
526
222
164
-
114
207
19
64
134
425
159
117
-
220
Total other expenses
Operating expenses2
1 Refer to Note 38 for details of defined benefit expense.
2 The presentation of operating expenses has been revised to better reflect the nature of our business and we have revised comparatives
for consistency.
Note 6. Impairment charges
Accounting policy
The Group assesses at each balance date whether there is any objective evidence of impairment of its loan portfolio. An
impairment charge is incurred if there is objective evidence of impairment as a result of one or more loss events which have an
impact on the estimated cash flows of the financial asset that can be reliably estimated. Objective evidence includes significant
financial difficulties of an obligor, adverse changes in the payment status of borrowers or national, local economic conditions
that correlate with defaults on a group of loans. The amount of the charge is measured as the difference between the asset’s
carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the loan’s original effective interest rate. The carrying amount of the loan is reduced through the use of
a provision account which is either individually assessed or collectively assessed (refer Note 14) and the amount of the loss is
recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment is the
current effective interest rate.
136
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137
207
22
(33)
136
377
158
114
100
216
1,297
6,939
1,345
1,428
1,527
1,498
8,547
7,773
7,976
9,473
3
Note 7. Income tax (continued)
The determination of the provision for income taxes is one of the Group’s critical accounting assumptions and estimates as
Notes to the financial statements
detailed in Note 1d(vi).
Income tax expense
$m
before income tax as follows
Profit before income tax
The income tax expense for the year is reconciled to the profit
Prima facie income tax based on the Australian company tax rate of 30%
The effect of amounts which are not deductible
(assessable) in calculating taxable income
Change in tax rate
Dividend adjustments
Life insurance:
Tax adjustment on policyholder earnings
Adjustment for life business tax rates
Hybrid capital distributions
Other non-assessable items
Other non-deductible items
Adjustment for overseas tax rates
Income tax (over)/under provided in prior years
Other items1
Total income tax expense in the income statement
Income tax expense attributable to profit from ordinary activities comprised:
Under/(over) provision in prior years
Total income tax expense attributable to profit from ordinary activities
Income tax analysis
Current income tax
Deferred income tax
Total Australia
Total Overseas
Consolidated
Parent Entity
2015
2014
2013
2015
2014
11,416
3,425
10,740
3,222
9,772
2,932
8,868
2,660
9,469
2,841
(453)
(493)
11
-
-
(4)
46
(52)
25
(27)
(88)
12
1
7
3
(4)
36
(22)
46
(22)
(14)
(2)
(2)
24
(8)
26
37
-
(7)
(18)
3,348
(138)
3,115
(35)
2,947
3,347
2,704
2,566
89
(88)
3,348
2,964
384
3,348
425
(14)
3,115
2,694
421
3,115
388
(7)
2,947
2,595
352
2,947
-
-
1
46
(23)
19
3
(76)
(56)
2,121
2,329
(132)
(76)
2,121
2,117
4
2,121
1
-
1
36
(22)
39
10
(15)
(163)
2,235
1,923
327
(15)
2,235
2,172
63
2,235
Total income tax expense attributable to profit from ordinary activities
1 2014 includes the release of provisions no longer required following the finalisation of prior period taxation matters.
The effective tax rate was 29.3% in 2015 (29.0% in 2014).
Note 6. Impairment charges (continued)
When a loan or part of a loan is uncollectable, it is written off against the related provision for impairment. Such loans are
written off after all the necessary procedures have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off decrease the amount of the charge for loan impairment in the income
statement. If, in a subsequent period, the amount of the impairment charge decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating),
the previously recognised impairment charge is reversed by adjusting the provision account. The amount of the reversal is
recognised in the income statement.
$m
Reconciliation of impairment charges
Individually assessed provisions raised
Write-backs
Recoveries
Collectively assessed provisions raised
Impairment charges
Consolidated
Parent Entity
2015
566
(297)
(131)
615
753
2014
684
(433)
(106)
505
650
2013
1,112
(479)
(76)
290
847
2015
457
(274)
(82)
521
622
2014
550
(373)
(73)
457
561
Refer to Note 14 for further details on Provisions for impairment charges.
Note 7. Income tax
Accounting policy
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement
of other comprehensive income.
Current tax is the expected tax payable on the taxable income for the financial year using tax rates and laws that have been
enacted or substantively enacted for each jurisdiction at the balance date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is accounted for using the balance sheet method, providing for temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the amounts attributed to those assets and liabilities for taxation
purposes. Deferred tax is not recognised for:
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither the accounting nor taxable profit or loss;
temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the
foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is determined using the tax rates and laws enacted or substantively enacted for each jurisdiction at the balance
sheet date which are expected to apply in the periods in which the assets will be realised or the liabilities settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised.
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority on
the same taxable entity or different entities in the same taxable group and where we have a legal right and intention to settle on
a net basis.
The Parent Entity and its wholly owned, Australian-controlled entities are part of a tax consolidated group under Australian tax
law. The Parent Entity is the head entity in the tax consolidated group. All entities in the tax consolidated group have entered
into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liabilities of the wholly owned
entities in the case of a default by the head entity.
Tax expense/income, deferred tax liabilities and assets arising from temporary differences are recognised in the separate
financial statements of the members of the tax-consolidated group using a ‘group allocation basis’. Current tax liabilities and
assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated
group are recognised by the Parent Entity (as head entity in the tax-consolidated group).
The entities have also entered into a tax funding agreement under which the wholly owned entities fully compensate the Parent
Entity for any current tax payable assumed and are compensated by the Parent Entity for any current tax receivable and
deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the Parent Entity under the tax
consolidation legislation.
138
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
139
Note 6. Impairment charges (continued)
When a loan or part of a loan is uncollectable, it is written off against the related provision for impairment. Such loans are
written off after all the necessary procedures have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off decrease the amount of the charge for loan impairment in the income
statement. If, in a subsequent period, the amount of the impairment charge decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating),
the previously recognised impairment charge is reversed by adjusting the provision account. The amount of the reversal is
recognised in the income statement.
Consolidated
Parent Entity
2015
566
(297)
(131)
615
753
2014
684
(433)
(106)
505
650
2013
1,112
(479)
(76)
290
847
2015
457
(274)
(82)
521
622
2014
550
(373)
(73)
457
561
Reconciliation of impairment charges
Individually assessed provisions raised
$m
Write-backs
Recoveries
Collectively assessed provisions raised
Impairment charges
Note 7. Income tax
Accounting policy
of other comprehensive income.
previous years.
Refer to Note 14 for further details on Provisions for impairment charges.
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement
Current tax is the expected tax payable on the taxable income for the financial year using tax rates and laws that have been
enacted or substantively enacted for each jurisdiction at the balance date, and any adjustment to tax payable in respect of
Deferred tax is accounted for using the balance sheet method, providing for temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the amounts attributed to those assets and liabilities for taxation
purposes. Deferred tax is not recognised for:
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither the accounting nor taxable profit or loss;
temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the
foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is determined using the tax rates and laws enacted or substantively enacted for each jurisdiction at the balance
sheet date which are expected to apply in the periods in which the assets will be realised or the liabilities settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised.
a net basis.
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority on
the same taxable entity or different entities in the same taxable group and where we have a legal right and intention to settle on
The Parent Entity and its wholly owned, Australian-controlled entities are part of a tax consolidated group under Australian tax
law. The Parent Entity is the head entity in the tax consolidated group. All entities in the tax consolidated group have entered
into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liabilities of the wholly owned
entities in the case of a default by the head entity.
Tax expense/income, deferred tax liabilities and assets arising from temporary differences are recognised in the separate
financial statements of the members of the tax-consolidated group using a ‘group allocation basis’. Current tax liabilities and
assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated
group are recognised by the Parent Entity (as head entity in the tax-consolidated group).
The entities have also entered into a tax funding agreement under which the wholly owned entities fully compensate the Parent
Entity for any current tax payable assumed and are compensated by the Parent Entity for any current tax receivable and
deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the Parent Entity under the tax
consolidation legislation.
Note 7. Income tax (continued)
The determination of the provision for income taxes is one of the Group’s critical accounting assumptions and estimates as
detailed in Note 1d(vi).
Notes to the financial statements
Income tax expense
$m
The income tax expense for the year is reconciled to the profit
before income tax as follows
Consolidated
Parent Entity
2015
2014
2013
2015
2014
Profit before income tax
Prima facie income tax based on the Australian company tax rate of 30%
11,416
3,425
10,740
3,222
9,772
2,932
8,868
2,660
9,469
2,841
The effect of amounts which are not deductible
(assessable) in calculating taxable income
Change in tax rate
Dividend adjustments
Life insurance:
Tax adjustment on policyholder earnings
Adjustment for life business tax rates
Hybrid capital distributions
Other non-assessable items
Other non-deductible items
Adjustment for overseas tax rates
Income tax (over)/under provided in prior years
Other items1
Total income tax expense in the income statement
Income tax analysis
Income tax expense attributable to profit from ordinary activities comprised:
Current income tax
Deferred income tax
Under/(over) provision in prior years
Total income tax expense attributable to profit from ordinary activities
Total Australia
Total Overseas
-
11
-
(4)
46
(52)
25
(27)
(88)
12
3,348
1
7
3
(4)
36
(22)
46
(22)
(14)
(2)
(2)
24
(8)
26
(18)
37
-
(7)
(138)
3,115
(35)
2,947
3,347
2,704
2,566
89
(88)
3,348
2,964
384
425
(14)
3,115
2,694
421
388
(7)
2,947
2,595
352
2,947
-
(453)
1
(493)
-
1
46
(23)
19
3
(76)
(56)
2,121
2,329
(132)
(76)
2,121
2,117
4
2,121
-
1
36
(22)
39
10
(15)
(163)
2,235
1,923
327
(15)
2,235
2,172
63
2,235
Total income tax expense attributable to profit from ordinary activities
1 2014 includes the release of provisions no longer required following the finalisation of prior period taxation matters.
3,348
3,115
The effective tax rate was 29.3% in 2015 (29.0% in 2014).
138
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
139
3
Note 7. Income tax (continued)
Deferred tax assets
$m
2015
2014
2015
2014
$m
Consolidated
Parent Entity
Consolidated
Parent Entity
2015
2014
2015
2014
The balance comprises temporary differences attributable to:
Amounts recognised in income statements
Provisions for impairment charges on loans
Provision for long service leave, annual leave and other employee benefits
Financial instruments
Property and equipment
Other provisions
Other liabilities
Amounts recognised directly in other comprehensive income
Available-for-sale securities
Defined benefit deficit
Set-off of deferred tax liabilities pursuant to set-off provisions1
Net deferred tax assets
Net deferred tax assets to be recovered within 12 months
Net deferred tax assets to be recovered after more than 12 months
Movement
Opening balance as at beginning of the year
Credited to income statements
Recognised in other comprehensive income
Set-off of deferred tax assets pursuant to set-off provisions1
906
299
269
235
182
334
926
311
180
227
184
340
726
274
221
222
164
326
756
271
163
217
169
324
Financial instruments
Finance lease transactions
Property and equipment
Life insurance assets
Other assets
2,225
2,168
1,933
1,900
Amounts recognised directly in other comprehensive income
12
62
74
(922)
1,377
430
947
1,397
886
16
(922)
(55)
113
58
(829)
1,397
376
1,021
1,773
484
(31)
(829)
18
61
79
(549)
1,463
492
971
1,322
689
1
(549)
(35)
113
78
(656)
1,322
349
973
1,632
374
(28)
(656)
Note 7. Income tax (continued)
Deferred tax liabilities
The balance comprises temporary differences attributable to:
Amounts recognised in income statements
Cash flow hedges
Set-off of deferred tax liabilities pursuant to set-off provisions1
Net deferred tax liabilities
Net deferred tax liabilities to be recovered within 12 months
Net deferred tax liabilities to be recovered after more than 12 months
Movements
Opening balance as at beginning of the year
Charged to income statements
Recognised in other comprehensive income
Set-off of deferred tax assets pursuant to set-off provisions1
Closing balance as at end of the year
within the same taxable group.
Unrecognised deferred tax liabilities
Notes to the financial statements
(922)
(829)
249
142
112
73
385
961
16
55
25
30
55
975
(53)
(922)
55
135
142
223
53
262
815
69
55
24
31
22
909
(47)
(829)
55
204
41
116
-
132
493
56
(549)
-
-
-
-
-
557
(8)
(549)
156
34
217
-
185
592
64
(656)
-
-
-
-
-
701
(45)
(656)
1 Deferred tax assets and liabilities are set-off where they relate to the same taxation authority on either the same taxable entity or different entities
Deferred tax liabilities relating to aggregate temporary differences of $49 million (2014: $44 million) associated with investments
in subsidiaries have not been recognised because the Parent Entity controls whether the liability will be incurred and it is
satisfied that the liability will not be incurred in the foreseeable future.
different entities within the same taxable group.
Unrecognised deferred tax assets
Deferred tax assets relating to certain tax losses have not been recognised because it is not considered probable that future
taxable profit will be available against which they can be realised.
$m
Tax losses on revenue account
Consolidated
Parent Entity
2015
80
2014
82
2015
72
2014
73
140
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
141
Closing balance as at end of the year
1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or
1,397
1,463
1,377
1,322
$m
2015
2014
2015
2014
$m
Consolidated
Parent Entity
Consolidated
Parent Entity
2015
2014
2015
2014
Note 7. Income tax (continued)
Deferred tax liabilities
Notes to the financial statements
The balance comprises temporary differences attributable to:
Amounts recognised in income statements
Financial instruments
Finance lease transactions
Property and equipment
Life insurance assets
Other assets
2,225
2,168
1,933
1,900
Amounts recognised directly in other comprehensive income
Cash flow hedges
Set-off of deferred tax liabilities pursuant to set-off provisions1
Net deferred tax liabilities
Net deferred tax liabilities to be recovered within 12 months
Net deferred tax liabilities to be recovered after more than 12 months
Movements
Opening balance as at beginning of the year
Charged to income statements
Recognised in other comprehensive income
Set-off of deferred tax assets pursuant to set-off provisions1
249
142
112
73
385
961
16
(922)
55
25
30
55
975
(53)
(922)
135
142
223
53
262
815
69
(829)
55
24
31
22
909
(47)
(829)
204
41
116
-
132
493
56
(549)
-
-
-
-
557
(8)
(549)
156
34
217
-
185
592
64
(656)
-
-
-
-
701
(45)
(656)
Note 7. Income tax (continued)
Deferred tax assets
The balance comprises temporary differences attributable to:
Amounts recognised in income statements
Provisions for impairment charges on loans
Provision for long service leave, annual leave and other employee benefits
Financial instruments
Property and equipment
Other provisions
Other liabilities
Available-for-sale securities
Defined benefit deficit
Amounts recognised directly in other comprehensive income
Set-off of deferred tax liabilities pursuant to set-off provisions1
Net deferred tax assets
Net deferred tax assets to be recovered within 12 months
Net deferred tax assets to be recovered after more than 12 months
Movement
Opening balance as at beginning of the year
Credited to income statements
Recognised in other comprehensive income
Set-off of deferred tax assets pursuant to set-off provisions1
Closing balance as at end of the year
different entities within the same taxable group.
Unrecognised deferred tax assets
906
299
269
235
182
334
12
62
74
(922)
1,377
430
947
1,397
886
16
(922)
1,377
926
311
180
227
184
340
(55)
113
58
(829)
1,397
376
1,021
1,773
484
(31)
(829)
1,397
726
274
221
222
164
326
18
61
79
(549)
1,463
492
971
1,322
689
1
(549)
1,463
756
271
163
217
169
324
(35)
113
78
(656)
1,322
349
973
1,632
374
(28)
(656)
1,322
1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or
Deferred tax assets relating to certain tax losses have not been recognised because it is not considered probable that future
taxable profit will be available against which they can be realised.
$m
Tax losses on revenue account
Consolidated
Parent Entity
2015
80
2014
82
2015
72
2014
73
within the same taxable group.
Unrecognised deferred tax liabilities
Deferred tax liabilities relating to aggregate temporary differences of $49 million (2014: $44 million) associated with investments
in subsidiaries have not been recognised because the Parent Entity controls whether the liability will be incurred and it is
satisfied that the liability will not be incurred in the foreseeable future.
140
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
141
Closing balance as at end of the year
1 Deferred tax assets and liabilities are set-off where they relate to the same taxation authority on either the same taxable entity or different entities
55
55
-
-
3
Note 8. Earnings per share
Accounting policy
Basic earnings per share (EPS) is calculated by dividing the net profit attributable to equity holders, excluding costs of servicing
other equity instruments, by the weighted average number of ordinary shares on issue during the financial year, excluding the
number of ordinary shares purchased by the Group and held as Treasury shares. Diluted EPS is calculated by adjusting the
earnings and the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential
ordinary shares.
Refer to Note 20 Loan capital and Note 37 Share-based payments for further information on the potential dilutive instruments.
Note 9. Average balance sheet and interest rates
The following table lists the average balances and related interest for the major categories of the Group’s interest earning
assets and interest bearing liabilities. Averages used are predominantly daily averages:
Notes to the financial statements
2015
Average
Balance
Interest
Income
$m
$m
Average
Average
Average
Average
Rate
Balance
%
$m
Rate
Balance
%
$m
2014
Interest
Income
$m
2013
Interest
Income
$m
Average
Rate
%
Consolidated
$m
Reconciliation of earnings used in the calculation of earnings
per ordinary share
Net profit attributable to owners of Westpac Banking Corporation
Restricted Share Plan (RSP) treasury shares distributions1
Distributions relating to convertible loan capital instruments
Net profit attributable to owners of Westpac Banking
Corporation adjusted for the effect of dilution
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares
Effect of own shares held
Potential dilutive adjustment:
2015
2014
2013
Basic
Diluted
Basic
Diluted
Basic
Diluted
8,012
8,012
7,561
7,561
6,751
6,751
(6)
-
-
184
(10)
-
-
165
(12)
-
-
161
8,006
8,196
7,551
7,726
6,739
6,912
3,134
(10)
3,134
(10)
3,109
(11)
3,109
(11)
3,100
(13)
Exercise of options and share rights and vesting of restricted shares
Convertible loan capital instruments
-
-
6
157
-
-
9
130
-
-
Total weighted average number of ordinary shares
3,124
3,287
3,098
3,237
3,087
Earnings per ordinary share (cents)
1 While the equity granted to employees remains unvested, RSP treasury shares are deducted from ordinary shares on issue in arriving at the
249.3
218.3
238.7
256.3
243.7
3,100
(13)
14
137
3,238
213.5
weighted average number of ordinary shares outstanding. Despite the shares being unvested, employees are entitled to dividends and to voting
rights on the shares. Consequently, a portion of the profit for the period is allocated to RSP treasury shares to arrive at earnings attributed to
ordinary shareholders.
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143
Trading securities and other financial
assets designated at fair value:
Consolidated
Assets
Interest earning assets
Receivables due from other
financial institutions:
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Available-for-sale securities:
Regulatory deposits:
Other overseas
Loans and other receivables1:
Total interest earning assets and
interest income
Non-interest earning assets
Cash, receivables due from other financial
institutions and regulatory deposits
Derivative financial instruments
Life insurance assets
All other assets2
Total non-interest earning assets
Total assets
central banks that are interest earning.
2
offset accounts.
1,970
49,400
11,590
51,929
114,889
798,703
2,542
359
7,005
28,077
3,812
4,772
2,886
2,040
63
6
18
822
138
72
130
82
2.5
1.7
0.3
2.9
3.6
1.5
3.8
4.5
4.0
2,433
294
5,151
60
5
19
32,877
4,358
10,134
1,226
132
124
2,384
1,351
107
49
2.5
1.7
0.4
3.7
3.0
1.2
4.5
4.5
3.6
2,852
338
5,959
3,309
6,262
2,085
1,089
36,974
1,422
27,222
1,230
21,475
1,107
38,506
1,560
1,147
12
1.0
1,369
18
1.3
1,512
86
5
22
88
84
93
26
23
502,474
25,280
63,349
28,377
3,818
432
5.0
6.0
1.5
474,570
25,498
59,240
25,979
3,449
331
5.4
5.8
1.3
449,405
26,712
50,801
16,276
2,924
279
683,814
32,295
4.7
647,362
32,248
5.0
599,869
33,009
3.0
1.5
0.4
4.1
2.7
1.3
5.2
4.5
2.4
1.5
5.9
5.8
1.7
5.5
1,513
28,866
13,687
45,696
89,762
737,124
723
33,967
12,713
41,023
88,426
688,295
1 Loans and receivables are stated net of provisions for impairment charges on loans. Other receivables include other assets and cash with
Includes property and equipment, goodwill and intangibles, other assets, deferred tax and non-interest bearing loans relating to mortgage
Note 8. Earnings per share
Accounting policy
Basic earnings per share (EPS) is calculated by dividing the net profit attributable to equity holders, excluding costs of servicing
other equity instruments, by the weighted average number of ordinary shares on issue during the financial year, excluding the
number of ordinary shares purchased by the Group and held as Treasury shares. Diluted EPS is calculated by adjusting the
earnings and the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential
Refer to Note 20 Loan capital and Note 37 Share-based payments for further information on the potential dilutive instruments.
ordinary shares.
Consolidated
$m
per ordinary share
Reconciliation of earnings used in the calculation of earnings
Restricted Share Plan (RSP) treasury shares distributions1
Distributions relating to convertible loan capital instruments
Net profit attributable to owners of Westpac Banking
Corporation adjusted for the effect of dilution
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares
Effect of own shares held
Potential dilutive adjustment:
Exercise of options and share rights and vesting of restricted shares
Convertible loan capital instruments
Total weighted average number of ordinary shares
Earnings per ordinary share (cents)
2015
2014
2013
Basic
Diluted
Basic
Diluted
Basic
Diluted
(6)
-
-
184
(10)
-
-
165
(12)
-
-
161
8,006
8,196
7,551
7,726
6,739
6,912
3,134
(10)
-
-
3,124
256.3
3,134
(10)
6
157
3,287
249.3
3,109
(11)
-
-
3,098
243.7
3,109
(11)
9
130
3,237
238.7
3,100
(13)
-
-
3,087
218.3
3,100
(13)
14
137
3,238
213.5
Net profit attributable to owners of Westpac Banking Corporation
8,012
8,012
7,561
7,561
6,751
6,751
1 While the equity granted to employees remains unvested, RSP treasury shares are deducted from ordinary shares on issue in arriving at the
weighted average number of ordinary shares outstanding. Despite the shares being unvested, employees are entitled to dividends and to voting
rights on the shares. Consequently, a portion of the profit for the period is allocated to RSP treasury shares to arrive at earnings attributed to
ordinary shareholders.
Note 9. Average balance sheet and interest rates
The following table lists the average balances and related interest for the major categories of the Group’s interest earning
assets and interest bearing liabilities. Averages used are predominantly daily averages:
Notes to the financial statements
Consolidated
Assets
Interest earning assets
Receivables due from other
financial institutions:
Australia
New Zealand
Overseas
Trading securities and other financial
assets designated at fair value:
Australia
New Zealand
Overseas
Available-for-sale securities:
Australia
New Zealand
Overseas
Regulatory deposits:
Other overseas
Loans and other receivables1:
Australia
New Zealand
Overseas
Total interest earning assets and
interest income
Non-interest earning assets
Cash, receivables due from other financial
institutions and regulatory deposits
Derivative financial instruments
Life insurance assets
All other assets2
Total non-interest earning assets
Average
Balance
$m
2015
Interest
Income
$m
Average
Rate
%
Average
Balance
$m
2014
Interest
Income
$m
Average
Rate
%
Average
Balance
$m
2013
Interest
Income
$m
Average
Rate
%
2,542
359
7,005
28,077
3,812
4,772
63
6
18
822
138
72
36,974
1,422
2,886
2,040
130
82
2.5
1.7
0.3
2.9
3.6
1.5
3.8
4.5
4.0
2,433
294
5,151
60
5
19
32,877
4,358
10,134
1,226
132
124
27,222
1,230
2,384
1,351
107
49
2.5
1.7
0.4
3.7
3.0
1.2
4.5
4.5
3.6
2,852
338
5,959
86
5
22
38,506
1,560
3,309
6,262
88
84
21,475
1,107
2,085
1,089
93
26
23
1,147
12
1.0
1,369
18
1.3
1,512
502,474
25,280
63,349
28,377
3,818
432
5.0
6.0
1.5
474,570
25,498
59,240
25,979
3,449
331
5.4
5.8
1.3
449,405
26,712
50,801
16,276
2,924
279
683,814
32,295
4.7
647,362
32,248
5.0
599,869
33,009
1,970
49,400
11,590
51,929
114,889
1,513
28,866
13,687
45,696
89,762
723
33,967
12,713
41,023
88,426
3.0
1.5
0.4
4.1
2.7
1.3
5.2
4.5
2.4
1.5
5.9
5.8
1.7
5.5
Total assets
1 Loans and receivables are stated net of provisions for impairment charges on loans. Other receivables include other assets and cash with
737,124
688,295
798,703
2
central banks that are interest earning.
Includes property and equipment, goodwill and intangibles, other assets, deferred tax and non-interest bearing loans relating to mortgage
offset accounts.
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143
3
Note 9. Average balance sheet and interest rates (continued)
Note 9. Average balance sheet and interest rates (continued)
Consolidated
Liabilities
Interest bearing liabilities
Payables due to other
financial institutions:
Australia
New Zealand
Overseas
Deposits and other borrowings:
Australia
New Zealand
Overseas
Loan capital:
Australia
Overseas
Other interest bearing liabilities1:
Australia
New Zealand
Overseas
Total interest bearing liabilities
and interest expense
Non-interest bearing liabilities
Deposits and payables due to
other financial institutions:
Australia
New Zealand
Overseas
Derivative financial instruments
Life insurance policy liabilities
All other liabilities2
Total non-interest bearing liabilities
Total liabilities
Shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
1
2
Includes net impact of Treasury balance sheet management activities.
Includes other liabilities, provisions, current and deferred tax liabilities.
Average
Balance
$m
2015
Interest
Income
$m
Average
Rate
%
Average
Balance
$m
2014
Interest
Income
$m
Average
Rate
%
Average
Balance
$m
2013
Interest
Income
$m
Average
Rate
%
The following table allocates changes in net interest income between changes in volume and changes in rate for the last two
fiscal years. Volume and rate variances have been calculated on the movement in average balances and the change in the
interest rates on average interest earning assets and average interest bearing liabilities. The variance caused by change in
both volume and rate has been allocated in proportion to the relationship of the absolute dollar amount of each change to
11,839
584
5,417
357,199
45,555
30,760
10,888
753
247
14
43
8,815
1,643
211
492
43
164,075
5,856
12,842
716
661
3
2.1
2.4
0.8
2.5
3.6
0.7
4.5
5.7
3.6
5.1
0.4
10,253
547
4,767
342,385
42,444
29,347
8,729
1,358
250
11
39
9,850
1,453
196
424
66
151,742
5,824
12,364
2,617
552
41
2.4
2.0
0.8
2.9
3.4
0.7
4.9
4.9
3.8
4.5
1.6
4,218
458
4,648
131
7
52
325,634
11,141
35,674
25,368
1,214
200
7,183
2,436
144,777
10,073
1
414
115
6,353
561
-
640,628
18,028
2.8
606,553
18,706
3.1
560,470
20,188
3.1
1.5
1.1
3.4
3.4
0.8
5.8
4.7
4.4
5.6
-
3.6
29,948
3,531
1,061
51,808
10,035
11,477
107,860
748,488
49,361
854
50,215
798,703
23,826
3,169
812
31,172
12,359
11,894
83,232
689,785
46,477
862
47,339
737,124
19,173
2,578
783
35,542
11,574
11,853
81,503
641,973
44,350
1,972
46,322
688,295
$m
Interest earning assets
Receivables due from other financial institutions:
Trading securities and other financial assets designated at fair value:
the total.
Consolidated
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Loan capital:
Australia
Overseas
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Available-for-sale securities:
Regulatory deposits:
Overseas
Loans and other receivables:
Total change in interest income
Interest bearing liabilities
Payables due to other financial institutions:
Deposits and other borrowings:
Other interest bearing liabilities:
Total change in interest expense
Change in net interest income:
Total change in net interest income
Notes to the financial statements
2015
Change Due to
2014
Change Due to
Volume
Rate
Total
Volume
Rate
Total
1,499
(1,717)
(218)
1,496
(2,710)
(1,214)
2,004
(1,957)
2,297
(3,058)
(761)
3
1
7
(179)
(17)
(66)
441
23
25
(3)
239
31
39
1
5
426
106
9
105
(29)
473
21
(30)
721
118
39
878
-
-
(8)
(225)
23
14
(249)
-
8
(3)
130
70
(42)
2
(1)
84
6
(37)
6
(441)
88
(8)
(210)
(21)
78
(153)
3
1
(1)
(404)
6
(52)
(13)
(1)
(3)
(229)
28
54
192
23
33
(6)
369
101
47
(3)
3
4
190
15
68
(23)
32
109
(38)
511
97
117
725
296
13
6
(2)
486
166
187
1
1
573
230
31
89
(51)
306
128
-
395
167
240
802
(13)
1
-
(105)
16
(14)
(173)
1
17
(3)
39
(114)
(68)
3
(14)
9
(35)
(79)
2
(835)
(137)
41
(155)
182
(108)
(81)
1,126
(1,804)
(678)
1,495
(2,977)
(1,482)
(1,461)
(1,035)
(1,864)
(1,291)
(26)
-
(3)
(334)
44
40
123
14
23
(5)
525
52
119
4
(13)
239
(4)
10
(49)
(529)
(9)
41
240
349
132
721
145
144
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2015 Westpac Group Annual Report
247
14
43
8,815
1,643
211
492
43
661
3
2.1
2.4
0.8
2.5
3.6
0.7
4.5
5.7
3.6
5.1
0.4
250
11
39
9,850
1,453
196
424
66
552
41
2.4
2.0
0.8
2.9
3.4
0.7
4.9
4.9
3.8
4.5
1.6
4,218
458
4,648
131
7
52
325,634
11,141
35,674
25,368
1,214
200
7,183
2,436
144,777
10,073
1
414
115
6,353
561
-
3.1
1.5
1.1
3.4
3.4
0.8
5.8
4.7
4.4
5.6
-
3.6
640,628
18,028
2.8
606,553
18,706
3.1
560,470
20,188
Other interest bearing liabilities1:
164,075
5,856
151,742
5,824
Consolidated
Liabilities
Interest bearing liabilities
Payables due to other
financial institutions:
Deposits and other borrowings:
Australia
New Zealand
Overseas
Australia
New Zealand
Overseas
Loan capital:
Australia
Overseas
Australia
New Zealand
Overseas
Total interest bearing liabilities
and interest expense
Non-interest bearing liabilities
Deposits and payables due to
other financial institutions:
Australia
New Zealand
Overseas
Derivative financial instruments
Life insurance policy liabilities
All other liabilities2
Total non-interest bearing liabilities
Total liabilities
Shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
11,839
584
5,417
357,199
45,555
30,760
10,888
753
12,842
716
29,948
3,531
1,061
51,808
10,035
11,477
107,860
748,488
49,361
854
50,215
798,703
1
2
Includes net impact of Treasury balance sheet management activities.
Includes other liabilities, provisions, current and deferred tax liabilities.
10,253
547
4,767
342,385
42,444
29,347
8,729
1,358
12,364
2,617
23,826
3,169
812
31,172
12,359
11,894
83,232
689,785
46,477
862
47,339
737,124
19,173
2,578
783
35,542
11,574
11,853
81,503
641,973
44,350
1,972
46,322
688,295
Note 9. Average balance sheet and interest rates (continued)
2015
Average
Balance
Interest
Income
$m
$m
Average
Average
Average
Average
Rate
Balance
%
$m
Rate
Balance
%
$m
2014
Interest
Income
$m
2013
Interest
Income
$m
Average
Rate
%
Notes to the financial statements
Note 9. Average balance sheet and interest rates (continued)
The following table allocates changes in net interest income between changes in volume and changes in rate for the last two
fiscal years. Volume and rate variances have been calculated on the movement in average balances and the change in the
interest rates on average interest earning assets and average interest bearing liabilities. The variance caused by change in
both volume and rate has been allocated in proportion to the relationship of the absolute dollar amount of each change to
the total.
Consolidated
$m
Interest earning assets
Receivables due from other financial institutions:
Australia
New Zealand
Overseas
Trading securities and other financial assets designated at fair value:
Australia
New Zealand
Overseas
Available-for-sale securities:
Australia
New Zealand
Overseas
Regulatory deposits:
Overseas
Loans and other receivables:
Australia
New Zealand
Overseas
Total change in interest income
Interest bearing liabilities
Payables due to other financial institutions:
Australia
New Zealand
Overseas
Deposits and other borrowings:
Australia
New Zealand
Overseas
Loan capital:
Australia
Overseas
Other interest bearing liabilities:
Australia
New Zealand
Overseas
Total change in interest expense
Change in net interest income:
Australia
New Zealand
Overseas
Total change in net interest income
2015
Change Due to
2014
Change Due to
Volume
Rate
Total
Volume
Rate
Total
3
1
7
(179)
(17)
(66)
441
23
25
(3)
-
-
(8)
(225)
23
14
(249)
-
8
(3)
3
1
(1)
(404)
6
(52)
192
23
33
(6)
(13)
(1)
(3)
(229)
28
54
296
13
6
(2)
(13)
1
-
(105)
16
(14)
(173)
1
17
(3)
(26)
-
(3)
(334)
44
40
123
14
23
(5)
1,499
(1,717)
(218)
1,496
(2,710)
(1,214)
239
31
130
70
2,004
(1,957)
369
101
47
(3)
3
4
(42)
2
(1)
(1,461)
(1,035)
84
6
(37)
6
(441)
88
(8)
190
15
68
(23)
32
109
(38)
39
1
5
426
106
9
105
(29)
473
21
(30)
486
166
39
(114)
525
52
2,297
(3,058)
(761)
187
1
1
573
230
31
89
(51)
306
128
-
(68)
3
(14)
119
4
(13)
(1,864)
(1,291)
9
(35)
(79)
2
(835)
(137)
41
239
(4)
10
(49)
(529)
(9)
41
1,126
(1,804)
(678)
1,495
(2,977)
(1,482)
721
118
39
878
(210)
(21)
78
(153)
511
97
117
725
395
167
240
802
(155)
182
(108)
(81)
240
349
132
721
144
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
145
3
8,741
7,424
9,583
5,483
Total receivables due from other financial institutions
1 Further information on conduit assets is disclosed in Note 25. Conduit assets are only available to meet associated conduit liabilities disclosed in
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Note 10. Receivables due from other financial institutions
Accounting policy
Receivables due from other financial institutions are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They include conduit assets, collateral placed and interbank lending. These financial assets
are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost
using the effective interest rate method.
$m
Conduit assets1
Cash collateral
Interbank lending
Consolidated
Parent Entity
2015
823
7,602
1,158
2014
1,417
3,830
2,177
2015
-
7,586
1,155
2014
-
3,686
1,797
Notes to the financial statements
Note 11. Trading securities and financial assets designated at fair value (continued)
The Group has total holdings of debt securities from three Australian State Governments (Queensland Treasury Corporation:
$13,447 million and NSW Treasury Corporation: $9,065 million and Treasury Corporation of Victoria: $5,706 million) the
aggregate book and market value, each of which exceeded 10% of the Group total shareholders’ equity at 30 September 2015.
The Group holds $8,473 million of US Government treasury notes (2014: $4,559 million, 2013: $4,978 million).
Both of the above are recognised in the categories trading securities and other financial assets designated at fair value and
available-for-sale securities (Note 12) at 30 September 2015.
Note 12. Available-for-sale securities
Accounting policy
Available-for-sale financial assets are held at fair value with gains and losses included in other comprehensive income. This
classification is used for debt or equity securities that are not held for trading purposes or designated at fair value through the
Income statement or loans and receivables.
The Group assesses at each reporting date whether there is objective evidence of impairment. Impairment exists if there is
objective evidence of impairment as a result of one or more loss events which have an impact on the estimated cash flows of
the available-for-sale security that can be reliably estimated. For debt instruments classified as available-for-sale, evidence of
impairment includes significant financial difficulties or adverse changes in the payment status of an issuer or national, local
economic conditions that correlate with defaults on a group of financial assets. For equity investments classified as available-
for-sale, a significant or prolonged decline in the fair value of the security below its cost is also considered in determining
whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss –
measured as the difference between the acquisition cost and the current fair value, less any impairment charge previously
recognised in profit or loss – is removed from other comprehensive income and recognised in the income statement. If, in a
subsequent period, the fair value of an available-for-sale debt increases and the increase can be objectively related to an event
occurring after the impairment event, the impairment charge is reversed through the income statement. Subsequent reversal of
impairment charges on equity instruments are not recognised in the income statement until the instrument is disposed of.
$m
1
Available-for-sale securities
Government and semi-government securities
Debt securities
Equity securities1
Total available-for-sale securities
Consolidated
Parent Entity
2015
2014
2013
2015
2014
41,112
13,672
49
22,573
13,241
210
19,941
9,868
202
38,182
12,133
29
19,858
12,127
24
54,833
36,024
30,011
50,344
32,009
Investments in certain unlisted securities are measured at cost because the fair value cannot be reliably measured. These investments represent
non-controlling interests in companies for which active markets do not exist and quoted prices are not available. 2015: $33 million (2014: $16 million).
The following table shows the maturities of the Group’s available-for-sale securities and their weighted-average yield as at
30 September 2015. There are no tax-exempt securities.
Within
1 Year
Over 1 Year
Over 5 Years
Over
No Specific
to 5 Years
to 10 Years
10 Years
Maturity
Total
Weighted
Average
$m
%
$m
%
$m
%
$m
%
$m
%
$m
%
2015
Carrying amount
Debt securities
Equity securities
Total by maturity
Government and semi-government securities 12,002 3.5% 16,097 4.2% 13,013 3.2%
1,403 2.7% 11,183 3.4% 1,086 3.7%
-
-
-
-
-
-
13,405
27,280
14,099
-
-
-
-
-
-
-
-
-
49
49
-
-
-
41,112
13,672
49
54,833
3.8%
3.3%
-
The maturity profile is determined based upon contractual terms for available-for-sale instruments.
Note 19.
Note 11. Trading securities and financial assets designated at fair value
Accounting policy
Trading securities are acquired principally for the purpose of selling in the near term or are part of a portfolio of financial
instruments that are managed together and for which there is evidence of a recent pattern of short-term profit taking. It includes
debt and equity instruments which are actively traded.
Financial assets designated at fair value at inception include securities purchased under agreement to resell that are part of a
trading portfolio, and other financial assets which either contain an embedded derivative, are managed on a fair value basis, or
reduce or eliminate an accounting mismatch. A portfolio of retail fixed rate bills which have been designated at fair value to
reduce an accounting mismatch have, due to their nature, been presented within the loans category in the Balance sheet (refer
Note 13).
These financial assets are recognised at fair value with gains and losses included in the Income statement. Interest earned on
Government and other debt securities is recognised within Net interest income (Note 3) and dividends earned on equity
securities are recorded in Non-interest income – other income (Note 4).
$m
Trading securities
Securities purchased under agreement to resell
Other financial assets designated at fair value
Consolidated
Parent Entity
2015
20,170
3,982
3,302
2014
36,881
6,275
2,753
2013
39,448
6,882
2,759
2015
18,272
3,982
2,642
2014
35,794
6,275
2,255
Total trading securities and other financial assets designated at fair value
27,454
45,909
49,089
24,896
44,324
Trading securities include the following:
$m
Government and semi-government securities
Debt securities
Equity securities
Other
Total trading securities
Other financial assets designated at fair value include:
$m
Debt securities
Equity securities
Total other financial assets designated at fair value
Consolidated
Parent Entity
2015
12,545
7,555
20
50
2014
25,275
11,519
44
43
2013
20,518
18,883
22
25
2015
11,937
6,265
20
50
2014
25,244
10,463
44
43
20,170
36,881
39,448
18,272
35,794
Consolidated
Parent Entity
2015
2,900
402
3,302
2014
2,447
306
2,753
2013
2,471
288
2,759
2015
2,531
111
2,642
2014
2,117
138
2,255
146
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147
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Note 10. Receivables due from other financial institutions
Accounting policy
Receivables due from other financial institutions are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They include conduit assets, collateral placed and interbank lending. These financial assets
are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost
using the effective interest rate method.
Consolidated
Parent Entity
2015
823
7,602
1,158
9,583
2014
1,417
3,830
2,177
7,424
2015
-
7,586
1,155
8,741
2014
-
3,686
1,797
5,483
$m
Conduit assets1
Cash collateral
Interbank lending
Note 19.
Accounting policy
Total receivables due from other financial institutions
1 Further information on conduit assets is disclosed in Note 25. Conduit assets are only available to meet associated conduit liabilities disclosed in
Note 11. Trading securities and financial assets designated at fair value
Trading securities are acquired principally for the purpose of selling in the near term or are part of a portfolio of financial
instruments that are managed together and for which there is evidence of a recent pattern of short-term profit taking. It includes
debt and equity instruments which are actively traded.
Financial assets designated at fair value at inception include securities purchased under agreement to resell that are part of a
trading portfolio, and other financial assets which either contain an embedded derivative, are managed on a fair value basis, or
reduce or eliminate an accounting mismatch. A portfolio of retail fixed rate bills which have been designated at fair value to
reduce an accounting mismatch have, due to their nature, been presented within the loans category in the Balance sheet (refer
Note 13).
These financial assets are recognised at fair value with gains and losses included in the Income statement. Interest earned on
Government and other debt securities is recognised within Net interest income (Note 3) and dividends earned on equity
securities are recorded in Non-interest income – other income (Note 4).
Total trading securities and other financial assets designated at fair value
27,454
45,909
49,089
24,896
44,324
$m
Trading securities
Securities purchased under agreement to resell
Other financial assets designated at fair value
Trading securities include the following:
Government and semi-government securities
$m
Debt securities
Equity securities
Other
Total trading securities
Other financial assets designated at fair value include:
$m
Debt securities
Equity securities
Total other financial assets designated at fair value
Consolidated
Parent Entity
2015
2014
2013
2015
2014
20,170
36,881
39,448
18,272
35,794
3,982
3,302
6,275
2,753
6,882
2,759
3,982
2,642
6,275
2,255
Consolidated
Parent Entity
2015
12,545
7,555
20
50
2014
25,275
11,519
44
43
2013
20,518
18,883
22
25
2015
11,937
6,265
20
50
2014
25,244
10,463
44
43
20,170
36,881
39,448
18,272
35,794
Consolidated
Parent Entity
2015
2,900
402
3,302
2014
2,447
306
2,753
2013
2,471
288
2,759
2015
2,531
111
2,642
2014
2,117
138
2,255
Notes to the financial statements
Note 11. Trading securities and financial assets designated at fair value (continued)
The Group has total holdings of debt securities from three Australian State Governments (Queensland Treasury Corporation:
$13,447 million and NSW Treasury Corporation: $9,065 million and Treasury Corporation of Victoria: $5,706 million) the
aggregate book and market value, each of which exceeded 10% of the Group total shareholders’ equity at 30 September 2015.
The Group holds $8,473 million of US Government treasury notes (2014: $4,559 million, 2013: $4,978 million).
Both of the above are recognised in the categories trading securities and other financial assets designated at fair value and
available-for-sale securities (Note 12) at 30 September 2015.
Note 12. Available-for-sale securities
Accounting policy
Available-for-sale financial assets are held at fair value with gains and losses included in other comprehensive income. This
classification is used for debt or equity securities that are not held for trading purposes or designated at fair value through the
Income statement or loans and receivables.
The Group assesses at each reporting date whether there is objective evidence of impairment. Impairment exists if there is
objective evidence of impairment as a result of one or more loss events which have an impact on the estimated cash flows of
the available-for-sale security that can be reliably estimated. For debt instruments classified as available-for-sale, evidence of
impairment includes significant financial difficulties or adverse changes in the payment status of an issuer or national, local
economic conditions that correlate with defaults on a group of financial assets. For equity investments classified as available-
for-sale, a significant or prolonged decline in the fair value of the security below its cost is also considered in determining
whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss –
measured as the difference between the acquisition cost and the current fair value, less any impairment charge previously
recognised in profit or loss – is removed from other comprehensive income and recognised in the income statement. If, in a
subsequent period, the fair value of an available-for-sale debt increases and the increase can be objectively related to an event
occurring after the impairment event, the impairment charge is reversed through the income statement. Subsequent reversal of
impairment charges on equity instruments are not recognised in the income statement until the instrument is disposed of.
$m
Available-for-sale securities
Government and semi-government securities
Debt securities
Equity securities1
Total available-for-sale securities
1
Consolidated
Parent Entity
2015
2014
2013
2015
2014
41,112
13,672
49
22,573
13,241
210
19,941
9,868
202
38,182
12,133
29
19,858
12,127
24
54,833
36,024
30,011
50,344
32,009
Investments in certain unlisted securities are measured at cost because the fair value cannot be reliably measured. These investments represent
non-controlling interests in companies for which active markets do not exist and quoted prices are not available. 2015: $33 million (2014: $16 million).
The following table shows the maturities of the Group’s available-for-sale securities and their weighted-average yield as at
30 September 2015. There are no tax-exempt securities.
2015
Carrying amount
Within
1 Year
Over 1 Year
to 5 Years
Over 5 Years
to 10 Years
Over
10 Years
No Specific
Maturity
Weighted
Average
Total
$m
%
$m
%
$m
%
$m
%
$m
%
$m
%
Government and semi-government securities 12,002 3.5% 16,097 4.2% 13,013 3.2%
Debt securities
Equity securities
Total by maturity
1,403 2.7% 11,183 3.4% 1,086 3.7%
-
-
-
-
-
-
13,405
27,280
14,099
-
-
-
-
-
-
-
-
-
49
49
-
-
-
41,112
13,672
49
54,833
3.8%
3.3%
-
The maturity profile is determined based upon contractual terms for available-for-sale instruments.
146
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147
3
Note 13. Loans (continued)
The following table shows loans presented based on their industry classification:
Notes to the financial statements
Consolidated
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Property, property services and business services
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Services1
Trade2
Utilities3
Retail lending
Other
Total Australia
Overseas
Transport and storage
Manufacturing4
Mining4
Services1
Trade2,4
Utilities3
Transport and storage
Retail lending
Other
Total overseas
Total loans
Provisions on loans
Total net loans
2015
2014
2013
2012
2011
7,690
7,741
6,114
16,054
794
9,538
4,441
59,337
11,756
16,038
10,002
3,549
390,592
2,009
545,655
652
7,938
1,447
6,643
432
6,402
1,203
2,774
6,161
2,439
1,820
29,029
77
80,689
626,344
(3,028)
623,316
7,447
7,224
6,416
14,644
784
9,269
3,293
55,150
10,874
15,616
9,330
3,272
365,822
2,114
511,255
562
6,938
1,184
3,880
389
5,091
2,010
2,486
6,127
1,730
1,764
27,462
190
72,261
583,516
(3,173)
580,343
7,108
7,304
6,049
13,259
881
9,415
2,339
49,030
9,715
14,619
8,868
3,002
340,139
2,416
474,144
585
6,506
1,367
2,960
639
4,484
1,335
2,651
5,435
1,528
1,476
25,363
108
65,662
539,806
(3,642)
536,164
7,106
7,549
6,313
13,101
930
10,663
1,836
47,184
9,467
15,868
9,351
3,239
328,109
2,298
463,014
594
5,345
1,220
2,406
533
3,682
640
9,620
2,174
4,411
1,589
1,212
21,766
73
55,265
518,279
(3,834)
514,445
7,121
7,790
6,084
15,925
781
11,339
1,488
45,559
8,936
16,094
6,677
2,581
316,777
1,330
448,482
580
4,975
1,180
1,998
464
2,925
368
9,659
2,149
4,047
1,928
1,010
20,723
166
52,172
500,654
(4,045)
496,609
Property, property services and business services
13,672
12,448
11,225
Note 13. Loans
Accounting policy
Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are
initially recognised at fair value plus directly attributable transaction costs. Subsequent to initial recognition, loans are measured
at amortised cost using the effective interest rate method and are presented net of any provisions for impairment.
Loan products that have both a mortgage and deposit facility are presented on a gross basis in the balance sheet, segregating
the loan and deposit component into the respective balance sheet line items as they do not meet the criteria to be offset.
Interest earned on this product is presented on a net basis in the income statement as this reflects how the customer
is charged.
Included within loans are leases that have been classified as finance leases. In its capacity as a lessor, the Group primarily
offers finance leases. A finance lease is a lease where substantially all the risks and rewards of the leased asset transfer to the
lessee. Assets held under finance lease are recognised at an amount equal to the net investment in the lease. The recognition
of finance income is based on a pattern reflecting a constant periodic return on the Group’s net investment in the finance lease.
The following table shows loans disaggregated by type of product. Loans are classified based on the location of the
booking office:
$m
Australia
Housing
Personal (loans and cards)
Business
Margin lending
Other
Total Australia
New Zealand
Housing
Personal (loans and cards)
Business
Other
Total New Zealand
Other overseas
Trade finance
Other
Total other overseas
Total loans
Provisions on loans (refer to Note 14)
Total net loans1,2
1
Consolidated
Parent Entity
2015
2014
2015
2014
375,848
22,234
145,481
1,980
112
351,037
21,242
136,903
1,960
113
375,826
16,321
138,478
1,987
112
351,009
14,080
128,241
1,984
113
545,655
511,255
532,724
495,427
38,351
1,800
23,485
93
63,729
5,639
11,321
16,960
626,344
(3,028)
623,316
35,465
1,636
21,279
90
58,470
6,147
7,644
13,791
583,516
(3,173)
580,343
-
-
328
-
328
5,639
9,857
15,496
548,548
(2,473)
546,075
-
-
305
-
305
6,146
6,315
12,461
508,193
(2,589)
505,604
Included in net loans is $7,076 million (2014: $9,330 million) of loans designated at fair value to reduce an accounting mismatch. The cumulative fair
value adjustment for credit risk is a decrease of $41 million (2014: $62 million decrease) for the Group and Parent Entity. The change in fair value of
loans attributable to credit risk recognised during the period is $21 million (2014: $36 million) for the Group and Parent Entity.
2 The presentation of loans has been revised to better reflect the nature of our business and we have restated comparatives to improve comparability.
1 Services include education, health and community services, cultural and recreational services and personal and other services.
2 Trade includes wholesale trade and retail trade.
3 Utilities include electricity, gas and water and communication services.
4 Comparatives have been restated to improve comparability.
148
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149
Note 13. Loans (continued)
The following table shows loans presented based on their industry classification:
Notes to the financial statements
2015
2014
2013
2012
2011
Note 13. Loans
Accounting policy
is charged.
booking office:
$m
Australia
Housing
Business
Margin lending
Other
Total Australia
New Zealand
Housing
Personal (loans and cards)
Personal (loans and cards)
Business
Other
Total New Zealand
Other overseas
Trade finance
Other
Total other overseas
Total loans
Provisions on loans (refer to Note 14)
Total net loans1,2
1
Included in net loans is $7,076 million (2014: $9,330 million) of loans designated at fair value to reduce an accounting mismatch. The cumulative fair
value adjustment for credit risk is a decrease of $41 million (2014: $62 million decrease) for the Group and Parent Entity. The change in fair value of
loans attributable to credit risk recognised during the period is $21 million (2014: $36 million) for the Group and Parent Entity.
2 The presentation of loans has been revised to better reflect the nature of our business and we have restated comparatives to improve comparability.
Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are
initially recognised at fair value plus directly attributable transaction costs. Subsequent to initial recognition, loans are measured
at amortised cost using the effective interest rate method and are presented net of any provisions for impairment.
Loan products that have both a mortgage and deposit facility are presented on a gross basis in the balance sheet, segregating
the loan and deposit component into the respective balance sheet line items as they do not meet the criteria to be offset.
Interest earned on this product is presented on a net basis in the income statement as this reflects how the customer
Included within loans are leases that have been classified as finance leases. In its capacity as a lessor, the Group primarily
offers finance leases. A finance lease is a lease where substantially all the risks and rewards of the leased asset transfer to the
lessee. Assets held under finance lease are recognised at an amount equal to the net investment in the lease. The recognition
of finance income is based on a pattern reflecting a constant periodic return on the Group’s net investment in the finance lease.
The following table shows loans disaggregated by type of product. Loans are classified based on the location of the
Consolidated
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and business services
Services1
Trade2
Transport and storage
Utilities3
Retail lending
Other
Total Australia
Overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing4
Mining4
Property, property services and business services
Services1
Trade2,4
Transport and storage
Utilities3
Retail lending
Other
Total overseas
Total loans
Provisions on loans
Consolidated
Parent Entity
2015
2014
2015
2014
545,655
511,255
532,724
495,427
375,848
22,234
145,481
1,980
112
38,351
1,800
23,485
93
63,729
5,639
11,321
16,960
626,344
(3,028)
623,316
351,037
21,242
136,903
1,960
113
35,465
1,636
21,279
90
58,470
6,147
7,644
13,791
583,516
(3,173)
580,343
375,826
16,321
138,478
1,987
112
-
-
-
328
328
5,639
9,857
15,496
548,548
(2,473)
546,075
351,009
14,080
128,241
1,984
113
-
-
-
305
305
6,146
6,315
12,461
508,193
(2,589)
505,604
7,690
7,741
6,114
16,054
794
9,538
4,441
59,337
11,756
16,038
10,002
3,549
390,592
2,009
545,655
652
7,938
1,447
6,643
432
6,402
1,203
7,447
7,224
6,416
14,644
784
9,269
3,293
55,150
10,874
15,616
9,330
3,272
365,822
2,114
511,255
562
6,938
1,184
3,880
389
5,091
2,010
7,108
7,304
6,049
13,259
881
9,415
2,339
49,030
9,715
14,619
8,868
3,002
340,139
2,416
474,144
585
6,506
1,367
2,960
639
4,484
1,335
13,672
12,448
11,225
2,774
6,161
2,439
1,820
29,029
77
80,689
626,344
(3,028)
2,486
6,127
1,730
1,764
27,462
190
72,261
583,516
(3,173)
2,651
5,435
1,528
1,476
25,363
108
65,662
539,806
(3,642)
7,106
7,549
6,313
13,101
930
10,663
1,836
47,184
9,467
15,868
9,351
3,239
328,109
2,298
463,014
594
5,345
1,220
2,406
533
3,682
640
9,620
2,174
4,411
1,589
1,212
21,766
73
55,265
518,279
(3,834)
7,121
7,790
6,084
15,925
781
11,339
1,488
45,559
8,936
16,094
6,677
2,581
316,777
1,330
448,482
580
4,975
1,180
1,998
464
2,925
368
9,659
2,149
4,047
1,928
1,010
20,723
166
52,172
500,654
(4,045)
496,609
Total net loans
1 Services include education, health and community services, cultural and recreational services and personal and other services.
2 Trade includes wholesale trade and retail trade.
3 Utilities include electricity, gas and water and communication services.
4 Comparatives have been restated to improve comparability.
580,343
536,164
623,316
514,445
148
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149
3
Note 13. Loans (continued)
The following table shows the consolidated contractual maturity distribution of all loans by type of customer as at
30 September 2015:
2015
$m
Loans by type of customer in Australia1
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
Total Australia
Total overseas
Up to 1 Year
1 to 5 Years Over 5 Years
Total
Gross investment in finance leases, receivable:
2,306
2,808
1,364
5,591
44
3,260
795
4,739
4,063
3,627
6,536
302
4,940
1,959
18,838
32,015
1,560
5,912
1,377
94
18,665
975
63,589
24,011
7,729
8,322
6,795
2,582
43,332
907
127,848
17,150
645
870
1,123
3,927
448
1,338
1,687
8,484
2,467
1,804
1,830
873
328,595
127
354,218
39,528
7,690
7,741
6,114
16,054
794
9,538
4,441
59,337
11,756
16,038
10,002
3,549
390,592
2,009
545,655
80,689
Total loans
1 Some mortgage lending to customers with business banking relationships is included in loans over 5 years categorised by the industry of the
144,998
393,746
87,600
626,344
associated business.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
Consolidated
$m
Interest rate segmentation of Group
loans maturing after one year
By offices in Australia
By offices overseas
Total loans maturing after one year
Loans at
Variable
Interest
Rates
2015
Loans at
Fixed
Interest
Rates
394,307
18,641
412,948
87,759
38,037
125,796
Loans at
Variable
Interest
Rates
2014
Loans at
Fixed
Interest
Rates
353,625
16,244
369,869
94,316
34,746
129,062
Total
482,066
56,678
538,744
Total
447,941
50,990
498,931
150
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151
Note 13. Loans (continued)
Loans include the following finance lease receivables:
$m
Due after one year but not later than five years
Due within one year
Due after five years
Unearned future finance income on finance leases
Net investment in finance leases
Accumulated allowance for uncollectable minimum lease payments
Net investment in finance leases after accumulated allowance
The net investment in finance leases may be analysed as follows:
Due after one year but not later than five years
Due within one year
Due after five years
Total net investment in finance leases
Note 14. Provisions for impairment charges
Accounting policy
described in Note 1d(ii).
$m
Collectively assessed provisions
Balance as at beginning of the year
Net provisions raised
Write-offs
Interest adjustment
Exchange rate and other adjustments
Balance as at end of the year
Individually assessed provisions
Balance as at beginning of the year
Provisions raised
Write-backs
Write-offs
Interest adjustment
Exchange rate and other adjustments
Balance as at end of the year
Total provisions for impairment charges on loans and
credit commitments
Less provisions for credit commitments (refer to Note 28)
Total provisions for impairment charges on loans
2,614
615
(793)
190
37
2,663
867
566
(297)
(445)
(22)
-
669
3,332
(304)
3,028
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
743
4,668
419
(804)
5,026
(10)
5,016
713
4,000
313
5,026
2,585
505
(702)
189
37
2,614
1,364
684
(433)
(706)
(34)
(8)
867
3,481
(308)
3,173
904
5,039
689
(958)
5,674
(26)
5,648
868
4,305
501
5,674
2,771
290
(708)
196
36
2,585
1,470
1,112
(479)
(691)
(75)
27
1,364
3,949
(307)
3,642
388
2,228
303
(315)
2,604
(7)
2,597
375
1,991
238
2,604
2,148
521
(627)
156
5
2,203
719
457
(274)
(338)
(24)
3
543
2,746
(273)
2,473
416
2,059
312
(327)
2,460
(9)
2,451
402
1,822
236
2,460
2,107
457
(585)
151
18
2,148
1,123
550
(373)
(532)
(36)
(13)
719
2,867
(278)
2,589
The Group has individually assessed provisions and collectively assessed provisions. Individually assessed provisions are
made against loans that exceed specified thresholds and which have been individually assessed as impaired. If the Group
determines that no objective evidence of impairment exists for an individually assessed loan, it includes that loan in a group of
loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are individually assessed
and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
The determination of the provision for impairment is one of the Group’s critical accounting assumptions and estimates as
Consolidated
Parent Entity
2015
2014
2013
2015
2014
Property, property services and business services
18,838
32,015
Note 13. Loans (continued)
30 September 2015:
2015
$m
Loans by type of customer in Australia1
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Transport and storage
Manufacturing
Mining
Services2
Trade3
Utilities4
Retail lending
Other
Total Australia
Total overseas
Total loans
associated business.
Consolidated
2,306
2,808
1,364
5,591
44
3,260
795
1,560
5,912
1,377
94
18,665
975
63,589
24,011
87,600
Total
482,066
56,678
538,744
4,739
4,063
3,627
6,536
302
4,940
1,959
7,729
8,322
6,795
2,582
43,332
907
127,848
17,150
144,998
645
870
1,123
3,927
448
1,338
1,687
8,484
2,467
1,804
1,830
873
328,595
127
354,218
39,528
393,746
Loans at
Variable
Interest
Rates
2014
Loans at
Fixed
Interest
Rates
353,625
16,244
369,869
94,316
34,746
129,062
7,690
7,741
6,114
16,054
794
9,538
4,441
59,337
11,756
16,038
10,002
3,549
390,592
2,009
545,655
80,689
626,344
Total
447,941
50,990
498,931
1 Some mortgage lending to customers with business banking relationships is included in loans over 5 years categorised by the industry of the
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
$m
Interest rate segmentation of Group
loans maturing after one year
By offices in Australia
By offices overseas
Total loans maturing after one year
Loans at
Variable
Interest
Rates
2015
Loans at
Fixed
Interest
Rates
394,307
18,641
412,948
87,759
38,037
125,796
The following table shows the consolidated contractual maturity distribution of all loans by type of customer as at
Note 13. Loans (continued)
Loans include the following finance lease receivables:
Up to 1 Year
1 to 5 Years Over 5 Years
Total
Gross investment in finance leases, receivable:
$m
Due within one year
Due after one year but not later than five years
Due after five years
Unearned future finance income on finance leases
Net investment in finance leases
Accumulated allowance for uncollectable minimum lease payments
Net investment in finance leases after accumulated allowance
The net investment in finance leases may be analysed as follows:
Due within one year
Due after one year but not later than five years
Due after five years
Total net investment in finance leases
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
743
4,668
419
(804)
5,026
(10)
5,016
713
4,000
313
5,026
904
5,039
689
(958)
5,674
(26)
5,648
868
4,305
501
5,674
388
2,228
303
(315)
2,604
(7)
2,597
375
1,991
238
2,604
416
2,059
312
(327)
2,460
(9)
2,451
402
1,822
236
2,460
Note 14. Provisions for impairment charges
Accounting policy
The Group has individually assessed provisions and collectively assessed provisions. Individually assessed provisions are
made against loans that exceed specified thresholds and which have been individually assessed as impaired. If the Group
determines that no objective evidence of impairment exists for an individually assessed loan, it includes that loan in a group of
loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are individually assessed
and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
The determination of the provision for impairment is one of the Group’s critical accounting assumptions and estimates as
described in Note 1d(ii).
$m
Collectively assessed provisions
Balance as at beginning of the year
Net provisions raised
Write-offs
Interest adjustment
Exchange rate and other adjustments
Balance as at end of the year
Individually assessed provisions
Balance as at beginning of the year
Provisions raised
Write-backs
Write-offs
Interest adjustment
Exchange rate and other adjustments
Balance as at end of the year
Total provisions for impairment charges on loans and
credit commitments
Less provisions for credit commitments (refer to Note 28)
Total provisions for impairment charges on loans
Consolidated
Parent Entity
2015
2014
2013
2015
2014
2,614
615
(793)
190
37
2,663
867
566
(297)
(445)
(22)
-
669
3,332
(304)
3,028
2,585
505
(702)
189
37
2,614
1,364
684
(433)
(706)
(34)
(8)
867
3,481
(308)
3,173
2,771
290
(708)
196
36
2,585
1,470
1,112
(479)
(691)
(75)
27
1,364
3,949
(307)
3,642
2,148
521
(627)
156
5
2,203
719
457
(274)
(338)
(24)
3
543
2,746
(273)
2,473
2,107
457
(585)
151
18
2,148
1,123
550
(373)
(532)
(36)
(13)
719
2,867
(278)
2,589
150
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
151
3
Note 14. Provisions for impairment charges (continued)
The following table presents provisions for impairment charges on loans by industry classification for the past five years:
Note 14. Provisions for impairment charges (continued)
The following table shows details of loan write-offs by industry classifications for the past five years:
Consolidated
2015
2014
2013
2012
2011
$m
%
$m
%
$m
%
$m
%
$m
%
2015
2014
2013
2012
2011
Notes to the financial statements
Individually assessed provisions by industry
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property, property services and business services
Services1
Trade2
Transport and storage
Utilities3
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property, property services and business services
Services1
Trade2
Transport and storage
Utilities3
Retail lending
Total New Zealand
Total other overseas
Total individually assessed provisions
Total collectively assessed provisions
38
23
20
23
41
11
224
20
39
54
-
57
3
1.1
0.7
0.6
0.7
1.2
0.3
6.8
0.6
1.2
1.6
-
1.7
0.1
47
47
61
24
36
15
283
32
70
12
2
60
2
1.4
1.4
1.8
0.7
1.0
0.4
8.1
0.9
2.0
0.3
0.1
1.7
0.1
59
80
66
24
108
4
428
48
116
45
29
76
6
1.5
2.0
1.7
0.6
2.7
0.1
10.9
1.2
2.9
1.1
0.8
1.9
0.2
53
46
73
38
116
2
518
121
87
47
22
67
7
1.2
1.1
1.7
0.9
2.7
0.1
45
28
63
58
90
2
1.0
0.6
1.4
1.3
2.0
-
12.2
559
12.7
2.9
2.1
1.1
0.5
1.6
0.2
96
97
38
23
74
7
2.2
2.2
0.9
0.5
1.7
0.2
553
16.6
691
19.9
1,089
27.6
1,197
28.3
1,180
26.7
-
6
1
-
33
13
43
2
1
-
-
8
107
9
669
2,663
-
0.2
-
-
1.0
0.4
1.3
0.1
-
-
-
0.2
3.2
0.3
20.1
79.9
-
6
1
-
33
36
38
1
2
1
-
10
128
48
867
2,614
-
0.2
-
-
0.9
1.0
1.1
-
0.1
-
-
0.3
3.6
1.4
24.9
75.1
1
17
6
9
6
37
71
40
2
-
1
-
0.4
0.2
0.2
0.2
0.9
1.8
1.0
0.1
-
-
5
20
2
9
16
-
116
35
3
-
-
0.1
0.5
0.1
0.2
0.4
-
2.7
0.8
0.1
-
-
2
20
4
3
29
1
112
6
7
-
-
17
207
68
1,364
2,585
0.4
5.2
1.7
34.5
65.5
14
220
53
1,470
2,771
0.3
5.2
1.2
34.7
65.3
27
211
70
1,461
2,953
-
0.5
0.1
0.1
0.7
-
2.5
0.1
0.2
-
-
0.6
4.8
1.6
33.1
66.9
Property, property services and business services
(174)
(232)
(340)
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Consolidated
$m
Write-offs
Australia
Construction
Finance and insurance
Manufacturing
Mining
Transport and storage
Services1
Trade2
Utilities3
Retail lending
Other
Total Australia
New Zealand
Construction
Finance and insurance
Manufacturing
Mining
Transport and storage
Services1
Trade2
Utilities3
Retail lending
Other
Total New Zealand
Total other overseas
Total write-offs
Write-offs in relation to:
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Property, property services and business services
(658)
(13)
(1,110)
(603)
(14)
(1,209)
(545)
(9)
(1,217)
(597)
(11)
(1,423)
(661)
(21)
(1,579)
(40)
(36)
(40)
(12)
(20)
(17)
(18)
(56)
(24)
(2)
(3)
(1)
(28)
(18)
(1)
(4)
-
-
-
-
-
-
(26)
(60)
(37)
(10)
(85)
(4)
(22)
(70)
(43)
(3)
(2)
(10)
(5)
(10)
(1)
(10)
(41)
(37)
(3)
-
-
-
(31)
(30)
(46)
(14)
(50)
(5)
(58)
(69)
(18)
(2)
(1)
(7)
(4)
(13)
(3)
-
(94)
(5)
(4)
(1)
(46)
-
-
(24)
(11)
(106)
(11)
(45)
(1)
(453)
(41)
(53)
(37)
(33)
(2)
(23)
(9)
(2)
(17)
(1)
(105)
(5)
(3)
(1)
-
(59)
(1)
(228)
(57)
(34)
(23)
(27)
(5)
(134)
(15)
(507)
(28)
(57)
(60)
(7)
(3)
(59)
(24)
(1)
(12)
(126)
(4)
(15)
-
-
(13)
(84)
(1)
(342)
(6)
(55)
(49)
(110)
(18)
(1,238)
(793)
(445)
(1,238)
(168)
(31)
(1,408)
(702)
(706)
(1,408)
(178)
(4)
(1,399)
(708)
(691)
(1,399)
(1,708)
(1,927)
(756)
(952)
(1,708)
(739)
(1,188)
(1,927)
Total provisions for impairment charges and
credit commitments
3,332
1 Services include education, health and community services, cultural and recreational services and personal and other services.
2 Trade includes wholesale trade and retail trade.
3 Utilities include electricity, gas and water and communication services.
4,414
100.0
Collectively assessed provisions
Individually assessed provisions
Total write-offs
1 Services include education, health and community services, cultural and recreational services and personal and other services.
2 Trade includes wholesale trade and retail trade.
3 Utilities include electricity, gas and water and communication services.
100.0
100.0
3,481
100.0
3,949
4,241
100.0
152
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
153
Note 14. Provisions for impairment charges (continued)
The following table presents provisions for impairment charges on loans by industry classification for the past five years:
Note 14. Provisions for impairment charges (continued)
The following table shows details of loan write-offs by industry classifications for the past five years:
Notes to the financial statements
Consolidated
2015
2014
2013
2012
2011
$m
%
$m
%
$m
%
$m
%
$m
%
Property, property services and business services
224
283
10.9
12.2
559
12.7
Individually assessed provisions by industry
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Transport and storage
Services1
Trade2
Utilities3
Retail lending
Other
Total Australia
New Zealand
Construction
Finance and insurance
Manufacturing
Mining
Services1
Trade2
Transport and storage
Utilities3
Retail lending
Total New Zealand
Total other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Property, property services and business services
Total individually assessed provisions
Total collectively assessed provisions
Total provisions for impairment charges and
2 Trade includes wholesale trade and retail trade.
3 Utilities include electricity, gas and water and communication services.
553
16.6
691
19.9
1,089
27.6
1,197
28.3
1,180
26.7
1.1
0.7
0.6
0.7
1.2
0.3
6.8
0.6
1.2
1.6
-
1.7
0.1
0.2
1.0
0.4
1.3
0.1
-
-
-
-
-
-
47
47
61
24
36
15
32
70
12
2
60
2
33
36
38
-
6
1
-
1
2
1
-
1.4
1.4
1.8
0.7
1.0
0.4
8.1
0.9
2.0
0.3
0.1
1.7
0.1
0.2
0.9
1.0
1.1
0.1
-
-
-
-
-
-
59
80
66
24
108
4
428
48
116
45
29
76
6
1
17
6
9
6
37
71
40
2
-
1
38
23
20
23
41
11
20
39
54
-
57
3
33
13
43
-
6
1
-
2
1
-
-
8
9
0.2
3.2
0.3
20.1
79.9
10
128
48
867
2,614
0.3
3.6
1.4
24.9
75.1
17
207
68
1,364
2,585
0.4
5.2
1.7
34.5
65.5
107
669
2,663
1.5
2.0
1.7
0.6
2.7
0.1
1.2
2.9
1.1
0.8
1.9
0.2
-
0.4
0.2
0.2
0.2
0.9
1.8
1.0
0.1
-
-
53
46
73
38
116
2
518
121
87
47
22
67
7
5
20
2
9
16
-
116
35
3
-
-
14
220
53
1,470
2,771
1.2
1.1
1.7
0.9
2.7
0.1
2.9
2.1
1.1
0.5
1.6
0.2
0.1
0.5
0.1
0.2
0.4
-
2.7
0.8
0.1
-
-
45
28
63
58
90
2
96
97
38
23
74
7
2
20
4
3
1
6
7
-
-
29
112
1.0
0.6
1.4
1.3
2.0
-
2.2
2.2
0.9
0.5
1.7
0.2
-
0.5
0.1
0.1
0.7
-
2.5
0.1
0.2
-
-
0.3
5.2
1.2
34.7
65.3
27
211
70
1,461
2,953
0.6
4.8
1.6
33.1
66.9
100.0
Consolidated
$m
Write-offs
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property, property services and business services
Services1
Trade2
Transport and storage
Utilities3
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property, property services and business services
Services1
Trade2
Transport and storage
Utilities3
Retail lending
Other
Total New Zealand
Total other overseas
Total write-offs
Write-offs in relation to:
2015
2014
2013
2012
2011
(40)
(36)
(40)
(12)
(20)
(17)
(174)
(18)
(56)
(24)
(2)
(658)
(13)
(1,110)
-
(3)
-
-
(1)
(28)
(18)
(1)
(4)
-
-
(55)
-
(110)
(18)
(26)
(60)
(37)
(10)
(85)
(4)
(232)
(22)
(70)
(43)
(3)
(603)
(14)
(1,209)
(2)
(10)
(5)
(10)
(1)
(10)
(41)
(37)
(3)
-
-
(49)
-
(168)
(31)
(31)
(30)
(46)
(14)
(50)
(5)
(340)
(58)
(69)
(18)
(2)
(545)
(9)
(1,217)
(1)
(7)
(4)
(13)
(3)
-
(94)
(5)
(4)
(1)
-
(46)
-
(178)
(4)
(1,238)
(1,408)
(1,399)
(1,708)
(24)
(11)
(106)
(11)
(45)
(1)
(453)
(41)
(53)
(37)
(33)
(597)
(11)
(1,423)
(2)
(23)
(9)
(2)
(17)
(1)
(34)
(23)
(27)
(5)
(134)
(15)
(507)
(28)
(57)
(60)
(7)
(661)
(21)
(1,579)
(3)
(59)
(24)
(1)
(12)
-
(105)
(126)
(5)
(3)
(1)
-
(59)
(1)
(228)
(57)
(4)
(15)
-
(13)
(84)
(1)
(342)
(6)
(1,927)
(739)
(1,188)
(1,927)
credit commitments
3,332
100.0
3,481
100.0
3,949
100.0
4,241
100.0
4,414
1 Services include education, health and community services, cultural and recreational services and personal and other services.
Collectively assessed provisions
Individually assessed provisions
(793)
(445)
(702)
(706)
(708)
(691)
(756)
(952)
Total write-offs
1 Services include education, health and community services, cultural and recreational services and personal and other services.
2 Trade includes wholesale trade and retail trade.
3 Utilities include electricity, gas and water and communication services.
(1,238)
(1,399)
(1,408)
(1,708)
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3
Note 14. Provisions for impairment charges (continued)
The following table shows details of recoveries of loans by industry classifications for the past five years:
2015
2014
2013
2012
2011
The determination of life insurance liabilities is also one of the Group’s critical accounting assumptions and estimates described
Consolidated
$m
Recoveries
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Property, property services and business services
Services1
Trade2
Transport and storage
Utilities3
Retail lending
Other
-
-
4
8
3
17
1
1
-
-
78
1
-
-
2
8
3
12
-
1
-
2
62
2
1
1
1
3
8
11
-
1
1
-
41
-
-
-
1
2
5
23
1
1
1
-
61
1
-
-
-
-
-
9
-
-
-
-
46
-
55
5
60
(1,927)
(1,867)
Total Australia
Total New Zealand
Total recoveries
Total write-offs
Net write-offs and recoveries
1 Services include education, health and community services, cultural and recreational services and personal and other services.
2 Trade includes wholesale trade and retail trade.
3 Utilities include electricity, gas and water and communication services.
68
8
76
(1,399)
(1,323)
113
18
131
(1,238)
(1,107)
92
14
106
(1,408)
(1,302)
96
8
104
(1,708)
(1,604)
Note 15. Life insurance assets and life insurance liabilities
Accounting policy
Assets held by the life insurance companies and their subsidiaries, including investments in funds managed by the Group, are
designated at fair value through income statement as required by AASB 1038 Life Insurance Contracts. Changes in fair value
are included in the Income statement. Most assets are held in the life insurance statutory funds and can only be used within the
restrictions imposed under the Life Insurance Act 1995. The main restrictions are that the assets in a fund can only be used to
meet the liabilities and expenses of that fund, to acquire investments to further the business of the fund or as distribution when
solvency and capital adequacy requirements are met. Therefore they are not as liquid as other financial assets.
Life insurance liabilities consist of life insurance contract liabilities, life investment contract liabilities and external liabilities of
managed investment schemes controlled by statutory life funds which have been determined to support either the life insurance
or life investment contracts.
Life investment contract liabilities
Life investment contract liabilities are designated at fair value through income statement. Fair value is based on the higher of
the valuation of linked assets, or the minimum current surrender value.
Life insurance contract liabilities
The value of life insurance contract liabilities is calculated using the margin on services methodology. The methodology takes
into account the risks and uncertainties of the particular classes of the life insurance business written. Deferred policy
acquisition costs are included in the measurement basis of life insurance contract liabilities and are therefore equally sensitive
to the factors that are considered in the liabilities measurement. This methodology is in accordance with Prudential Standard
LPS 340 Valuation of Policy Liabilities.
Under this methodology, planned profit margins and an estimate of future liabilities are calculated separately for each related
product group using applied assumptions at each reporting date. Profit margins are released over each reporting period in line
with the service that has been provided. The balance of the planned profit is deferred by including them in the value of
policy liabilities.
External liabilities of managed investment schemes controlled by statutory life funds
External liabilities of managed investment schemes controlled by statutory life funds are designated at fair value through
income statement.
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Note 15. Life insurance assets and life insurance liabilities (continued)
The determination of the fair value of life insurance assets uses the same judgements as other financial assets which are
described in the critical accounting assumptions and estimates in Note 1d(vii).
Notes to the financial statements
2015
2014
4,350
7,448
621
51
655
13,125
5,063
4,889
621
65
369
11,007
Total
2015
9,637
368
875
(1,183)
(129)
1,991
11,559
2014
7,428
456
831
(1,298)
(140)
2,360
9,637
in Note 1d(vii).
Life insurance assets
Consolidated
$m
Investments held directly and in unit trusts
Equities
Debt
Property
Loans
Other
Total life insurance assets
Life insurance liabilities
Consolidated
$m
Opening balance
Movements in policy liabilities reflected
in the income statement
Contract contributions recognised in policy liabilities
Contract withdrawals recognised in policy liabilities
Contract fees, expenses and tax recoveries
Change in non-controlling interest of
managed investment schemes
Closing balance
rate method.
$m
Cash collateral
Offshore central bank deposits
Interbank borrowing
Securities sold under agreements to repurchase1
Total payables due to other financial institutions
There were no life insurance assets in the Parent Entity as at 30 September 2015 (2014: nil).
Reconciliation of movements in policy liabilities
Life investment
contracts
Life insurance
contracts
2015
10,378
463
875
(1,183)
(129)
1,991
12,395
2014
8,080
545
831
(1,298)
(140)
2,360
10,378
2015
(741)
2014
(652)
(95)
(89)
-
-
-
-
-
-
-
-
(836)
(741)
There were no life insurance liabilities in the Parent Entity as at 30 September 2015 (2014: nil).
Note 16. Payables due to other financial institutions
Accounting policy
Payables due to other financial institutions include interbank borrowing, securities sold under agreements to repurchase, cash
collateral and deposits (including vostro, settlement and clearing account balances) due to central and other banks. These
financial liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest
1 Securities sold under agreements to repurchase are not derecognised from the balance sheet, as set out in Note 1(c)(iv). The carrying value of
securities pledged under repurchase agreements for the Group and the Parent Entity is $6,998 million (2014: $8,099 million).
Consolidated
Parent Entity
2015
4,037
3,922
5,271
5,501
2014
3,876
3,039
5,478
6,243
2015
3,445
3,922
5,265
5,501
2014
3,842
3,039
5,287
6,243
18,731
18,636
18,133
18,411
Note 14. Provisions for impairment charges (continued)
The following table shows details of recoveries of loans by industry classifications for the past five years:
Property, property services and business services
17
12
11
23
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Consolidated
$m
Recoveries
Australia
Construction
Finance and insurance
Manufacturing
Services1
Trade2
Transport and storage
Utilities3
Retail lending
Other
Total Australia
Total New Zealand
Total recoveries
Total write-offs
2015
2014
2013
2012
2011
-
-
4
8
3
1
1
-
-
78
1
113
18
131
(1,238)
(1,107)
-
-
2
8
3
-
1
-
2
62
2
92
14
1
1
1
3
8
-
1
1
-
41
-
68
8
76
-
-
1
2
5
1
1
1
-
61
1
96
8
9
-
-
-
-
-
-
-
-
-
-
46
55
5
60
Net write-offs and recoveries
1 Services include education, health and community services, cultural and recreational services and personal and other services.
2 Trade includes wholesale trade and retail trade.
3 Utilities include electricity, gas and water and communication services.
106
(1,408)
(1,302)
(1,399)
(1,323)
104
(1,708)
(1,604)
(1,927)
(1,867)
Note 15. Life insurance assets and life insurance liabilities
Accounting policy
Assets held by the life insurance companies and their subsidiaries, including investments in funds managed by the Group, are
designated at fair value through income statement as required by AASB 1038 Life Insurance Contracts. Changes in fair value
are included in the Income statement. Most assets are held in the life insurance statutory funds and can only be used within the
restrictions imposed under the Life Insurance Act 1995. The main restrictions are that the assets in a fund can only be used to
meet the liabilities and expenses of that fund, to acquire investments to further the business of the fund or as distribution when
solvency and capital adequacy requirements are met. Therefore they are not as liquid as other financial assets.
Life insurance liabilities consist of life insurance contract liabilities, life investment contract liabilities and external liabilities of
managed investment schemes controlled by statutory life funds which have been determined to support either the life insurance
or life investment contracts.
Life investment contract liabilities
Life insurance contract liabilities
Life investment contract liabilities are designated at fair value through income statement. Fair value is based on the higher of
the valuation of linked assets, or the minimum current surrender value.
The value of life insurance contract liabilities is calculated using the margin on services methodology. The methodology takes
into account the risks and uncertainties of the particular classes of the life insurance business written. Deferred policy
acquisition costs are included in the measurement basis of life insurance contract liabilities and are therefore equally sensitive
to the factors that are considered in the liabilities measurement. This methodology is in accordance with Prudential Standard
LPS 340 Valuation of Policy Liabilities.
Under this methodology, planned profit margins and an estimate of future liabilities are calculated separately for each related
product group using applied assumptions at each reporting date. Profit margins are released over each reporting period in line
with the service that has been provided. The balance of the planned profit is deferred by including them in the value of
policy liabilities.
income statement.
External liabilities of managed investment schemes controlled by statutory life funds
External liabilities of managed investment schemes controlled by statutory life funds are designated at fair value through
Notes to the financial statements
Note 15. Life insurance assets and life insurance liabilities (continued)
The determination of the fair value of life insurance assets uses the same judgements as other financial assets which are
described in the critical accounting assumptions and estimates in Note 1d(vii).
The determination of life insurance liabilities is also one of the Group’s critical accounting assumptions and estimates described
in Note 1d(vii).
Life insurance assets
Consolidated
$m
Investments held directly and in unit trusts
Equities
Debt
Property
Loans
Other
Total life insurance assets
2015
2014
4,350
7,448
621
51
655
13,125
5,063
4,889
621
65
369
11,007
There were no life insurance assets in the Parent Entity as at 30 September 2015 (2014: nil).
Life insurance liabilities
Consolidated
Reconciliation of movements in policy liabilities
$m
Opening balance
Movements in policy liabilities reflected
in the income statement
Contract contributions recognised in policy liabilities
Contract withdrawals recognised in policy liabilities
Contract fees, expenses and tax recoveries
Change in non-controlling interest of
managed investment schemes
Closing balance
Life investment
contracts
Life insurance
contracts
2015
10,378
463
875
(1,183)
(129)
1,991
12,395
2014
8,080
545
831
(1,298)
(140)
2,360
10,378
2015
(741)
2014
(652)
(95)
(89)
-
-
-
-
-
-
-
-
(836)
(741)
Total
2015
9,637
368
875
(1,183)
(129)
1,991
11,559
2014
7,428
456
831
(1,298)
(140)
2,360
9,637
There were no life insurance liabilities in the Parent Entity as at 30 September 2015 (2014: nil).
Note 16. Payables due to other financial institutions
Accounting policy
Payables due to other financial institutions include interbank borrowing, securities sold under agreements to repurchase, cash
collateral and deposits (including vostro, settlement and clearing account balances) due to central and other banks. These
financial liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest
rate method.
$m
Cash collateral
Offshore central bank deposits
Interbank borrowing
Securities sold under agreements to repurchase1
Consolidated
Parent Entity
2015
4,037
3,922
5,271
5,501
2014
3,876
3,039
5,478
6,243
2015
3,445
3,922
5,265
5,501
2014
3,842
3,039
5,287
6,243
Total payables due to other financial institutions
1 Securities sold under agreements to repurchase are not derecognised from the balance sheet, as set out in Note 1(c)(iv). The carrying value of
18,731
18,133
18,636
18,411
securities pledged under repurchase agreements for the Group and the Parent Entity is $6,998 million (2014: $8,099 million).
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3
Note 17. Deposits and other borrowings
Accounting policy
Deposits and other borrowings include certificates of deposit, at-call and term deposits, other related interest-bearing financial
instruments and securities sold under agreements to repurchase.
Subsequent to initial recognition at fair value, deposits and other borrowings are measured at either amortised cost using the
effective interest rate method or at fair value through the income statement where they are designated as such on
initial recognition.
The Group designates certain deposits and other borrowings at fair value when those liabilities are managed on a fair value
basis (as part of a trading portfolio), where an accounting mismatch is eliminated or reduced (which arises from associated
derivatives executed for risk management purposes), or where the instrument contains an embedded derivative. These
liabilities are measured at fair value with changes in fair value (except own credit) recognised through the Income statement in
the period in which they arise. The change in the portion of the fair value that is attributable to Westpac’s own credit risk is
recognised in other comprehensive income except where it would create an accounting mismatch, in which case it is also
recognised through the Income statement.
Interest expense incurred is recorded within net interest income using the effective interest rate method.
$m
Australia
Certificates of deposit
Non-interest bearing, repayable at call
Other interest bearing at call
Other interest bearing term
Total Australia
New Zealand
Certificates of deposit
Non-interest bearing, repayable at call
Other interest bearing at call
Other interest bearing term
Total New Zealand
Overseas
Certificates of deposit
Non-interest bearing, repayable at call
Other interest bearing at call
Other interest bearing term
Total overseas
Total deposits and other borrowings
Deposits and other borrowings at fair value1
Deposits and other borrowings at amortised cost
Consolidated
Parent Entity
2015
2014
2015
2014
32,156
33,030
209,755
122,071
397,012
974
3,671
21,735
21,863
48,243
15,054
1,009
1,752
12,258
30,073
475,328
46,239
429,089
35,481
25,773
187,904
133,972
383,130
1,031
3,217
18,418
22,500
45,166
15,065
914
1,694
14,853
32,526
460,822
49,636
411,186
32,223
33,030
209,638
122,071
396,962
35,538
25,773
187,876
133,972
383,159
-
-
-
-
-
15,054
431
1,211
11,851
28,547
425,509
45,331
380,178
-
-
-
-
-
15,065
355
1,204
14,400
31,024
414,183
48,661
365,522
Total deposits and other borrowings
1 The amount that would be contractually required to be paid at maturity to the holders of the financial liabilities designated at fair value through income
475,328
414,183
460,822
425,509
statement for the Group is $46,284 million (2014: $49,614 million) and for the Parent Entity is $45,372 million (2014: $48,632 million).
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157
Australia
Non-interest bearing
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total Australia
Overseas
Non-interest bearing
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total overseas
out below:
Consolidated 2015
Note 17. Deposits and other borrowings (continued)
The following table shows average balances and average rates in each of the past three years for major categories of deposits:
Notes to the financial statements
Consolidated
2015
2014
2013
Average
Balance
$m
29,201
32,201
199,107
125,891
386,400
4,514
16,617
22,427
37,271
80,829
Average
Rate
%
2.5%
2.0%
3.2%
0.6%
3.0%
2.9%
Average
Balance
$m
23,082
31,793
182,046
128,546
365,467
3,926
15,717
20,354
35,720
75,717
Average
Rate
%
2.7%
2.5%
3.5%
0.5%
3.1%
2.6%
Average
Balance
$m
18,399
29,352
162,748
133,534
344,033
3,345
15,259
16,483
29,300
64,387
Average
Rate
%
3.1%
3.1%
3.9%
0.6%
2.9%
2.9%
Certificates of deposit and term deposits
All certificates of deposit issued by foreign offices were greater than US$100,000.
The maturity profile of certificates of deposit and term deposits greater than US$100,000 issued by Australian operations is set
$m
Certificates of deposit greater than US$100,000
Term deposits greater than US$100,000
Less Than
3 Months
21,196
59,854
Between
3 and
6 Months
10,823
22,421
Between
6 Months
and
1 Year
5
12,792
Over 1 Year
132
7,679
Total
32,156
102,746
Note 18. Other financial liabilities at fair value through income statement
Accounting policy
Other financial liabilities at fair value through income statement includes trading securities sold short and securities sold under
repurchase agreements which have been designated at fair value on initial recognition. Subsequent to initial recognition, these
liabilities are measured at fair value with changes in fair value (except as noted below) recognised through the income
statement in the period in which they arise. For financial liabilities that have been designated at fair value, the change in the
portion of the fair value that is attributable to Westpac’s own credit risk is recognised in other comprehensive income except
where it would create an accounting mismatch, in which case it is recognised through the Income statement.
Interest expense incurred is recorded within net interest income using the effective interest rate method.
$m
Securities sold under agreements to repurchase1
Securities sold short
Consolidated
Parent Entity
2015
8,407
819
9,226
2014
17,277
1,959
19,236
2015
8,407
819
9,226
2014
17,196
1,959
19,155
Total other financial liabilities at fair value through income statement
1 Securities sold under agreements to repurchase are not derecognised from the balance sheet, as set out in Note 1(c)(iv). The carrying value of
securities pledged under repurchase agreements for the Group is $8,653 million (2014: $17,879 million) and for the Parent Entity is $8,653 million
(2014: $17,798 million).
The amount that would be contractually required to be paid at maturity to the holders of other financial liabilities at fair value for
the Group is $9,141 million (2014: $19,111 million) and for the Parent Entity is $9,141 million (2014: $19,030 million).
Note 17. Deposits and other borrowings
Accounting policy
Deposits and other borrowings include certificates of deposit, at-call and term deposits, other related interest-bearing financial
instruments and securities sold under agreements to repurchase.
Subsequent to initial recognition at fair value, deposits and other borrowings are measured at either amortised cost using the
effective interest rate method or at fair value through the income statement where they are designated as such on
initial recognition.
The Group designates certain deposits and other borrowings at fair value when those liabilities are managed on a fair value
basis (as part of a trading portfolio), where an accounting mismatch is eliminated or reduced (which arises from associated
derivatives executed for risk management purposes), or where the instrument contains an embedded derivative. These
liabilities are measured at fair value with changes in fair value (except own credit) recognised through the Income statement in
the period in which they arise. The change in the portion of the fair value that is attributable to Westpac’s own credit risk is
recognised in other comprehensive income except where it would create an accounting mismatch, in which case it is also
recognised through the Income statement.
Interest expense incurred is recorded within net interest income using the effective interest rate method.
$m
Australia
Certificates of deposit
Non-interest bearing, repayable at call
Non-interest bearing, repayable at call
Other interest bearing at call
Other interest bearing term
Total Australia
New Zealand
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total New Zealand
Overseas
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total overseas
Non-interest bearing, repayable at call
Total deposits and other borrowings
Deposits and other borrowings at fair value1
Deposits and other borrowings at amortised cost
Total deposits and other borrowings
Consolidated
Parent Entity
2015
2014
2015
2014
32,156
33,030
209,755
122,071
397,012
974
3,671
21,735
21,863
48,243
15,054
1,009
1,752
12,258
30,073
475,328
46,239
429,089
475,328
35,481
25,773
187,904
133,972
383,130
1,031
3,217
18,418
22,500
45,166
15,065
914
1,694
14,853
32,526
460,822
49,636
411,186
460,822
32,223
33,030
209,638
122,071
396,962
35,538
25,773
187,876
133,972
383,159
-
-
-
-
-
15,054
431
1,211
11,851
28,547
425,509
45,331
380,178
425,509
-
-
-
-
-
15,065
355
1,204
14,400
31,024
414,183
48,661
365,522
414,183
1 The amount that would be contractually required to be paid at maturity to the holders of the financial liabilities designated at fair value through income
statement for the Group is $46,284 million (2014: $49,614 million) and for the Parent Entity is $45,372 million (2014: $48,632 million).
Note 17. Deposits and other borrowings (continued)
The following table shows average balances and average rates in each of the past three years for major categories of deposits:
Notes to the financial statements
Consolidated
2015
2014
2013
Australia
Non-interest bearing
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total Australia
Overseas
Non-interest bearing
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total overseas
Average
Balance
$m
29,201
32,201
199,107
125,891
386,400
4,514
16,617
22,427
37,271
80,829
Average
Rate
%
2.5%
2.0%
3.2%
0.6%
3.0%
2.9%
Average
Balance
$m
23,082
31,793
182,046
128,546
365,467
3,926
15,717
20,354
35,720
75,717
Average
Rate
%
2.7%
2.5%
3.5%
0.5%
3.1%
2.6%
Average
Balance
$m
18,399
29,352
162,748
133,534
344,033
3,345
15,259
16,483
29,300
64,387
Average
Rate
%
3.1%
3.1%
3.9%
0.6%
2.9%
2.9%
Certificates of deposit and term deposits
All certificates of deposit issued by foreign offices were greater than US$100,000.
The maturity profile of certificates of deposit and term deposits greater than US$100,000 issued by Australian operations is set
out below:
Consolidated 2015
$m
Certificates of deposit greater than US$100,000
Term deposits greater than US$100,000
Less Than
3 Months
21,196
59,854
Between
3 and
6 Months
10,823
22,421
Between
6 Months
and
1 Year
5
12,792
Over 1 Year
132
7,679
Total
32,156
102,746
Note 18. Other financial liabilities at fair value through income statement
Accounting policy
Other financial liabilities at fair value through income statement includes trading securities sold short and securities sold under
repurchase agreements which have been designated at fair value on initial recognition. Subsequent to initial recognition, these
liabilities are measured at fair value with changes in fair value (except as noted below) recognised through the income
statement in the period in which they arise. For financial liabilities that have been designated at fair value, the change in the
portion of the fair value that is attributable to Westpac’s own credit risk is recognised in other comprehensive income except
where it would create an accounting mismatch, in which case it is recognised through the Income statement.
Interest expense incurred is recorded within net interest income using the effective interest rate method.
$m
Securities sold under agreements to repurchase1
Securities sold short
Consolidated
Parent Entity
2015
8,407
819
2014
17,277
1,959
2015
8,407
819
2014
17,196
1,959
securities pledged under repurchase agreements for the Group is $8,653 million (2014: $17,879 million) and for the Parent Entity is $8,653 million
(2014: $17,798 million).
The amount that would be contractually required to be paid at maturity to the holders of other financial liabilities at fair value for
the Group is $9,141 million (2014: $19,111 million) and for the Parent Entity is $9,141 million (2014: $19,030 million).
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157
Total other financial liabilities at fair value through income statement
1 Securities sold under agreements to repurchase are not derecognised from the balance sheet, as set out in Note 1(c)(iv). The carrying value of
19,236
9,226
9,226
19,155
3
Note 19. Debt issues
Accounting policy
Debt issues are bonds, notes, commercial paper and debentures that have been issued by entities in the Group. Debt issues
also include acceptances, which are bills of exchange initially accepted and discounted by the Group that have been
subsequently rediscounted into the market. Bill financing provided to customers by accepting and discounting of bills of
exchanges is reported as part of loans.
Subsequent to initial recognition, debt issues are measured at either amortised cost using the effective interest rate method or
at fair value through income statement where they are designated as such on initial recognition. The Group designates certain
debt issues at fair value to reduce or eliminate an accounting mismatch which arises from associated derivatives executed for
risk management purposes, or where the instrument contains an embedded derivative. These financial liabilities are measured
at fair value with changes in fair value (except own credit) recognised through the income statement in the period in which they
arise. The change in the fair value that is attributable to Westpac’s own credit risk is recognised in other comprehensive income
except where it would create an accounting mismatch, in which case it is also recognised through the Income statement.
Interest expense incurred is recorded within net interest income using the effective interest rate method.
Presented in the following table are the Group and Parent Entity’s debt issues at 30 September 2015 and 2014. The distinction
between short-term and long-term debt is based on the maturity of the underlying security at origination.
$m
Debt issues
Short-term debt:
Own issuances
Customer conduits1
Acceptances
Total short-term debt
Long-term debt:
Covered bonds
Senior
Securitisation
Convertible notes
Structured notes
Total long-term debt
Total debt issues
Debt issues at fair value2
Debt issues at amortised cost
Consolidated
Parent Entity
2015
2014
2015
2014
34,943
823
97
35,863
35,062
87,645
12,034
-
450
135,191
171,054
9,318
161,736
30,302
1,418
101
31,821
26,168
82,377
11,277
27
581
120,430
152,251
9,542
142,709
32,470
27,562
-
97
-
101
32,567
27,663
31,401
80,747
23,167
77,016
-
-
-
112,148
144,715
6,415
138,300
-
-
-
100,183
127,846
6,315
121,531
Total debt issues
1 Further information on customer conduits is disclosed in Note 25.
2 The amount that would be contractually required to be paid at maturity to the holders of the financial liabilities designated at fair value through profit or
loss for the Group is $9,372 million (2014: $9,529 million) and for the Parent Entity is $6,483 million (2014: $6,324 million). Included in the carrying
value of debt issues at fair value is a decrease for cumulative changes in own credit spreads of $218 million (2014: $58 million) for the Group and
Parent Entity.
127,846
144,715
171,054
152,251
158
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
Note 19. Debt issues (continued)
Consolidated
$m
Short-term debt
US commercial paper
Asset backed commercial paper (by currency):
Total asset backed commercial paper
NZD promissory notes
Acceptances
Total short-term debt
Long-term debt (by currency):
AUD
USD
AUD
CHF
EUR
GBP
JPY
NZD
USD
Other
Total long-term debt
Consolidated
$m
Short-term borrowings
US commercial paper
Maximum amount outstanding at any month end
Approximate average amount outstanding
Approximate weighted average interest rate on:
Average amount outstanding
Outstanding as at end of the year
Group’s hedge accounting are in Note 21.
Note 20. Loan capital
Accounting policy
$m
Loan capital
Additional Tier 1 loan capital
Convertible debentures and Trust preferred securities
Convertible preference shares
Westpac capital notes
Total Additional Tier 1 loan capital
Tier 2 loan capital
Subordinated notes
Subordinated perpetual notes
Total Tier 2 loan capital
Total loan capital
Notes to the financial statements
2015
2014
34,943
30,259
35,863
31,821
823
823
-
-
97
41,706
1,912
27,278
7,067
4,272
2,991
48,145
1,820
135,191
1,301
117
1,418
43
101
39,356
2,130
20,522
3,785
7,557
2,969
41,808
2,303
120,430
2015
2014
2013
38,774
35,482
0.3%
0.3%
35,173
31,130
0.3%
0.3%
35,727
30,158
0.4%
0.4%
Consolidated
Parent Entity
2015
2014
2015
2014
765
1,182
3,981
5,928
7,408
504
7,912
13,840
633
1,180
2,669
4,482
5,974
402
6,376
10,858
765
1,182
3,981
5,928
7,408
504
7,912
13,840
633
1,180
2,669
4,482
5,974
402
6,376
10,858
159
The Group manages foreign exchange exposure from debt issuances as part of its hedging activities. Further details of the
Loan capital are instruments issued by the Group with terms and conditions that qualify for inclusion as regulatory capital under
APRA Prudential Standards. Loan capital is recognised as a financial liability initially measured at fair value plus directly
attributable transaction costs and subsequently measured at amortised cost using the effective interest rate method.
Note 19. Debt issues
Accounting policy
Debt issues are bonds, notes, commercial paper and debentures that have been issued by entities in the Group. Debt issues
also include acceptances, which are bills of exchange initially accepted and discounted by the Group that have been
subsequently rediscounted into the market. Bill financing provided to customers by accepting and discounting of bills of
exchanges is reported as part of loans.
Subsequent to initial recognition, debt issues are measured at either amortised cost using the effective interest rate method or
at fair value through income statement where they are designated as such on initial recognition. The Group designates certain
debt issues at fair value to reduce or eliminate an accounting mismatch which arises from associated derivatives executed for
risk management purposes, or where the instrument contains an embedded derivative. These financial liabilities are measured
at fair value with changes in fair value (except own credit) recognised through the income statement in the period in which they
arise. The change in the fair value that is attributable to Westpac’s own credit risk is recognised in other comprehensive income
except where it would create an accounting mismatch, in which case it is also recognised through the Income statement.
Interest expense incurred is recorded within net interest income using the effective interest rate method.
Presented in the following table are the Group and Parent Entity’s debt issues at 30 September 2015 and 2014. The distinction
between short-term and long-term debt is based on the maturity of the underlying security at origination.
$m
Debt issues
Short-term debt:
Own issuances
Customer conduits1
Acceptances
Total short-term debt
Long-term debt:
Covered bonds
Senior
Securitisation
Convertible notes
Structured notes
Total long-term debt
Total debt issues
Debt issues at fair value2
Debt issues at amortised cost
Total debt issues
Consolidated
Parent Entity
2015
2014
2015
2014
34,943
823
97
35,863
35,062
87,645
12,034
-
450
135,191
171,054
9,318
161,736
171,054
30,302
1,418
101
31,821
26,168
82,377
11,277
27
581
120,430
152,251
9,542
142,709
152,251
32,470
27,562
-
101
32,567
27,663
31,401
80,747
23,167
77,016
-
97
-
-
-
-
-
-
100,183
127,846
6,315
121,531
127,846
112,148
144,715
6,415
138,300
144,715
Note 19. Debt issues (continued)
Consolidated
$m
Short-term debt
US commercial paper
Asset backed commercial paper (by currency):
AUD
USD
Total asset backed commercial paper
NZD promissory notes
Acceptances
Total short-term debt
Long-term debt (by currency):
AUD
CHF
EUR
GBP
JPY
NZD
USD
Other
Total long-term debt
Consolidated
$m
Short-term borrowings
US commercial paper
Maximum amount outstanding at any month end
Approximate average amount outstanding
Approximate weighted average interest rate on:
Average amount outstanding
Outstanding as at end of the year
Notes to the financial statements
2015
2014
34,943
30,259
823
-
823
-
97
1,301
117
1,418
43
101
35,863
31,821
41,706
1,912
27,278
7,067
4,272
2,991
48,145
1,820
135,191
39,356
2,130
20,522
3,785
7,557
2,969
41,808
2,303
120,430
2015
2014
2013
38,774
35,482
0.3%
0.3%
35,173
31,130
0.3%
0.3%
35,727
30,158
0.4%
0.4%
1 Further information on customer conduits is disclosed in Note 25.
2 The amount that would be contractually required to be paid at maturity to the holders of the financial liabilities designated at fair value through profit or
loss for the Group is $9,372 million (2014: $9,529 million) and for the Parent Entity is $6,483 million (2014: $6,324 million). Included in the carrying
value of debt issues at fair value is a decrease for cumulative changes in own credit spreads of $218 million (2014: $58 million) for the Group and
Parent Entity.
The Group manages foreign exchange exposure from debt issuances as part of its hedging activities. Further details of the
Group’s hedge accounting are in Note 21.
Note 20. Loan capital
Accounting policy
Loan capital are instruments issued by the Group with terms and conditions that qualify for inclusion as regulatory capital under
APRA Prudential Standards. Loan capital is recognised as a financial liability initially measured at fair value plus directly
attributable transaction costs and subsequently measured at amortised cost using the effective interest rate method.
158
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
$m
Loan capital
Additional Tier 1 loan capital
Convertible debentures and Trust preferred securities
Convertible preference shares
Westpac capital notes
Total Additional Tier 1 loan capital
Tier 2 loan capital
Subordinated notes
Subordinated perpetual notes
Total Tier 2 loan capital
Total loan capital
Consolidated
Parent Entity
2015
2014
2015
2014
765
1,182
3,981
5,928
7,408
504
7,912
13,840
633
1,180
2,669
4,482
5,974
402
6,376
10,858
765
1,182
3,981
5,928
7,408
504
7,912
13,840
633
1,180
2,669
4,482
5,974
402
6,376
10,858
159
3
Note 20. Loan capital (continued)
Additional Tier 1 loan capital
A summary of the key terms of certain Additional Tier 1 (AT1) instruments is provided in the following table1.
Note 20. Loan capital (continued)
Common features of Additional Tier 1 instruments tabled above
Payment conditions
Convertible preference shares
Capital notes
Instrument
$1,189 million Convertible Preference
Shares (CPS)
i)
$1,384 million Westpac Capital Notes (WCN)
ii) $1,311 million Westpac Capital Notes 2 (WCN 2)
iii) $1,324 million Westpac Capital Note 3 (WCN 3)
Face value
A$100
Issue date
23 March 2012
Dividend/
distribution
payment dates2
31 March, 30 September
Dividend/
distribution rate2
(180 day bank bill rate + 3.25% per annum)
x (1 – Australian corporate
tax rate)
Potential
scheduled
conversion dates3
31 March 2020 and each dividend payment
date thereafter
Optional call date
31 March 2018 and each dividend payment
date thereafter or in certain other
limited circumstances
A$100 (all)
i)
8 March 2013
ii) 23 June 2014
iii) 8 September 2015
8 March, 8 June, 8 September, 8 December
i)
ii) 23 March, 23 June, 23 September, 23 December
iii) 22 March, 22 June, 22 September, 22 December
i)
ii)
iii)
(90 day bank bill rate + 3.20% per annum) x
(1 - Australian corporate tax rate)
(90 day bank bill rate + 3.05% per annum) x
(1 - Australian corporate tax rate)
(90 day bank bill rate + 4.00% per annum) x
(1 - Australian corporate tax rate)
8 March 2021 and each payment date thereafter
i)
ii) 23 September 2024 and each payment
date thereafter
iii) 22 March 2023 and each payment date thereafter
i)
8 March 2019 or in certain other limited
circumstances
ii) 23 September 2022 or in certain other limited
circumstances
iii) 22 March 2021 or in certain other limited
circumstances
Capital trigger /
Non-viability
trigger
Maximum
conversion
number4,5
Capital trigger only
i) Capital trigger and non-viability trigger
24.0038 Westpac ordinary shares
per CPS
ii) 16.7280 Westpac ordinary shares per WCN
ii) 14.5476 Westpac ordinary shares per WCN 2
iii) 16.0102 Westpac ordinary shares per WCN 3
Basel III capital
treatment
Transitional treatment as Additional
Tier 1 capital
Fully compliant Additional Tier 1 capital (all)
event) on broadly similar terms to a scheduled conversion, described above.
1 Excludes convertible debentures and Trust preferred securities (TPS 2004).
2 Dividends are applicable to CPS only.
3 Conversion on these dates is subject to the satisfaction of the scheduled conversion conditions.
4 Based on the initial face value of A$100.
5 Maximum conversion number applicable to a capital trigger event or non-viability trigger event.
APRA regulations for the purposes of measuring capital adequacy.
2 On a Level 2 basis only for CPS.
3 CPS does not contain a non-viability trigger event.
4 Excludes CPS.
5 Excludes WCN.
160
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161
Notes to the financial statements
Dividends are discretionary and only payable subject to a dividend payment test. The dividend payment test requires that
dividends will only be paid if the Westpac directors determine to pay a dividend, the dividend payment does not exceed the
distributable profits of Westpac (unless APRA gives its prior written approval), and APRA does not object to the payment of the
dividend. Distributions are discretionary and are only payable subject to the satisfaction of the distribution payment conditions,
being Westpac’s absolute discretion; the distribution payment not resulting in a breach of Westpac’s capital requirements under
APRA’s prudential standards; the distribution payment not resulting in Westpac becoming, or likely to become, insolvent; and
APRA not otherwise objecting to the payment of the distribution.
If for any reason a dividend or distribution has not been paid in full on the relevant dividend or distribution payment date,
broadly Westpac must not (other than in certain limited circumstances) determine or pay any dividends on Westpac ordinary
shares or undertake a discretionary buy back or capital reduction of Westpac ordinary shares, unless the unpaid dividend or
distribution is paid in full within 20 business days or in certain other circumstances.
The AT1 instruments convert into Westpac ordinary shares in the following circumstances:
Scheduled Conversion
On the applicable scheduled conversion date, it is expected that the relevant AT1 instrument will be converted into a variable
number of Westpac ordinary shares, provided certain conversion conditions are satisfied. For the relevant AT1 instrument
converted, holders will receive a number of Westpac ordinary shares calculated using the formula described in the terms of the
instrument. The price at which Westpac ordinary shares will be issued is based on the Westpac ordinary share price
determined over the 20 business day period prior to the scheduled conversion date and includes a 1% discount.
Capital Trigger Event or Non-Viability Trigger Event
Westpac may be required to convert some or all AT1 instruments into a variable number of Westpac ordinary shares upon the
occurrence of a capital trigger event or non-viability trigger event. A capital trigger event will occur when Westpac’s Common
Equity Tier 1 Capital ratio is equal to or less than 5.125% (on a level 1 or level 2 basis1,2). A non-viability trigger event will occur
when APRA notifies Westpac in writing that it believes conversion of some or all AT1 instruments (or conversion or write-down
of other capital instruments of the Westpac Group) or a public sector injection of capital, or equivalent support, is necessary
because, without it, Westpac would become non-viable3. No conversion conditions apply in these circumstances. For the
applicable AT1 instrument converted, holders will receive a number of Westpac ordinary shares calculated using the formula
described in the terms of the AT1 instrument, but subject to a maximum conversion number. The price at which Westpac
ordinary shares will be issued is based on the share price determined over the five business day period prior to the capital
trigger event or non-viability trigger event. For each instrument, the maximum conversion number is set using a Westpac
ordinary share price which is broadly equivalent to 20% of the Westpac ordinary share price at the time of issue. Following the
occurrence of a capital trigger event or non-viability trigger event, if conversion of an AT1 instrument does not occur for any
reason within five business days, holder’s rights in relation to the AT1 instrument will be terminated4.
Early conversion
If Westpac elects to convert an AT1 instrument on its optional call date5, conversion occurs on broadly similar terms as to
scheduled conversion, described above.
Early conversion may also occur in certain other limited circumstances (such as following an acquisition, tax or regulatory
Convertible debentures and Trust preferred securities (2004 TPS)
A wholly owned entity Westpac Capital Trust IV (Capital Trust IV) issued 525,000 2004 TPS in the United States of America at
US$1,000 each on 5 April 2004, with non-cumulative semi-annual distributions (31 March and 30 September) in arrears at the
annual rate of 5.256% up to but excluding 31 March 2016. From, and including 31 March 2016 the 2004 TPS will pay non-
cumulative quarterly distributions (30 June, 30 September, 31 December and 31 March) in arrears at a floating rate equal to the
London InterBank Offer Rate (LIBOR) plus 1.7675% per year. Proceeds from the issue of TPS were ultimately invested in
convertible debentures issued by Westpac in an aggregate amount of US$525,001,000. 2004 TPS qualify for transitional
treatment as Additional Tier 1 capital of Westpac under APRA’s Basel III capital adequacy framework.
1 Level 1 comprises Westpac Banking Corporation and its subsidiary entities that have been approved by APRA as being part of a single ‘Extended
Licenced Entity’ for the purposes of measuring capital adequacy. Level 2 includes all subsidiary entities except those entities specifically excluded by
Note 20. Loan capital (continued)
Additional Tier 1 loan capital
A summary of the key terms of certain Additional Tier 1 (AT1) instruments is provided in the following table1.
Convertible preference shares
Capital notes
Instrument
$1,189 million Convertible Preference
Shares (CPS)
i)
$1,384 million Westpac Capital Notes (WCN)
ii) $1,311 million Westpac Capital Notes 2 (WCN 2)
iii) $1,324 million Westpac Capital Note 3 (WCN 3)
Face value
A$100
Issue date
23 March 2012
Dividend/
distribution
payment dates2
31 March, 30 September
Dividend/
distribution rate2
x (1 – Australian corporate
tax rate)
(180 day bank bill rate + 3.25% per annum)
A$100 (all)
i)
8 March 2013
ii) 23 June 2014
iii) 8 September 2015
i)
8 March, 8 June, 8 September, 8 December
ii) 23 March, 23 June, 23 September, 23 December
iii) 22 March, 22 June, 22 September, 22 December
i)
(90 day bank bill rate + 3.20% per annum) x
(1 - Australian corporate tax rate)
ii)
(90 day bank bill rate + 3.05% per annum) x
(1 - Australian corporate tax rate)
iii)
(90 day bank bill rate + 4.00% per annum) x
(1 - Australian corporate tax rate)
iii) 22 March 2023 and each payment date thereafter
i)
8 March 2019 or in certain other limited
ii) 23 September 2022 or in certain other limited
iii) 22 March 2021 or in certain other limited
circumstances
circumstances
circumstances
Potential
scheduled
conversion dates3
31 March 2020 and each dividend payment
ii) 23 September 2024 and each payment
date thereafter
date thereafter
31 March 2018 and each dividend payment
Optional call date
date thereafter or in certain other
limited circumstances
Capital trigger /
Non-viability
trigger
Maximum
conversion
number4,5
Capital trigger only
i) Capital trigger and non-viability trigger
24.0038 Westpac ordinary shares
per CPS
ii) 16.7280 Westpac ordinary shares per WCN
ii) 14.5476 Westpac ordinary shares per WCN 2
iii) 16.0102 Westpac ordinary shares per WCN 3
Basel III capital
Transitional treatment as Additional
treatment
Tier 1 capital
Fully compliant Additional Tier 1 capital (all)
1 Excludes convertible debentures and Trust preferred securities (TPS 2004).
2 Dividends are applicable to CPS only.
3 Conversion on these dates is subject to the satisfaction of the scheduled conversion conditions.
4 Based on the initial face value of A$100.
5 Maximum conversion number applicable to a capital trigger event or non-viability trigger event.
Notes to the financial statements
Note 20. Loan capital (continued)
Common features of Additional Tier 1 instruments tabled above
Payment conditions
Dividends are discretionary and only payable subject to a dividend payment test. The dividend payment test requires that
dividends will only be paid if the Westpac directors determine to pay a dividend, the dividend payment does not exceed the
distributable profits of Westpac (unless APRA gives its prior written approval), and APRA does not object to the payment of the
dividend. Distributions are discretionary and are only payable subject to the satisfaction of the distribution payment conditions,
being Westpac’s absolute discretion; the distribution payment not resulting in a breach of Westpac’s capital requirements under
APRA’s prudential standards; the distribution payment not resulting in Westpac becoming, or likely to become, insolvent; and
APRA not otherwise objecting to the payment of the distribution.
If for any reason a dividend or distribution has not been paid in full on the relevant dividend or distribution payment date,
broadly Westpac must not (other than in certain limited circumstances) determine or pay any dividends on Westpac ordinary
shares or undertake a discretionary buy back or capital reduction of Westpac ordinary shares, unless the unpaid dividend or
distribution is paid in full within 20 business days or in certain other circumstances.
The AT1 instruments convert into Westpac ordinary shares in the following circumstances:
Scheduled Conversion
On the applicable scheduled conversion date, it is expected that the relevant AT1 instrument will be converted into a variable
number of Westpac ordinary shares, provided certain conversion conditions are satisfied. For the relevant AT1 instrument
converted, holders will receive a number of Westpac ordinary shares calculated using the formula described in the terms of the
instrument. The price at which Westpac ordinary shares will be issued is based on the Westpac ordinary share price
determined over the 20 business day period prior to the scheduled conversion date and includes a 1% discount.
i)
8 March 2021 and each payment date thereafter
Capital Trigger Event or Non-Viability Trigger Event
Westpac may be required to convert some or all AT1 instruments into a variable number of Westpac ordinary shares upon the
occurrence of a capital trigger event or non-viability trigger event. A capital trigger event will occur when Westpac’s Common
Equity Tier 1 Capital ratio is equal to or less than 5.125% (on a level 1 or level 2 basis1,2). A non-viability trigger event will occur
when APRA notifies Westpac in writing that it believes conversion of some or all AT1 instruments (or conversion or write-down
of other capital instruments of the Westpac Group) or a public sector injection of capital, or equivalent support, is necessary
because, without it, Westpac would become non-viable3. No conversion conditions apply in these circumstances. For the
applicable AT1 instrument converted, holders will receive a number of Westpac ordinary shares calculated using the formula
described in the terms of the AT1 instrument, but subject to a maximum conversion number. The price at which Westpac
ordinary shares will be issued is based on the share price determined over the five business day period prior to the capital
trigger event or non-viability trigger event. For each instrument, the maximum conversion number is set using a Westpac
ordinary share price which is broadly equivalent to 20% of the Westpac ordinary share price at the time of issue. Following the
occurrence of a capital trigger event or non-viability trigger event, if conversion of an AT1 instrument does not occur for any
reason within five business days, holder’s rights in relation to the AT1 instrument will be terminated4.
Early conversion
If Westpac elects to convert an AT1 instrument on its optional call date5, conversion occurs on broadly similar terms as to
scheduled conversion, described above.
Early conversion may also occur in certain other limited circumstances (such as following an acquisition, tax or regulatory
event) on broadly similar terms to a scheduled conversion, described above.
Convertible debentures and Trust preferred securities (2004 TPS)
A wholly owned entity Westpac Capital Trust IV (Capital Trust IV) issued 525,000 2004 TPS in the United States of America at
US$1,000 each on 5 April 2004, with non-cumulative semi-annual distributions (31 March and 30 September) in arrears at the
annual rate of 5.256% up to but excluding 31 March 2016. From, and including 31 March 2016 the 2004 TPS will pay non-
cumulative quarterly distributions (30 June, 30 September, 31 December and 31 March) in arrears at a floating rate equal to the
London InterBank Offer Rate (LIBOR) plus 1.7675% per year. Proceeds from the issue of TPS were ultimately invested in
convertible debentures issued by Westpac in an aggregate amount of US$525,001,000. 2004 TPS qualify for transitional
treatment as Additional Tier 1 capital of Westpac under APRA’s Basel III capital adequacy framework.
1 Level 1 comprises Westpac Banking Corporation and its subsidiary entities that have been approved by APRA as being part of a single ‘Extended
Licenced Entity’ for the purposes of measuring capital adequacy. Level 2 includes all subsidiary entities except those entities specifically excluded by
APRA regulations for the purposes of measuring capital adequacy.
2 On a Level 2 basis only for CPS.
3 CPS does not contain a non-viability trigger event.
4 Excludes CPS.
5 Excludes WCN.
160
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161
3
Note 20. Loan capital (continued)
The sole assets of the Capital Trust IV comprise 525,001 2004 Funding TPS issued by a wholly owned entity, Tavarua Funding
Trust IV (Funding Trust IV) totalling US$525,001,000. The 2004 Funding TPS have an issue price of US$1,000 each with non
cumulative semi-annual distributions in arrears at the annual rate of 5.256% up to but excluding 31 March 2016. From and
including 31 March 2016, the 2004 Funding TPS will pay non-cumulative quarterly distributions (30 June, 30 September,
31 December and 31 March) in arrears at a floating rate equal to LIBOR plus 1.7675% per year.
Funding Trust IV has issued common securities with a total price of US$1,000 to Westpac. The assets of Funding Trust IV
comprise convertible debentures issued by Westpac in an aggregate amount of US$525,001,000 and US Government
securities purchased with the proceeds of the common securities.
The convertible debentures are unsecured, junior subordinated obligations of Westpac and will rank subordinate and junior in
right of payment of principal and distributions to Westpac’s obligations to its depositors and creditors.
The convertible debentures will only pay distributions to the extent they are declared by the Board of Directors of Westpac, or
an authorised committee of the Board. Any distribution is subject to the satisfaction that no deferral conditions exist. If certain
deferral conditions exist a distribution is not permitted to be declared unless approved by APRA.
Westpac has guaranteed, on a subordinated basis, the payment in full of distributions or redemption amounts, the delivery of
ADRs and other payments on the 2004 TPS and the 2004 Funding TPS to the extent that the Capital Trust IV and the Funding
Trust IV have funds available.
Conversion
The convertible debentures have no stated maturity, but will automatically convert into American Depositary Receipts (ADRs)
each representing 40 Westpac preference shares (non-cumulative preference shares in Westpac with a liquidation amount of
US$25) on 31 March 2053, or earlier in the event that a distribution is not made or certain other events occur. Upon issue the
amount paid up on each Westpac preference share will be deemed to be US$25. The 2004 TPS will then be redeemed for
ADRs. The dividend payment dates and distribution rates on Westpac preference shares will be the same as those otherwise
applicable to 2004 TPS.
The holders of the ADRs will, in certain circumstances, have the right to convert their Westpac preference shares represented
by ADRs into a variable number of Westpac ordinary shares on 31 March 2054 by giving notice to Westpac. For each
preference share converted, holders will receive a number of Westpac ordinary shares calculated using the formula described
in preference share terms. The price at which Westpac ordinary shares will be issued is based on the Westpac ordinary share
price determined over the 20 trading day period prior to the optional conversion date and includes a 5% discount.
Redemption
With the prior written consent of APRA, if required, Westpac may elect to redeem the convertible debentures for cash before
31 March 2016 in whole upon the occurrence of certain specific events, and in whole or in part on 31 March 2016 or any
distribution date thereafter. The proceeds received by Funding Trust IV from the redemption of the convertible debentures must
be used to redeem the 2004 Funding TPS and ultimately the 2004 TPS. The redemption price of the 2004 TPS will equal
US$1,000 per 2004 TPS plus the accrued and unpaid distribution for the then current semi-annual or quarterly period to the
date of redemption or, if the date of redemption is a distribution date, the accrued and unpaid distribution for the most recent
semi-annual or quarterly period.
The holders of the convertible debentures, 2004 Funding TPS and 2004 TPS do not have an option to require redemption of
these instruments.
Note 20. Loan capital (continued)
Tier 2 loan capital
$m
Basel III transitional subordinated notes
US$75 million subordinated notes due 20151
US$400 million subordinated notes due 20152,3
US$350 million subordinated notes due 20184
A$500 million subordinated notes due 20225
A$1,676 million subordinated notes due 20226
US$800 million subordinated notes due 20237
Basel III fully compliant subordinated notes
A$925 million subordinated notes due 20238
A$1,000 million subordinated notes due 20248
CNY 1,250 million subordinated notes due 20258
A$350 million subordinated notes due 20278
S$325 million subordinated notes due 20278
Total subordinated notes
1 Fixed 5.00%.
2 Fixed 5.30%.
3 Redeemed on 15 October 2015.
4 Fixed 4.625%.
5 Floating 90 day bank bill rate + 3.00% pa.
6 Floating 90 day bank bill rate + 2.75% pa.
8 Refer to table following for interest terms.
Basel III transitional subordinated notes
7 Fixed 3.625%; 5 year up to but excluding 28 February 2018 thereafter fixed rate equal to 5 year US treasury rate + 2.90% pa.
These subordinated notes qualify for transitional treatment as Tier 2 capital of Westpac under APRA’s Basel III capital
adequacy framework, do not contain non-viability loss absorption requirements and have non-discretionary,
cumulative distributions.
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
108
572
540
500
1,670
1,147
919
999
288
348
317
89
476
436
500
1,667
898
916
992
-
-
-
108
572
540
500
1,670
1,147
919
999
288
348
317
89
476
436
500
1,667
898
916
992
-
-
-
7,408
5,974
7,408
5,974
162
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163
Note 20. Loan capital (continued)
The sole assets of the Capital Trust IV comprise 525,001 2004 Funding TPS issued by a wholly owned entity, Tavarua Funding
Trust IV (Funding Trust IV) totalling US$525,001,000. The 2004 Funding TPS have an issue price of US$1,000 each with non
cumulative semi-annual distributions in arrears at the annual rate of 5.256% up to but excluding 31 March 2016. From and
including 31 March 2016, the 2004 Funding TPS will pay non-cumulative quarterly distributions (30 June, 30 September,
31 December and 31 March) in arrears at a floating rate equal to LIBOR plus 1.7675% per year.
Funding Trust IV has issued common securities with a total price of US$1,000 to Westpac. The assets of Funding Trust IV
comprise convertible debentures issued by Westpac in an aggregate amount of US$525,001,000 and US Government
securities purchased with the proceeds of the common securities.
The convertible debentures are unsecured, junior subordinated obligations of Westpac and will rank subordinate and junior in
right of payment of principal and distributions to Westpac’s obligations to its depositors and creditors.
The convertible debentures will only pay distributions to the extent they are declared by the Board of Directors of Westpac, or
an authorised committee of the Board. Any distribution is subject to the satisfaction that no deferral conditions exist. If certain
deferral conditions exist a distribution is not permitted to be declared unless approved by APRA.
Westpac has guaranteed, on a subordinated basis, the payment in full of distributions or redemption amounts, the delivery of
ADRs and other payments on the 2004 TPS and the 2004 Funding TPS to the extent that the Capital Trust IV and the Funding
Trust IV have funds available.
Conversion
The convertible debentures have no stated maturity, but will automatically convert into American Depositary Receipts (ADRs)
each representing 40 Westpac preference shares (non-cumulative preference shares in Westpac with a liquidation amount of
US$25) on 31 March 2053, or earlier in the event that a distribution is not made or certain other events occur. Upon issue the
amount paid up on each Westpac preference share will be deemed to be US$25. The 2004 TPS will then be redeemed for
ADRs. The dividend payment dates and distribution rates on Westpac preference shares will be the same as those otherwise
applicable to 2004 TPS.
The holders of the ADRs will, in certain circumstances, have the right to convert their Westpac preference shares represented
by ADRs into a variable number of Westpac ordinary shares on 31 March 2054 by giving notice to Westpac. For each
preference share converted, holders will receive a number of Westpac ordinary shares calculated using the formula described
in preference share terms. The price at which Westpac ordinary shares will be issued is based on the Westpac ordinary share
price determined over the 20 trading day period prior to the optional conversion date and includes a 5% discount.
Redemption
With the prior written consent of APRA, if required, Westpac may elect to redeem the convertible debentures for cash before
31 March 2016 in whole upon the occurrence of certain specific events, and in whole or in part on 31 March 2016 or any
distribution date thereafter. The proceeds received by Funding Trust IV from the redemption of the convertible debentures must
be used to redeem the 2004 Funding TPS and ultimately the 2004 TPS. The redemption price of the 2004 TPS will equal
US$1,000 per 2004 TPS plus the accrued and unpaid distribution for the then current semi-annual or quarterly period to the
date of redemption or, if the date of redemption is a distribution date, the accrued and unpaid distribution for the most recent
semi-annual or quarterly period.
these instruments.
The holders of the convertible debentures, 2004 Funding TPS and 2004 TPS do not have an option to require redemption of
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
108
572
540
500
1,670
1,147
89
476
436
500
1,667
898
108
572
540
500
1,670
1,147
919
999
288
348
317
89
476
436
500
1,667
898
916
992
-
-
-
7,408
5,974
Note 20. Loan capital (continued)
Tier 2 loan capital
$m
Basel III transitional subordinated notes
US$75 million subordinated notes due 20151
US$400 million subordinated notes due 20152,3
US$350 million subordinated notes due 20184
A$500 million subordinated notes due 20225
A$1,676 million subordinated notes due 20226
US$800 million subordinated notes due 20237
916
919
Basel III fully compliant subordinated notes
A$925 million subordinated notes due 20238
A$1,000 million subordinated notes due 20248
CNY 1,250 million subordinated notes due 20258
A$350 million subordinated notes due 20278
S$325 million subordinated notes due 20278
Total subordinated notes
1 Fixed 5.00%.
2 Fixed 5.30%.
3 Redeemed on 15 October 2015.
4 Fixed 4.625%.
5 Floating 90 day bank bill rate + 3.00% pa.
6 Floating 90 day bank bill rate + 2.75% pa.
7 Fixed 3.625%; 5 year up to but excluding 28 February 2018 thereafter fixed rate equal to 5 year US treasury rate + 2.90% pa.
8 Refer to table following for interest terms.
7,408
5,974
288
317
348
992
999
-
-
-
Basel III transitional subordinated notes
These subordinated notes qualify for transitional treatment as Tier 2 capital of Westpac under APRA’s Basel III capital
adequacy framework, do not contain non-viability loss absorption requirements and have non-discretionary,
cumulative distributions.
162
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163
3
Note 20. Loan capital (continued)
Basel III fully compliant subordinated notes
Further details regarding Basel III fully compliant subordinated notes (including non-viability loss absorption) which have been
issued by Westpac are as follows:
Note 20. Loan capital (continued)
Common features of Basel III fully compliant subordinated notes
These subordinated notes qualify as Tier 2 capital of Westpac under APRA’s Basel III capital adequacy framework.
Notes to the financial statements
Instrument
Face value
Issue date
Interest payment dates
Interest rate
Basel III fully compliant subordinated notes
i) A$925 million Subordinated Notes II due 2023
ii) A$1,000 million subordinated notes due 2024
iii) CNY 1,250 million subordinated notes due 2025
iv) A$350 million subordinated notes due 2027
v) S$325 million subordinated notes due 2027
i) A$100
ii) A$100,000
iii) CNY 1,000,000 and CNY 10,000 thereafter1
iv) A$200,000 and A$2,000 thereafter1
v) S$250,000
i)
22 August 2013
ii) 14 March 2014
iii) 9 February 2015
iv) 11 March 2015
v) 12 August 2015
22 February, 22 May, 22 August and 22 November
i)
ii) 14 March, 14 June, 14 September and 14 December
iii) 9 February and 9 August
iv) 11 March
v) 12 February and 12 August
i)
90-day bank bill rate + 2.30% per annum
ii) 90-day bank bill rate + 2.05% per annum
iii) 4.85% p.a. until but excluding 9 February 2020. Thereafter, if not called, a fixed rate per
annum equal to the one-year CNH HIBOR reference rate + 0.8345% p.a.
iv) 4.50% p.a. until but excluding 11 March 2022. Thereafter, if not called, a fixed rate per
annum equal to the five-year A$ semi-quarterly mid-swap reference rate + 1.95% p.a., the
sum of which will be annualised
v) 4.00% p.a. until but excluding 12 August 2022. Thereafter, if not called, a fixed rate per
annum equal to the five-year S$ swap offer rate + 1.54% p.a.
Maturity date
Optional call date
i)
22 August 2023
ii) 14 March 2024
iii) 9 February 2025
iv) 11 March 2027
v) 12 August 2027
i)
22 August 2018 or in certain other limited circumstances
ii) 14 March 2019 or in certain other limited circumstances
iii) 9 February 2020 or in certain other limited circumstances
iv) 11 March 2022 or in certain other limited circumstances
v) 12 August 2022 or in certain other limited circumstances
Non-viability trigger
Yes for (i) to (v)
Maximum conversion
number
i)
16.1551 Westpac ordinary shares per subordinated note
ii) 14,938.75112 Westpac ordinary shares per subordinated note
iii) 30,116.4958 Westpac ordinary shares per subordinated note
iv) 26,546.3233 Westpac ordinary shares per subordinated note
v) 36,083.0340 Westpac ordinary shares per subordinated note
Interest payments on the subordinated notes are subject to Westpac being solvent at the time of the interest payment and
Payment conditions
immediately following the interest payment.
Non-Viability Trigger Event
Westpac may be required to convert some or all subordinated notes into a variable number of Westpac ordinary shares upon
the occurrence of a non-viability trigger event. A non-viability trigger event will occur when APRA notifies Westpac in writing
that it believes conversion of some or all subordinated notes (or conversion or write-down of other capital instruments of the
Westpac Group) or a public sector injection of capital, or equivalent support, is necessary because, without it, Westpac would
become non-viable. For each subordinated note converted, holders will receive a number of Westpac ordinary shares
calculated using the formula described in the terms of the subordinated notes, but subject to a maximum conversion number.
The price at which Westpac ordinary shares will be issued is based on the Westpac ordinary share price determined over the
five business day period prior to the non-viability trigger event and includes a 1% discount. The maximum conversion number is
set using a Westpac ordinary share price which is broadly equivalent to 20% of the Westpac ordinary share price at the time of
issue of the subordinated notes. If Westpac is unable to convert the relevant subordinated notes for any reason, holder’s rights
in relation to the notes will be terminated.
Subordinated perpetual notes
These notes have no final maturity but may, subject to the approval of APRA and subject to certain other conditions, be
redeemed at par at the option of Westpac. Interest is cumulative and is payable on the notes semi-annually, subject to Westpac
being solvent immediately after making the payment and having paid any dividend on any class of share capital of Westpac
within the prior 12 month period. The notes qualify for transitional treatment as Tier 2 capital of Westpac under APRA’s Basel III
capital adequacy framework.
The rights of the noteholders and coupon holders are subordinated to the claims of all creditors (including depositors) of
Westpac other than those creditors whose claims against Westpac are expressed to rank equally with or after the claims of the
noteholders and coupon holders.
Note 21. Derivative financial instruments
Accounting policy
Derivative financial instruments are instruments whose values derive from the value of an underlying asset, reference rate or
index and include forwards, futures, swaps and options.
Derivatives are recognised initially and subsequently measured at fair value with gains or losses recognised through the
income statement in the period in which they arise, unless the derivative is designated into a cashflow or net investment
hedge relationship.
at balance date is negative.
Derivatives are presented as an asset where they have a positive fair value at balance date or as a liability where the fair value
The Group uses derivative instruments for both trading (primarily customer related activity) and hedging purposes. As a trader,
the Group’s primary objective is to derive income as a market maker from the sale of derivatives to meet Westpac’s customers’
needs. The market making process provides liquidity in key markets in which the Group operates. The Group also trades on its
own account to take advantage of market opportunities, which represent a limited part of the Group’s derivative activities.
Derivatives are also used by the Group as part of its asset and liability management activities, mainly to hedge its exposures to
interest rates, foreign currency and credit risk, including exposures arising from forecast transactions. The Group uses hedge
accounting techniques where possible to eliminate the volatility which would otherwise arise due to accounting mismatches.
This activity is principally carried out by Treasury within the risk management framework of limits, practices and procedures set
and overseen by the Westpac Group Executive Risk Committee (RISKCO).
Where the criteria for hedge accounting as defined under AASB 139 Financial Instruments: Recognition and Measurement are
met, the Group designates these derivatives into one of three hedge accounting relationships: fair value hedge, cash flow
hedge or a hedge of a net investment in a foreign operation. These hedging designations and associated accounting are
as follows:
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
The changes in the fair value of the hedged asset and liability are adjusted against their carrying value.
1 These subordinated notes are issued in multiple denominations and therefore there may be more than one face value.
164
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165
Note 20. Loan capital (continued)
Basel III fully compliant subordinated notes
issued by Westpac are as follows:
Further details regarding Basel III fully compliant subordinated notes (including non-viability loss absorption) which have been
Basel III fully compliant subordinated notes
i) A$925 million Subordinated Notes II due 2023
ii) A$1,000 million subordinated notes due 2024
iii) CNY 1,250 million subordinated notes due 2025
iv) A$350 million subordinated notes due 2027
v) S$325 million subordinated notes due 2027
Face value
i) A$100
ii) A$100,000
iii) CNY 1,000,000 and CNY 10,000 thereafter1
iv) A$200,000 and A$2,000 thereafter1
Instrument
Issue date
v) S$250,000
i)
22 August 2013
ii) 14 March 2014
iii) 9 February 2015
iv) 11 March 2015
v) 12 August 2015
iii) 9 February and 9 August
iv) 11 March
v) 12 February and 12 August
Interest payment dates
i)
22 February, 22 May, 22 August and 22 November
ii) 14 March, 14 June, 14 September and 14 December
Interest rate
i)
90-day bank bill rate + 2.30% per annum
ii) 90-day bank bill rate + 2.05% per annum
iii) 4.85% p.a. until but excluding 9 February 2020. Thereafter, if not called, a fixed rate per
annum equal to the one-year CNH HIBOR reference rate + 0.8345% p.a.
iv) 4.50% p.a. until but excluding 11 March 2022. Thereafter, if not called, a fixed rate per
annum equal to the five-year A$ semi-quarterly mid-swap reference rate + 1.95% p.a., the
sum of which will be annualised
v) 4.00% p.a. until but excluding 12 August 2022. Thereafter, if not called, a fixed rate per
annum equal to the five-year S$ swap offer rate + 1.54% p.a.
Maturity date
Optional call date
i)
22 August 2023
ii) 14 March 2024
iii) 9 February 2025
iv) 11 March 2027
v) 12 August 2027
i)
22 August 2018 or in certain other limited circumstances
ii) 14 March 2019 or in certain other limited circumstances
iii) 9 February 2020 or in certain other limited circumstances
iv) 11 March 2022 or in certain other limited circumstances
v) 12 August 2022 or in certain other limited circumstances
Non-viability trigger
Yes for (i) to (v)
Maximum conversion
i)
16.1551 Westpac ordinary shares per subordinated note
number
ii) 14,938.75112 Westpac ordinary shares per subordinated note
iii) 30,116.4958 Westpac ordinary shares per subordinated note
iv) 26,546.3233 Westpac ordinary shares per subordinated note
v) 36,083.0340 Westpac ordinary shares per subordinated note
Notes to the financial statements
Note 20. Loan capital (continued)
Common features of Basel III fully compliant subordinated notes
These subordinated notes qualify as Tier 2 capital of Westpac under APRA’s Basel III capital adequacy framework.
Payment conditions
Interest payments on the subordinated notes are subject to Westpac being solvent at the time of the interest payment and
immediately following the interest payment.
Non-Viability Trigger Event
Westpac may be required to convert some or all subordinated notes into a variable number of Westpac ordinary shares upon
the occurrence of a non-viability trigger event. A non-viability trigger event will occur when APRA notifies Westpac in writing
that it believes conversion of some or all subordinated notes (or conversion or write-down of other capital instruments of the
Westpac Group) or a public sector injection of capital, or equivalent support, is necessary because, without it, Westpac would
become non-viable. For each subordinated note converted, holders will receive a number of Westpac ordinary shares
calculated using the formula described in the terms of the subordinated notes, but subject to a maximum conversion number.
The price at which Westpac ordinary shares will be issued is based on the Westpac ordinary share price determined over the
five business day period prior to the non-viability trigger event and includes a 1% discount. The maximum conversion number is
set using a Westpac ordinary share price which is broadly equivalent to 20% of the Westpac ordinary share price at the time of
issue of the subordinated notes. If Westpac is unable to convert the relevant subordinated notes for any reason, holder’s rights
in relation to the notes will be terminated.
Subordinated perpetual notes
These notes have no final maturity but may, subject to the approval of APRA and subject to certain other conditions, be
redeemed at par at the option of Westpac. Interest is cumulative and is payable on the notes semi-annually, subject to Westpac
being solvent immediately after making the payment and having paid any dividend on any class of share capital of Westpac
within the prior 12 month period. The notes qualify for transitional treatment as Tier 2 capital of Westpac under APRA’s Basel III
capital adequacy framework.
The rights of the noteholders and coupon holders are subordinated to the claims of all creditors (including depositors) of
Westpac other than those creditors whose claims against Westpac are expressed to rank equally with or after the claims of the
noteholders and coupon holders.
Note 21. Derivative financial instruments
Accounting policy
Derivative financial instruments are instruments whose values derive from the value of an underlying asset, reference rate or
index and include forwards, futures, swaps and options.
Derivatives are recognised initially and subsequently measured at fair value with gains or losses recognised through the
income statement in the period in which they arise, unless the derivative is designated into a cashflow or net investment
hedge relationship.
Derivatives are presented as an asset where they have a positive fair value at balance date or as a liability where the fair value
at balance date is negative.
The Group uses derivative instruments for both trading (primarily customer related activity) and hedging purposes. As a trader,
the Group’s primary objective is to derive income as a market maker from the sale of derivatives to meet Westpac’s customers’
needs. The market making process provides liquidity in key markets in which the Group operates. The Group also trades on its
own account to take advantage of market opportunities, which represent a limited part of the Group’s derivative activities.
Derivatives are also used by the Group as part of its asset and liability management activities, mainly to hedge its exposures to
interest rates, foreign currency and credit risk, including exposures arising from forecast transactions. The Group uses hedge
accounting techniques where possible to eliminate the volatility which would otherwise arise due to accounting mismatches.
This activity is principally carried out by Treasury within the risk management framework of limits, practices and procedures set
and overseen by the Westpac Group Executive Risk Committee (RISKCO).
Where the criteria for hedge accounting as defined under AASB 139 Financial Instruments: Recognition and Measurement are
met, the Group designates these derivatives into one of three hedge accounting relationships: fair value hedge, cash flow
hedge or a hedge of a net investment in a foreign operation. These hedging designations and associated accounting are
as follows:
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
The changes in the fair value of the hedged asset and liability are adjusted against their carrying value.
1 These subordinated notes are issued in multiple denominations and therefore there may be more than one face value.
164
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165
3
Note 21. Derivative financial instruments (continued)
If the hedge no longer meets the criteria for hedge accounting, it is discontinued and any previous adjustment to the carrying
value of a hedged item is amortised to the income statement over the period to maturity. If the hedged item is sold or repaid,
the unamortised fair value adjustment is recognised immediately in the income statement.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in the cash flow hedge reserve through other comprehensive income. The gain or loss relating to any ineffective
portion is recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or when the hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other
comprehensive income and is recognised in profit or loss in the period in which the hedged item affects profit or loss. When a
forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive
income is immediately transferred to the income statement.
Hedges of a net investment in a foreign operation
Hedges of net investments in overseas branches and subsidiaries are accounted for in a manner similar to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in the foreign currency
translation reserve through other comprehensive income and the gain or loss relating to the ineffective portion is recognised
immediately in the income statement. Gains and losses accumulated in other comprehensive income are included in the
income statement when the overseas branch or subsidiary is disposed.
Where the criteria for hedge accounting are not met these hedging relationships are accounted for in the same way as
derivatives held for trading. This includes the management of risks associated with future New Zealand dollar earnings and the
management of credit risk exposures in Westpac’s lending portfolio.
a. Fair value hedges
The Group hedges a proportion of its interest rate risk and foreign exchange risk from debt issuances using single currency and
cross-currency interest rate derivatives. The Group also hedges part of its interest rate risk from fixed rate assets denominated
both in local and foreign currencies using interest rate derivatives designated as fair value hedges.
For the Group, the change in the fair value of hedging instruments designated in fair value hedges was a $308 million loss
(2014: $287 million gain) while the change in the fair value of hedged items attributed to the hedge risk was a $317 million gain
(2014: $323 million loss).
For the Parent Entity, the change in the fair value of hedging instruments designated in fair value hedges was a $80 million loss
(2014: $304 million gain) while the change in the fair value of hedged items attributed to the hedge risk was a $88 million gain
(2014: $342 million loss).
All gains or losses associated with the ineffective portion of fair value hedge relationships are recognised as ‘interest income’ in
the income statement. The amount recognised for this year was a $9 million gain (2014: $36 million loss) for the Group and a
$8 million gain (2014: $38 million loss) for the Parent Entity.
b. Cash flow hedges
Exposure to the volatility of interest cash flows from floating rate customer deposits, at call balances and loans is hedged
through the use of interest rate derivatives.
Exposure to foreign currency principal and interest cash flows from floating rate debt issuances is hedged through the use of
cross-currency derivatives.
Underlying cash flows from cash flow hedges are, as a proportion of total cash flows, expected to occur in the following periods:
Less Than
1 Month
1 Month to
3 Months
3 Months
to 1 Year
1 Year to
2 Years
2 Years to
3 Years
3 Years to
4 Years
4 Years to
5 Years
Over
5 Years
2015
Cash inflows (assets)
Cash outflows (liabilities)
20141
Cash inflows (assets)
1.9%
1.9%
0.6%
Cash outflows (liabilities)
1 Comparatives have been revised to improve comparability.
0.7%
2.8%
2.9%
8.7%
9.6%
28.4%
29.9%
20.2%
20.7%
17.6%
18.4%
25.4%
26.1%
12.6%
12.4%
14.0%
14.4%
11.2%
10.4%
11.1%
10.1%
14.4%
14.0%
7.0%
6.7%
9.6%
8.5%
14.4%
13.4%
Notes to the financial statements
Note 21. Derivative financial instruments (continued)
For the Group, a loss on cashflow hedges of $22 million was recognised due to hedge ineffectiveness (2014: $22 million loss).
For the Parent Entity, a loss on cashflow hedges of $16 million was recognised due to hedge ineffectiveness
(2014: $23 million loss). Both were recognised immediately in interest income in the income statement.
c. Dual fair value and cash flow hedges
Fixed rate foreign currency denominated debt is hedged using cross-currency interest rate derivatives, designated as fair value
hedges of foreign interest rates and cash flow hedges of foreign exchange rates.
d. Net investment hedges
For both the Group and Parent Entity, ineffectiveness arising from hedges of net investments in foreign operations and
recognised in non-interest income in the income statement amounted to nil (2014: nil). The Group hedges the majority of the
currency translation risk of net investments in foreign operations through foreign exchange forward contracts.
The notional amount and fair value of derivative instruments held for trading and designated in hedge relationships are set out
in the following tables:
Consolidated 2015
Interest rate contracts
Futures contracts1
Forward rate agreements
Swap agreements2
Cross currency
swap agreements2
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
Fair Value
Hedging
Total
Spot and forward contracts
674,114 10,002
(8,653)
(27)
(216) 10,002
(8,896)
147,368
517,297
-
154
-
(156)
Options
90,074
576
(683)
Total interest rate contracts
2,769,368 26,567
(25,149)
739
(2,995)
1,212
(1,301)
2,014,629 25,837
(24,310)
739
(2,995)
1,212
(1,301)
Foreign exchange contracts
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
154
-
(156)
- 27,788
(28,606)
576
(683)
- 28,518
(29,445)
472
9
143
(409)
(10)
(150)
(9,505)
10,367
435,465 12,687
(18,782)
1,094
124
4,102
(414)
34,956
651
(689)
- 17,883
(19,072)
651
(689)
1,144,535 23,340
(28,124)
1,094
124
4,102
(441)
(216) 28,536
(28,657)
6,398
216
33,181
472
9
143
(409)
(10)
(150)
Total of gross derivatives
3,953,698 50,531
(53,842)
1,833
(2,871)
5,314
(1,742)
(216) 57,678
(58,671)
Impact of netting arrangements3
-
(9,505)
10,367
Total of net derivatives
3,953,698 41,026
(43,475)
1,833
(2,871)
5,314
(1,742)
(216) 48,173
(48,304)
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
30 September.
2 The unrealised foreign exchange gains or loss on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged, which affects profit and loss in the current year.
3 Primarily consists of derivative trades settled directly with central clearing counterparties and associated variation margin. Westpac became a direct
clearing member of LCH.Clearnet Limited during the 2015 year.
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167
Note 21. Derivative financial instruments (continued)
If the hedge no longer meets the criteria for hedge accounting, it is discontinued and any previous adjustment to the carrying
value of a hedged item is amortised to the income statement over the period to maturity. If the hedged item is sold or repaid,
the unamortised fair value adjustment is recognised immediately in the income statement.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in the cash flow hedge reserve through other comprehensive income. The gain or loss relating to any ineffective
portion is recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or when the hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other
comprehensive income and is recognised in profit or loss in the period in which the hedged item affects profit or loss. When a
forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive
income is immediately transferred to the income statement.
Hedges of a net investment in a foreign operation
Hedges of net investments in overseas branches and subsidiaries are accounted for in a manner similar to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in the foreign currency
translation reserve through other comprehensive income and the gain or loss relating to the ineffective portion is recognised
immediately in the income statement. Gains and losses accumulated in other comprehensive income are included in the
income statement when the overseas branch or subsidiary is disposed.
Where the criteria for hedge accounting are not met these hedging relationships are accounted for in the same way as
derivatives held for trading. This includes the management of risks associated with future New Zealand dollar earnings and the
management of credit risk exposures in Westpac’s lending portfolio.
a. Fair value hedges
The Group hedges a proportion of its interest rate risk and foreign exchange risk from debt issuances using single currency and
cross-currency interest rate derivatives. The Group also hedges part of its interest rate risk from fixed rate assets denominated
both in local and foreign currencies using interest rate derivatives designated as fair value hedges.
For the Group, the change in the fair value of hedging instruments designated in fair value hedges was a $308 million loss
(2014: $287 million gain) while the change in the fair value of hedged items attributed to the hedge risk was a $317 million gain
(2014: $323 million loss).
(2014: $342 million loss).
For the Parent Entity, the change in the fair value of hedging instruments designated in fair value hedges was a $80 million loss
(2014: $304 million gain) while the change in the fair value of hedged items attributed to the hedge risk was a $88 million gain
All gains or losses associated with the ineffective portion of fair value hedge relationships are recognised as ‘interest income’ in
the income statement. The amount recognised for this year was a $9 million gain (2014: $36 million loss) for the Group and a
$8 million gain (2014: $38 million loss) for the Parent Entity.
b. Cash flow hedges
through the use of interest rate derivatives.
cross-currency derivatives.
Exposure to the volatility of interest cash flows from floating rate customer deposits, at call balances and loans is hedged
Exposure to foreign currency principal and interest cash flows from floating rate debt issuances is hedged through the use of
Underlying cash flows from cash flow hedges are, as a proportion of total cash flows, expected to occur in the following periods:
Cash inflows (assets)
Cash outflows (liabilities)
2015
20141
Cash inflows (assets)
Cash outflows (liabilities)
1 Comparatives have been revised to improve comparability.
Less Than
1 Month to
3 Months
1 Year to
2 Years to
3 Years to
4 Years to
Over
1 Month
3 Months
to 1 Year
2 Years
3 Years
4 Years
5 Years
5 Years
1.9%
1.9%
0.6%
0.7%
2.8%
2.9%
8.7%
9.6%
28.4%
29.9%
20.2%
20.7%
17.6%
18.4%
25.4%
26.1%
12.6%
12.4%
14.0%
14.4%
11.2%
10.4%
11.1%
10.1%
14.4%
14.0%
7.0%
6.7%
9.6%
8.5%
14.4%
13.4%
Notes to the financial statements
Note 21. Derivative financial instruments (continued)
For the Group, a loss on cashflow hedges of $22 million was recognised due to hedge ineffectiveness (2014: $22 million loss).
For the Parent Entity, a loss on cashflow hedges of $16 million was recognised due to hedge ineffectiveness
(2014: $23 million loss). Both were recognised immediately in interest income in the income statement.
c. Dual fair value and cash flow hedges
Fixed rate foreign currency denominated debt is hedged using cross-currency interest rate derivatives, designated as fair value
hedges of foreign interest rates and cash flow hedges of foreign exchange rates.
d. Net investment hedges
For both the Group and Parent Entity, ineffectiveness arising from hedges of net investments in foreign operations and
recognised in non-interest income in the income statement amounted to nil (2014: nil). The Group hedges the majority of the
currency translation risk of net investments in foreign operations through foreign exchange forward contracts.
The notional amount and fair value of derivative instruments held for trading and designated in hedge relationships are set out
in the following tables:
Consolidated 2015
Fair Value
Hedging
Notional
Trading
Fair Value
Cash Flow
Net Investment
Total
Fair Value
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Interest rate contracts
Futures contracts1
Forward rate agreements
Swap agreements2
Options
147,368
517,297
-
154
-
(156)
-
-
-
-
-
-
-
-
2,014,629 25,837
(24,310)
739
(2,995)
1,212
(1,301)
90,074
576
(683)
-
-
-
-
Total interest rate contracts
2,769,368 26,567
(25,149)
739
(2,995)
1,212
(1,301)
Foreign exchange contracts
Spot and forward contracts
Cross currency
swap agreements2
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
674,114 10,002
(8,653)
-
-
-
(27)
435,465 12,687
(18,782)
1,094
124
4,102
(414)
34,956
651
(689)
-
-
-
-
1,144,535 23,340
472
6,398
(28,124)
(409)
1,094
-
124
-
4,102
-
216
33,181
9
143
(10)
(150)
-
-
-
-
-
-
(441)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
3,953,698 50,531
(9,505)
-
(53,842)
10,367
(216) 57,678
(9,505)
3,953,698 41,026
(1,742)
-
(2,871)
-
5,314
-
1,833
-
(216) 48,173
(43,475)
(2,871)
(1,742)
1,833
5,314
-
-
-
-
-
-
-
154
-
(156)
- 27,788
(28,606)
-
576
(683)
- 28,518
(29,445)
(216) 10,002
(8,896)
- 17,883
(19,072)
-
651
(689)
(216) 28,536
472
-
(28,657)
(409)
-
-
9
143
(10)
(150)
(58,671)
10,367
(48,304)
30 September.
2 The unrealised foreign exchange gains or loss on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged, which affects profit and loss in the current year.
3 Primarily consists of derivative trades settled directly with central clearing counterparties and associated variation margin. Westpac became a direct
clearing member of LCH.Clearnet Limited during the 2015 year.
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167
3
Note 21. Derivative financial instruments (continued)
Note 21. Derivative financial instruments (continued)
Consolidated 2014
Notional
Trading
Fair Value
Fair Value1
Hedging
Cash Flow
Net Investment
Total
Fair Value
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
Fair Value1
Hedging
Total
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Interest rate contracts
Futures contracts2
Forward rate agreements
Swap agreements3
Options
94,187
159,695
-
15
-
(14)
-
-
-
-
1,998,785 14,722
(13,888)
402
(2,199)
106,950
311
(339)
-
-
Total interest rate contracts
2,359,617 15,048
(14,241)
402
(2,199)
-
-
996
-
996
-
-
(591)
-
(591)
-
-
-
-
-
-
-
-
15
-
(14)
- 16,120
(16,678)
-
311
(339)
- 16,446
(17,031)
600,690 10,092
(8,873)
-
-
-
-
59
(52) 10,151
(8,925)
Spot and forward contracts
597,789 10,073
(8,831)
54
(50) 10,127
(8,881)
Foreign exchange contracts
Spot and forward contracts
Cross currency
swap agreements3
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
385,410 11,784
(10,261)
34,144
498
(486)
1,020,244 22,374
133
3,426
(19,620)
(137)
313
32,684
6
205
(4)
(223)
821
-
821
-
-
-
186
1,360
(2,658)
-
-
-
186
-
1,360
-
(2,658)
-
-
-
-
-
-
-
Total of gross derivatives
Impact of netting arrangements
3,416,284 37,766
-
-
(34,225)
-
Total of net derivatives
3,416,284 37,766
(34,225)
1,223
-
1,223
(2,013)
-
(2,013)
2,356
-
2,356
(3,249)
-
(3,249)
-
-
59
-
-
-
59
-
59
- 13,965
(12,733)
-
498
(486)
(52) 24,614
133
-
(22,144)
(137)
-
-
6
205
(4)
(223)
(52) 41,404
-
-
(39,539)
-
(52) 41,404
(39,539)
Parent Entity 2015
Fair Value
Hedging
Notional
Trading
Fair Value
Cash Flow
Net Investment
Total
Fair Value
3 The unrealised foreign exchange gains or loss on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged, which affects profit and loss in the current year.
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Notes to the financial statements
Parent Entity 2014
Interest rate contracts
Futures contracts2
Forward rate agreements
Swap agreements3
Cross currency
swap agreements3
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
Impact of netting arrangements
30 September.
Credit derivatives
the Parent Entity:
Credit protection bought1
Credit protection sold
$m
Total
Note 22. Financial risk
94,187
159,695
-
15
-
(14)
Options
106,925
311
(339)
Total interest rate contracts
2,356,632 15,090
(14,306)
398
(2,109)
952
(532)
1,995,825 14,764
(13,953)
398
(2,109)
952
(532)
Foreign exchange contracts
-
15
-
(14)
- 16,114
(16,594)
311
(339)
- 16,440
(16,947)
379,869 11,789
(10,416)
810
19
1,299
(2,066)
34,144
498
(486)
- 13,898
(12,463)
498
(486)
1,011,802 22,360
(19,733)
810
19
1,299
(2,066)
54
(50) 24,523
(21,830)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
54
54
-
-
-
-
-
-
-
-
133
6
205
-
(137)
(4)
(223)
-
Total of gross derivatives
3,404,856 37,794
(34,403)
1,208
(2,090)
2,251
(2,598)
(50) 41,307
(39,141)
Total of net derivatives
3,404,856 37,794
(34,403)
1,208
(2,090)
2,251
(2,598)
(50) 41,307
(39,141)
1 Comparatives have been revised to improve comparability.
2 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
3,425
313
32,684
133
6
205
-
(137)
(4)
(223)
-
Through the use of credit derivatives, the Group is exposed to or protected from the risk of default of the underlying entity
referenced by the derivative, dependant on whether the Group is a purchaser or seller of credit protection. The primary credit
derivatives used by the Group are CDSs, which are predominantly executed with other financial institutions.
Credit derivatives are primarily entered into to facilitate institutional customer transactions and to manage our credit risk
exposures. The notional amount and fair value of credit derivatives are presented in the following table for both the Group and
Notional
Amount
16,849
16,332
33,181
2015
Fair value
2014
Fair value
Asset
Liability
Notional
Asset
Liability
44
99
143
(107)
(43)
(150)
16,703
15,981
32,684
6
199
205
(212)
(11)
(223)
1 Counterparties to derivatives relating to credit protection bought are predominantly financial institutions.
The Board is responsible for reviewing and approving our overall risk management strategy, including determining our appetite
for risk. The Board has delegated authority to the Board Risk & Compliance Committee (BRCC) to approve the Westpac Group
Risk Appetite Statement, which sets the Group’s overall risk appetite within the context of the strategy determined by
the Board.
Westpac’s appetite for risk is influenced by a range of factors, including whether a risk is considered consistent with its strategy
(core risk) and whether an appropriate return can be achieved from taking that risk. Westpac has a lower appetite for risks that
are not part of its core strategy. Westpac seeks to achieve an appropriate return on risk and prices its products accordingly.
Interest rate contracts
Futures contracts2
Forward rate agreements
Swap agreements3
Options
147,368
517,297
-
154
-
(156)
-
-
-
-
-
-
-
-
2,010,895 25,890
(24,726)
722
(2,689)
1,155
(1,015)
90,049
575
(683)
-
-
-
-
Total interest rate contracts
2,765,609 26,619
(25,565)
722
(2,689)
1,155
(1,015)
Foreign exchange contracts
Spot and forward contracts
Cross currency
swap agreements3
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
672,295
9,976
(8,621)
-
427,053 12,691
(18,840)
1,004
34,956
651
(689)
-
1,134,304 23,318
472
3,843
(28,150)
(409)
1,004
-
216
33,181
9
143
(10)
(150)
-
-
-
56
-
56
-
-
-
-
(27)
3,603
(256)
-
-
3,603
-
-
-
(283)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,937,153 50,561
Total of gross derivatives
Impact of netting arrangements4
Total of net derivatives
1 Comparatives have been revised to improve comparability.
2 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
3,937,153 41,056
(43,917)
(54,284)
(2,633)
(9,505)
(2,633)
(1,298)
(1,298)
10,367
1,726
1,726
4,758
4,758
-
-
-
-
-
-
-
-
-
(202) 57,045
(202) 47,540
(9,505)
30 September.
3 The unrealised foreign exchange gains or loss on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged, which affects profit and loss in the current year.
4 Primarily consists of derivative trades settled directly with central clearing counterparties and associated variation margin. Westpac became a direct
clearing member of LCH.Clearnet Limited during the 2015 year.
168
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2015 Westpac Group Annual Report
169
-
-
-
154
-
(156)
- 27,767
(28,430)
-
575
(683)
- 28,496
(29,269)
(202)
9,976
(8,850)
- 17,298
(19,040)
-
651
(689)
(202) 27,925
472
-
(28,579)
(409)
-
-
9
143
(10)
(150)
(58,417)
10,367
(48,050)
Note 21. Derivative financial instruments (continued)
Note 21. Derivative financial instruments (continued)
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
Notional
Trading
Fair Value
Fair Value1
Hedging
Total
Parent Entity 2014
Notes to the financial statements
Fair Value1
Hedging
Cash Flow
Net Investment
Total
Fair Value
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Interest rate contracts
Futures contracts2
Forward rate agreements
Swap agreements3
Options
94,187
159,695
-
15
-
(14)
-
-
-
-
1,995,825 14,764
(13,953)
398
(2,109)
106,925
311
(339)
-
-
Total interest rate contracts
2,356,632 15,090
(14,306)
398
(2,109)
Foreign exchange contracts
Spot and forward contracts
Cross currency
swap agreements3
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
597,789 10,073
(8,831)
-
379,869 11,789
(10,416)
34,144
498
(486)
1,011,802 22,360
133
3,425
(19,733)
(137)
313
32,684
6
205
(4)
(223)
810
-
810
-
-
-
-
19
-
19
-
-
-
Consolidated 2014
Interest rate contracts
Futures contracts2
Forward rate agreements
Swap agreements3
Foreign exchange contracts
Cross currency
swap agreements3
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
Parent Entity 2015
Interest rate contracts
Futures contracts2
Forward rate agreements
Swap agreements3
Foreign exchange contracts
Cross currency
swap agreements3
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
94,187
159,695
-
15
-
(14)
Options
106,950
311
(339)
Total interest rate contracts
2,359,617 15,048
(14,241)
402
(2,199)
996
(591)
1,998,785 14,722
(13,888)
402
(2,199)
996
(591)
Spot and forward contracts
600,690 10,092
(8,873)
59
(52) 10,151
(8,925)
385,410 11,784
(10,261)
821
186
1,360
(2,658)
34,144
498
(486)
- 13,965
(12,733)
498
(486)
1,020,244 22,374
(19,620)
821
186
1,360
(2,658)
59
(52) 24,614
(22,144)
3,426
313
32,684
133
6
205
(137)
(4)
(223)
Total of gross derivatives
3,416,284 37,766
(34,225)
1,223
(2,013)
2,356
(3,249)
(52) 41,404
(39,539)
Impact of netting arrangements
-
-
-
Total of net derivatives
3,416,284 37,766
(34,225)
1,223
(2,013)
2,356
(3,249)
(52) 41,404
(39,539)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Fair Value
Hedging
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
59
59
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
-
(14)
- 16,120
(16,678)
311
(339)
- 16,446
(17,031)
133
6
205
-
(137)
(4)
(223)
-
Total
-
154
-
(156)
- 27,767
(28,430)
575
(683)
- 28,496
(29,269)
472
9
143
(409)
(10)
(150)
(9,505)
10,367
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
147,368
517,297
-
154
-
(156)
Options
90,049
575
(683)
Total interest rate contracts
2,765,609 26,619
(25,565)
722
(2,689)
1,155
(1,015)
2,010,895 25,890
(24,726)
722
(2,689)
1,155
(1,015)
Spot and forward contracts
672,295
9,976
(8,621)
(27)
(202)
9,976
(8,850)
427,053 12,691
(18,840)
1,004
56
3,603
(256)
34,956
651
(689)
- 17,298
(19,040)
651
(689)
1,134,304 23,318
(28,150)
1,004
56
3,603
(283)
(202) 27,925
(28,579)
3,843
216
33,181
472
9
143
(409)
(10)
(150)
Total of gross derivatives
3,937,153 50,561
(54,284)
1,726
(2,633)
4,758
(1,298)
(202) 57,045
(58,417)
Impact of netting arrangements4
-
(9,505)
10,367
Total of net derivatives
3,937,153 41,056
(43,917)
1,726
(2,633)
4,758
(1,298)
(202) 47,540
(48,050)
1 Comparatives have been revised to improve comparability.
2 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
30 September.
3 The unrealised foreign exchange gains or loss on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged, which affects profit and loss in the current year.
4 Primarily consists of derivative trades settled directly with central clearing counterparties and associated variation margin. Westpac became a direct
clearing member of LCH.Clearnet Limited during the 2015 year.
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
rates of the foreign currency denominated debt being hedged, which affects profit and loss in the current year.
30 September.
3 The unrealised foreign exchange gains or loss on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
Credit derivatives
Through the use of credit derivatives, the Group is exposed to or protected from the risk of default of the underlying entity
referenced by the derivative, dependant on whether the Group is a purchaser or seller of credit protection. The primary credit
derivatives used by the Group are CDSs, which are predominantly executed with other financial institutions.
Credit derivatives are primarily entered into to facilitate institutional customer transactions and to manage our credit risk
exposures. The notional amount and fair value of credit derivatives are presented in the following table for both the Group and
the Parent Entity:
$m
Credit protection bought1
Credit protection sold
Notional
Amount
16,849
16,332
Total
1 Counterparties to derivatives relating to credit protection bought are predominantly financial institutions.
33,181
(150)
143
2015
Fair value
2014
Fair value
Asset
Liability
Notional
Asset
Liability
44
99
(107)
(43)
16,703
15,981
32,684
6
199
205
(212)
(11)
(223)
Note 22. Financial risk
The Board is responsible for reviewing and approving our overall risk management strategy, including determining our appetite
for risk. The Board has delegated authority to the Board Risk & Compliance Committee (BRCC) to approve the Westpac Group
Risk Appetite Statement, which sets the Group’s overall risk appetite within the context of the strategy determined by
the Board.
Westpac’s appetite for risk is influenced by a range of factors, including whether a risk is considered consistent with its strategy
(core risk) and whether an appropriate return can be achieved from taking that risk. Westpac has a lower appetite for risks that
are not part of its core strategy. Westpac seeks to achieve an appropriate return on risk and prices its products accordingly.
168
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169
-
-
952
-
952
-
-
-
(532)
-
(532)
-
-
-
-
-
-
-
-
15
-
(14)
- 16,114
(16,594)
-
311
(339)
- 16,440
(16,947)
-
54
(50) 10,127
(8,881)
1,299
(2,066)
-
-
1,299
-
(2,066)
-
-
-
-
-
-
-
54
-
-
-
54
-
- 13,898
(12,463)
-
498
(486)
(50) 24,523
133
-
(21,830)
(137)
-
-
6
205
(50) 41,307
-
-
(4)
(223)
(39,141)
-
(39,141)
Total of gross derivatives
Impact of netting arrangements
3,404,856 37,794
-
(34,403)
-
1,208
-
(2,090)
-
2,251
-
(2,598)
-
Total of net derivatives
1 Comparatives have been revised to improve comparability.
2 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
3,404,856 37,794
(34,403)
(2,090)
(2,598)
1,208
2,251
(50) 41,307
54
3
Note 22. Financial risk (continued)
Westpac seeks to maximise total shareholder returns over the longer term by achieving an appropriate balance between
growth and volatility of returns and by ultimately returning that value to shareholders.
Westpac distinguishes the following types of risk, and takes an integrated approach towards managing them. These risks are:
Type of risk Description
Key risks
credit risk– the risk of financial loss where a customer or counterparty fails to meet their financial
obligations to Westpac;
liquidity risk – the risk that the Group will be unable to fund assets and meet obligations as they
become due;
Other related
risks
market risk – the risk of an adverse impact on earnings resulting from changes in market factors, such as
foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk
in the banking book - the risk to interest income from a mismatch between the duration of assets and
liabilities that arises in the normal course of business activities;
operational risk – the risk of loss resulting from inadequate or failed internal processes, people and
systems or from external events. The definition is aligned to the regulatory (Basel II) definition, including
legal and regulatory risk but excluding strategic and reputation risk;
conduct risk – the risk arising from unfair or inappropriate behaviour or practices of the Westpac Group or
its staff; and
compliance risk – the risk of legal or regulatory sanction, financial or reputational loss, arising from our
failure to abide by the compliance obligations required of us.
business risk – the risk associated with the vulnerability of a line of business to changes in the
business environment;
sustainability risk – the risk of reputational or financial loss due to failure to recognise or address material
existing or emerging sustainability related environmental, social or governance issues;
equity risk – the potential for financial loss arising from movements in equity values. Equity risk may be
direct, indirect or contingent;
insurance risk – the risk of mis-estimation of the expected cost of insured events, volatility in the number
or severity of insured events, and mis-estimation of the cost of incurred claims;
related entity (contagion) risk – the risk that problems arising in other Westpac Group members
compromise the financial and operational position of the authorised deposit-taking institution in the
Westpac Group; and
reputation risk – the risk to earnings or capital arising from negative public opinion resulting from the loss
of reputation or public trust and standing.
Note 22 provides a summary of Westpac’s Risk Management Framework, as well as a discussion of Westpac’s financial risk
management policies and practices and quantitative information on some of its principal financial risk exposures. The
information contained in Note 22 comprises the following:
22.1
22.2
22.3
22.4
170
Approach to risk management
Credit Risk Management
22.2.1 Credit Risk Management Policy
22.2.2 Provision and Impairment Policy
22.2.3 Internal Credit Risk Ratings System
22.2.4 Credit risk mitigation, collateral and other credit enhancements
22.2.5 Credit risk concentrations
22.2.6 Credit quality of financial assets
22.2.7 Financial assets that are neither past due nor impaired
22.2.8 Financial assets that are past due, but not impaired
22.2.9 Items 90 days past due, or otherwise in default and not impaired
22.2.10 Impaired loans
Funding and liquidity risk management
22.3.1 Liquidity modelling
22.3.2 Sources of liquidity
22.3.3 Contractual maturity of financial liabilities
22.3.4 Expected maturity
Market risk
22.4.1 Traded market risk
22.4.2 Non-traded market risk
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171
Notes to the financial statements
Note 22. Financial risk (continued)
22.1 Approach to risk management
The Board is responsible for reviewing and approving our overall risk management strategy, including determining our appetite
for risk. The Board has delegated to the BRCC responsibility for providing recommendations to the Board on the Westpac
Group’s risk-reward strategy, setting risk appetite, approving framework and policies for managing risk, and determining
whether to accept risks beyond management’s approval discretion.
The BRCC monitors the alignment of our risk profile with our risk appetite, which is defined in the Board Statement of Risk
Appetite, and with our current and future capital requirements. The BRCC receives regular reports from management on the
effectiveness of our management of Westpac’s material business risks. More detail about the role of the BRCC is set out in the
Westpac risk management governance structure table.
The CEO and Executive Team are responsible for implementing our risk management strategy and frameworks, and for
developing policies, controls, processes and procedures for identifying and managing risk in all of Westpac’s activities.
Westpac adopts a Three Lines of Defence approach to risk management which reflects our culture of 'risk is everyone's
business' and that all employees are responsible for identifying and managing risk and operating within the Group's desired risk
profile. Effective risk management enables us to:
accurately measure our risk profile and balance risk and reward within our risk appetite, increasing financial growth
opportunities and mitigating potential loss or damage;
protect Westpac's depositors, policyholders and investors by maintaining a strong balance sheet;
embed adequate controls to guard against excessive risk or undue risk concentration; and
meet our regulatory and compliance obligations.
The 1st Line of Defence – risk identification, risk management and self-assurance
Divisional business units are responsible for identifying, evaluating and managing the risks that they originate within approved
risk appetite and policies. They are required to establish and maintain appropriate risk management controls, resources and
self-assurance processes.
The 2nd Line of Defence – establishment of Risk Management Frameworks and policies and Risk Management Oversight
Our 2nd Line of Defence is a separate risk and compliance advisory, control and monitoring function which establishes
frameworks, policies, limits and processes for the management, monitoring and reporting of risk. The 2nd line of Defence may
approve risks outside the authorities granted to the 1st Line, and evaluates and opines on the adequacy and effectiveness of
1st Line controls and application of frameworks and policies and, where necessary, requires improvement and monitors the 1st
Line’s progress toward remediation of identified deficiencies.
The 3rd Line of Defence – independent assurance
Our Group Audit function independently evaluates the adequacy and effectiveness of the Group’s overall Risk Management
Framework and controls.
This approach allows risks within our risk appetite to be balanced against appropriate rewards.
Westpac’s risk management governance structure is set out in more detail in the following table:
Board
reviews and approves our overall risk management strategy.
Board Risk & Compliance Committee (BRCC)
provides recommendations to the Board on the Westpac Group’s risk-reward strategy;
sets risk appetite;
reviews and approves frameworks for managing risk;
reviews and approves the limits and conditions that apply to credit risk approval authority delegated to the CEO, CFO and
CRO and any other officers of the Westpac Group to whom the Board has delegated authority;
monitors our risk profile, performance, capital levels, exposures against limits and management and control of our risks;
monitors changes anticipated in the economic and business environment and other factors relevant to our risk profile;
oversees the development and ongoing review of key policies that support our frameworks for managing risk; and
determines whether to accept risks beyond the approval discretion provided to management.
Note 22. Financial risk (continued)
Westpac seeks to maximise total shareholder returns over the longer term by achieving an appropriate balance between
growth and volatility of returns and by ultimately returning that value to shareholders.
Westpac distinguishes the following types of risk, and takes an integrated approach towards managing them. These risks are:
Type of risk Description
Key risks
credit risk– the risk of financial loss where a customer or counterparty fails to meet their financial
obligations to Westpac;
become due;
liquidity risk – the risk that the Group will be unable to fund assets and meet obligations as they
Other related
risks
business environment;
market risk – the risk of an adverse impact on earnings resulting from changes in market factors, such as
foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk
in the banking book - the risk to interest income from a mismatch between the duration of assets and
liabilities that arises in the normal course of business activities;
operational risk – the risk of loss resulting from inadequate or failed internal processes, people and
systems or from external events. The definition is aligned to the regulatory (Basel II) definition, including
legal and regulatory risk but excluding strategic and reputation risk;
conduct risk – the risk arising from unfair or inappropriate behaviour or practices of the Westpac Group or
its staff; and
compliance risk – the risk of legal or regulatory sanction, financial or reputational loss, arising from our
failure to abide by the compliance obligations required of us.
business risk – the risk associated with the vulnerability of a line of business to changes in the
sustainability risk – the risk of reputational or financial loss due to failure to recognise or address material
existing or emerging sustainability related environmental, social or governance issues;
equity risk – the potential for financial loss arising from movements in equity values. Equity risk may be
direct, indirect or contingent;
insurance risk – the risk of mis-estimation of the expected cost of insured events, volatility in the number
or severity of insured events, and mis-estimation of the cost of incurred claims;
related entity (contagion) risk – the risk that problems arising in other Westpac Group members
compromise the financial and operational position of the authorised deposit-taking institution in the
Westpac Group; and
of reputation or public trust and standing.
reputation risk – the risk to earnings or capital arising from negative public opinion resulting from the loss
Note 22 provides a summary of Westpac’s Risk Management Framework, as well as a discussion of Westpac’s financial risk
management policies and practices and quantitative information on some of its principal financial risk exposures. The
information contained in Note 22 comprises the following:
22.1
22.2
Approach to risk management
Credit Risk Management
22.2.1 Credit Risk Management Policy
22.2.2 Provision and Impairment Policy
22.2.3 Internal Credit Risk Ratings System
22.2.4 Credit risk mitigation, collateral and other credit enhancements
22.2.5 Credit risk concentrations
22.2.6 Credit quality of financial assets
22.2.7 Financial assets that are neither past due nor impaired
22.2.8 Financial assets that are past due, but not impaired
22.2.9 Items 90 days past due, or otherwise in default and not impaired
22.3
Funding and liquidity risk management
22.2.10 Impaired loans
22.3.1 Liquidity modelling
22.3.2 Sources of liquidity
22.3.3 Contractual maturity of financial liabilities
22.3.4 Expected maturity
22.4
Market risk
22.4.1 Traded market risk
22.4.2 Non-traded market risk
Notes to the financial statements
Note 22. Financial risk (continued)
22.1 Approach to risk management
The Board is responsible for reviewing and approving our overall risk management strategy, including determining our appetite
for risk. The Board has delegated to the BRCC responsibility for providing recommendations to the Board on the Westpac
Group’s risk-reward strategy, setting risk appetite, approving framework and policies for managing risk, and determining
whether to accept risks beyond management’s approval discretion.
The BRCC monitors the alignment of our risk profile with our risk appetite, which is defined in the Board Statement of Risk
Appetite, and with our current and future capital requirements. The BRCC receives regular reports from management on the
effectiveness of our management of Westpac’s material business risks. More detail about the role of the BRCC is set out in the
Westpac risk management governance structure table.
The CEO and Executive Team are responsible for implementing our risk management strategy and frameworks, and for
developing policies, controls, processes and procedures for identifying and managing risk in all of Westpac’s activities.
Westpac adopts a Three Lines of Defence approach to risk management which reflects our culture of 'risk is everyone's
business' and that all employees are responsible for identifying and managing risk and operating within the Group's desired risk
profile. Effective risk management enables us to:
accurately measure our risk profile and balance risk and reward within our risk appetite, increasing financial growth
opportunities and mitigating potential loss or damage;
protect Westpac's depositors, policyholders and investors by maintaining a strong balance sheet;
embed adequate controls to guard against excessive risk or undue risk concentration; and
meet our regulatory and compliance obligations.
The 1st Line of Defence – risk identification, risk management and self-assurance
Divisional business units are responsible for identifying, evaluating and managing the risks that they originate within approved
risk appetite and policies. They are required to establish and maintain appropriate risk management controls, resources and
self-assurance processes.
The 2nd Line of Defence – establishment of Risk Management Frameworks and policies and Risk Management Oversight
Our 2nd Line of Defence is a separate risk and compliance advisory, control and monitoring function which establishes
frameworks, policies, limits and processes for the management, monitoring and reporting of risk. The 2nd line of Defence may
approve risks outside the authorities granted to the 1st Line, and evaluates and opines on the adequacy and effectiveness of
1st Line controls and application of frameworks and policies and, where necessary, requires improvement and monitors the 1st
Line’s progress toward remediation of identified deficiencies.
The 3rd Line of Defence – independent assurance
Our Group Audit function independently evaluates the adequacy and effectiveness of the Group’s overall Risk Management
Framework and controls.
This approach allows risks within our risk appetite to be balanced against appropriate rewards.
Westpac’s risk management governance structure is set out in more detail in the following table:
Board
reviews and approves our overall risk management strategy.
Board Risk & Compliance Committee (BRCC)
provides recommendations to the Board on the Westpac Group’s risk-reward strategy;
sets risk appetite;
reviews and approves frameworks for managing risk;
reviews and approves the limits and conditions that apply to credit risk approval authority delegated to the CEO, CFO and
CRO and any other officers of the Westpac Group to whom the Board has delegated authority;
monitors our risk profile, performance, capital levels, exposures against limits and management and control of our risks;
monitors changes anticipated in the economic and business environment and other factors relevant to our risk profile;
oversees the development and ongoing review of key policies that support our frameworks for managing risk; and
determines whether to accept risks beyond the approval discretion provided to management.
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3
Note 22. Financial risk (continued)
Other Board Committees with a risk focus
Board Audit Committee
oversees the integrity of financial statements and financial reporting systems, and matters relating to taxation risks.
Board Remuneration Committee
reviews any matters raised by the BRCC with respect to risk-adjusted remuneration.
Board Technology Committee
oversees the technology strategy, implementation, and risks associated with major technology programs.
Executive Team
monitors key risks within each business unit, capital adequacy and the Group’s reputation.
executes the Board-approved strategy;
delivers the Group’s various strategic and performance goals within the approved risk appetite; and
Executive risk committees
Westpac Group Executive Risk Committee
leads the management and oversight of material risks across the Westpac Group within the context of the risk appetite
determined by the BRCC;
oversees the embedding of the Risk Management Strategy in the Group’s approach to risk governance;
oversees risk-related management frameworks and key supporting policies;
oversees the Group’s credit, operational, compliance, and market risk profiles;
oversees Reputation Risk and Sustainability Risk Management Frameworks and key supporting policies; and
identifies emerging credit, operational, compliance and market risks and allocates responsibility for assessing impacts
and implementing appropriate actions to address these.
Westpac Group Asset & Liability Committee
leads the optimisation of funding and liquidity risk-reward across the Group;
reviews the level and quality of capital so that it is commensurate with the Group’s risk profile, business strategy and
risk appetite;
oversees the Liquidity Risk Management framework and key policies;
oversees the Funding and Liquidity Risk Profile and Balance Sheet Risk Profile; and
identifies emerging funding and liquidity risks and appropriate actions to address these.
Westpac Group Credit Risk Committee
leads the optimisation of credit risk-reward across the Group;
reviews and oversees the Credit Risk-related Risk Management Frameworks and key supporting policies;
oversees Westpac’s credit risk profile;
identifies emerging credit risks, allocates responsibility for assessing impacts, and responds as appropriate; and
facilitates continuous improvement in credit risk management by providing a forum for testing risk tolerances and
debating alternate approaches.
Westpac Group Remuneration Oversight Committee
provides assurance that the remuneration arrangements across the Group have been examined from a People, Risk and
Finance perspective;
responsible for ensuring that risk is embedded in all key steps in our remuneration framework;
reviews and makes recommendations to the CEO for recommendation to the Board Remuneration Committee on the
Group Remuneration Policy and provides assurance that remuneration arrangements across the Group encourage
behaviour that supports Westpac’s long-term financial soundness and the risk management framework;
reviews and monitors the remuneration arrangements (other than for Group Executives) for Responsible Persons (as
defined in the Group’s Statutory Officers Fit and Proper Policy), risk and financial control personnel, and all other
employees for whom a significant portion of total remuneration is based on performance and whose activities, either
individually or collectively, may affect the financial soundness of Westpac; and
reviews and recommends to the CEO for recommendation to the Board Remuneration Committee the criteria and
rationale for determining the total quantum of the Group variable reward pool.
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Notes to the financial statements
Note 22. Financial risk (continued)
Risk and compliance functions
Risk Function
monitors emerging risk issues.
Compliance Function
reports on compliance standards.
Independent internal review
Group Audit
Divisional business units
Business Units
policies; and
22.2 Credit Risk Management
22.2.1 Credit Risk Management Policy
develops Group-level Risk Management Frameworks for approval by the BRCC;
directs the review and development of key policies supporting the Risk Management Frameworks;
develops division-specific policies, risk appetite statements, controls, procedures, and monitoring and reporting capability
that align to the frameworks approved by the BRCC;
establishes risk concentration limits and monitors risk concentrations; and
develops the Group-level compliance framework for approval by the BRCC;
directs the review and development of compliance policies, compliance plans, controls and procedures;
monitors compliance and regulatory obligations and emerging regulatory developments; and
reviews the adequacy and effectiveness of management controls for risk.
responsible for identifying, evaluating and managing the risks that they originate within approved risk appetite
establish and maintain appropriate risk management controls, resources and self-assurance processes.
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations.
Westpac maintains a Credit Risk Management Framework and a number of supporting policies that define roles and
responsibilities, acceptable practices, limits and key controls:
the Credit Risk Management Framework describes the principles, methodologies, systems, roles and responsibilities,
reports and key controls that exist for managing credit risk in Westpac;
the Credit Risk Rating System policy describes the credit risk rating system philosophy, design, key features and uses of
rating outcomes; and
Westpac has established policies governing the management of three key types of concentration risk:
individual customers or groups of related customers;
specific industries (e.g. commercial property); and
individual countries.
the organisation.
by Risk.
management teams.
Westpac has an established policy governing the delegation of credit approval authorities and a set of formal limits for the
extension of credit. These limits represent the delegation of credit approval authority to responsible individuals throughout
Credit manuals exist in each business unit to govern the extension of credit. These manuals include general policies covering
the origination, evaluation, approval, documentation, settlement and ongoing management of credit risks including
management of problem loans. These manuals are regularly updated by the business units, with significant changes approved
Sector policies exist to guide the extension of credit where industry-specific guidelines are considered necessary
(e.g. acceptable financial ratios or types of collateral). These policies are maintained by the business unit risk
Westpac has a related entity Risk Management Framework and supporting policies, which include governance of credit
exposures to related entities, so as to minimise contagion risk for the extended licensed entity and for compliance with the
prudential requirements prescribed by APRA.
Note 22. Financial risk (continued)
Risk and compliance functions
Notes to the financial statements
Risk Function
monitors emerging risk issues.
develops Group-level Risk Management Frameworks for approval by the BRCC;
directs the review and development of key policies supporting the Risk Management Frameworks;
develops division-specific policies, risk appetite statements, controls, procedures, and monitoring and reporting capability
that align to the frameworks approved by the BRCC;
establishes risk concentration limits and monitors risk concentrations; and
oversees the integrity of financial statements and financial reporting systems, and matters relating to taxation risks.
Board Remuneration Committee
Board Technology Committee
reviews any matters raised by the BRCC with respect to risk-adjusted remuneration.
oversees the technology strategy, implementation, and risks associated with major technology programs.
delivers the Group’s various strategic and performance goals within the approved risk appetite; and
monitors key risks within each business unit, capital adequacy and the Group’s reputation.
Note 22. Financial risk (continued)
Other Board Committees with a risk focus
Board Audit Committee
Executive Team
executes the Board-approved strategy;
Executive risk committees
Westpac Group Executive Risk Committee
determined by the BRCC;
leads the management and oversight of material risks across the Westpac Group within the context of the risk appetite
oversees risk-related management frameworks and key supporting policies;
oversees the Group’s credit, operational, compliance, and market risk profiles;
oversees Reputation Risk and Sustainability Risk Management Frameworks and key supporting policies; and
identifies emerging credit, operational, compliance and market risks and allocates responsibility for assessing impacts
and implementing appropriate actions to address these.
Westpac Group Asset & Liability Committee
leads the optimisation of funding and liquidity risk-reward across the Group;
reviews the level and quality of capital so that it is commensurate with the Group’s risk profile, business strategy and
risk appetite;
oversees the Liquidity Risk Management framework and key policies;
oversees the Funding and Liquidity Risk Profile and Balance Sheet Risk Profile; and
identifies emerging funding and liquidity risks and appropriate actions to address these.
Westpac Group Credit Risk Committee
leads the optimisation of credit risk-reward across the Group;
reviews and oversees the Credit Risk-related Risk Management Frameworks and key supporting policies;
oversees Westpac’s credit risk profile;
identifies emerging credit risks, allocates responsibility for assessing impacts, and responds as appropriate; and
facilitates continuous improvement in credit risk management by providing a forum for testing risk tolerances and
debating alternate approaches.
Westpac Group Remuneration Oversight Committee
provides assurance that the remuneration arrangements across the Group have been examined from a People, Risk and
Finance perspective;
responsible for ensuring that risk is embedded in all key steps in our remuneration framework;
reviews and makes recommendations to the CEO for recommendation to the Board Remuneration Committee on the
Group Remuneration Policy and provides assurance that remuneration arrangements across the Group encourage
behaviour that supports Westpac’s long-term financial soundness and the risk management framework;
reviews and monitors the remuneration arrangements (other than for Group Executives) for Responsible Persons (as
defined in the Group’s Statutory Officers Fit and Proper Policy), risk and financial control personnel, and all other
employees for whom a significant portion of total remuneration is based on performance and whose activities, either
individually or collectively, may affect the financial soundness of Westpac; and
reviews and recommends to the CEO for recommendation to the Board Remuneration Committee the criteria and
rationale for determining the total quantum of the Group variable reward pool.
oversees the embedding of the Risk Management Strategy in the Group’s approach to risk governance;
Divisional business units
Independent internal review
Group Audit
reviews the adequacy and effectiveness of management controls for risk.
develops the Group-level compliance framework for approval by the BRCC;
directs the review and development of compliance policies, compliance plans, controls and procedures;
Compliance Function
monitors compliance and regulatory obligations and emerging regulatory developments; and
reports on compliance standards.
Business Units
responsible for identifying, evaluating and managing the risks that they originate within approved risk appetite
policies; and
establish and maintain appropriate risk management controls, resources and self-assurance processes.
22.2 Credit Risk Management
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations.
22.2.1 Credit Risk Management Policy
Westpac maintains a Credit Risk Management Framework and a number of supporting policies that define roles and
responsibilities, acceptable practices, limits and key controls:
the Credit Risk Management Framework describes the principles, methodologies, systems, roles and responsibilities,
reports and key controls that exist for managing credit risk in Westpac;
the Credit Risk Rating System policy describes the credit risk rating system philosophy, design, key features and uses of
rating outcomes; and
Westpac has established policies governing the management of three key types of concentration risk:
individual customers or groups of related customers;
specific industries (e.g. commercial property); and
individual countries.
Westpac has an established policy governing the delegation of credit approval authorities and a set of formal limits for the
extension of credit. These limits represent the delegation of credit approval authority to responsible individuals throughout
the organisation.
Credit manuals exist in each business unit to govern the extension of credit. These manuals include general policies covering
the origination, evaluation, approval, documentation, settlement and ongoing management of credit risks including
management of problem loans. These manuals are regularly updated by the business units, with significant changes approved
by Risk.
Sector policies exist to guide the extension of credit where industry-specific guidelines are considered necessary
(e.g. acceptable financial ratios or types of collateral). These policies are maintained by the business unit risk
management teams.
Westpac has a related entity Risk Management Framework and supporting policies, which include governance of credit
exposures to related entities, so as to minimise contagion risk for the extended licensed entity and for compliance with the
prudential requirements prescribed by APRA.
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3
Note 22. Financial risk (continued)
22.2.2 Provision and impairment policy
Provisions for loan impairment represent management’s best estimate of the losses incurred in the loan portfolios as at the
balance date. There are two components of Westpac’s loan impairment provisions: individually assessed provisions and
collectively assessed provisions. In determining the individually assessed provisions, relevant considerations that have a
bearing on the expected future cash flows are taken into account, for example, the business prospects of the customer, the
realisable value of collateral, Westpac’s position relative to other claimants, the reliability of customer information and the likely
cost and duration of the work-out process. These judgments and estimates can change with time as new information becomes
available or as work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are made.
The collectively assessed provisions are established on a portfolio basis taking into account the level of arrears, collateral, past
loss experience and expected defaults based on portfolio trends. The most significant factors in establishing these provisions
are estimated loss rates and related emergence periods. The provisions also take into account management’s assessment of
changes or events that have recently occurred in sectors of the economy or in the economy as a whole that are not yet
reflected in underlying provisioning factors. The future credit quality of these portfolios is subject to uncertainties that could
cause actual credit losses to differ from reported loan impairment provisions. These uncertainties include the economic
environment, notably interest rates, unemployment levels, repayment behaviour and bankruptcy rates.
22.2.3 Internal credit risk ratings system
The principal objective of the credit risk rating system is to produce a reliable assessment of the credit risk to which the Group
is exposed.
Westpac’s internal credit risk rating system for transaction-managed customers assigns a Customer Risk Grade (CRG) to each
customer, corresponding to their expected probability of default (PD). Each facility is assigned a loss given default (LGD). The
Westpac risk rating system has a tiered scale of risk grades for both non-defaulted customers and defaulted customers.
Non-defaulted CRGs are mapped to Moody’s and Standard & Poor’s (S&P) external senior ranking unsecured ratings.
Customers that are not transaction-managed (referred to as the program-managed portfolio) are segmented into pools of
similar risk. Segments are created by analysing characteristics that have historically proven predictive in determining if an
account is likely to go into default. Customers are then grouped according to these predictive characteristics and each segment
assigned a PD and LGD.
The table below shows the current alignment between Westpac’s CRGs and the corresponding external rating. Note that only
high-level CRG groupings are shown.
Loans – business1
Financial Statement Disclosure
Westpac CRG
Moody’s Rating
Aaa – Aa3
A1 – A3
S&P Rating
AAA – AA–
A+ – A–
Strong
Good/satisfactory
Weak
A
B
C
D
E
F
Weak/default/non-performing
G – H
Baa1 – Baa3
BBB+ – BBB–
underlying properties is held.
Ba1 – B1
BB+ – B+
Watchlist
Special Mention
Substandard/Default
Control mechanisms for the credit risk rating system
Westpac’s credit risk rating system is reviewed annually to confirm that the rating criteria and procedures are appropriate given
the current portfolio and external conditions. The BRCC, RISKCO and CREDCO monitor the risk profile, performance and
management of Westpac’s credit portfolio and development and review of key credit risk policies. All models materially
impacting the risk rating process are periodically reviewed in accordance with Westpac’s model risk policies. Specific credit risk
estimates (including PD, LGD and exposure at default (EAD) levels) are overseen, reviewed annually and approved by the
Credit Risk Estimates Committee (a subcommittee of RISKCO).
174
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2015 Westpac Group Annual Report
175
Notes to the financial statements
Note 22. Financial risk (continued)
22.2.4 Credit risk mitigation, collateral and other credit enhancements
Westpac uses a variety of techniques to reduce the credit risk arising from its lending activities. Enforceable legal
documentation establishes Westpac’s direct, irrevocable and unconditional recourse to any collateral, security or other credit
enhancements provided.
The table below describes the nature of collateral held for financial asset classes:
Cash and other balances held
These exposures are generally considered to be low risk due to the nature of the
with central banks, including
counterparties. Collateral is generally not sought on these balances.
regulatory deposits
Receivables due from other
These exposures are mainly to relatively lower risk banks (Rated A or better). Collateral is
financial institutions
generally not sought on these balances.
Derivative financial instruments Master netting agreements are typically used to enable the effects of derivative assets and
liabilities with the same counterparty to be offset when measuring these exposures.
Additionally, collateralisation agreements are also typically entered into with major
institutional counterparties to avoid the potential build-up of excessive mark-to-market
positions. Derivative transactions are increasingly being cleared through central clearers.
Trading securities and financial
These exposures are carried at fair value which reflects the credit risk. No collateral is sought
assets designated at fair value
directly from the issuer or counterparty; however this may be implicit in the terms of
the instrument (such as an asset-backed security). The terms of debt securities may
include collateralisation.
Available-for-sale securities
Collateral is not sought directly with respect to these exposures; however collateralisation
may be implicit in the structure of the asset.
Loans – housing and personal1 Housing loans are secured by a mortgage over property, and additional security may take
the form of guarantees and deposits. Personal lending (including credit cards and overdrafts)
is predominantly unsecured. Where security is taken for non-housing personal lending, it is
restricted to eligible motor vehicles, caravans, campers, motor homes and boats.
Loans – business may be secured, partially secured or unsecured. Security is typically taken
by way of a mortgage over property and/or a general security agreement over business
assets, or other assets. Other forms of credit protection may also be sought or taken out
if warranted.
Life insurance assets
These assets are carried at fair value, which reflects the credit risk. Collateral is typically not
held other than for investments in Australian mortgages where recourse to a charge over the
Due from subsidiaries
These exposures are generally considered to be low risk due to the nature of the
counterparties. Collateral is generally not sought on these balances.
1 This includes collateral held in relation to associated credit commitments.
Risk reduction
Westpac recognises the following as eligible collateral for credit risk mitigation:
cash, primarily in Australian dollars (AUD), New Zealand dollars (NZD), US dollars (USD), Canadian dollars (CAD), British
pounds (GBP) or European Union euro (EUR);
bonds issued by Australian Commonwealth, State and Territory governments or their Public Sector Enterprises, provided
these attract a zero risk-weighting under Australian Prudential Standard (APS) 112;
securities issued by other specified AA– / Aa3 or better rated sovereign governments; and
credit-linked notes (provided the proceeds are invested in cash or other eligible collateral described above).
For mitigation by way of risk transfer, Westpac only recognises unconditional irrevocable guarantees or standby letters of credit
issued by, or eligible credit derivative protection bought from, the following entities provided they are not related to the
Risk transfer
underlying obligor:
sovereign entities;
public sector entities in Australia and New Zealand;
ADIs and overseas banks with a minimum risk grade equivalent of A- / A3; and
other entities with a minimum risk grade equivalent of A3 / A–.
Note 22. Financial risk (continued)
22.2.2 Provision and impairment policy
Provisions for loan impairment represent management’s best estimate of the losses incurred in the loan portfolios as at the
balance date. There are two components of Westpac’s loan impairment provisions: individually assessed provisions and
collectively assessed provisions. In determining the individually assessed provisions, relevant considerations that have a
bearing on the expected future cash flows are taken into account, for example, the business prospects of the customer, the
realisable value of collateral, Westpac’s position relative to other claimants, the reliability of customer information and the likely
cost and duration of the work-out process. These judgments and estimates can change with time as new information becomes
available or as work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are made.
The collectively assessed provisions are established on a portfolio basis taking into account the level of arrears, collateral, past
loss experience and expected defaults based on portfolio trends. The most significant factors in establishing these provisions
are estimated loss rates and related emergence periods. The provisions also take into account management’s assessment of
changes or events that have recently occurred in sectors of the economy or in the economy as a whole that are not yet
reflected in underlying provisioning factors. The future credit quality of these portfolios is subject to uncertainties that could
cause actual credit losses to differ from reported loan impairment provisions. These uncertainties include the economic
environment, notably interest rates, unemployment levels, repayment behaviour and bankruptcy rates.
22.2.3 Internal credit risk ratings system
is exposed.
The principal objective of the credit risk rating system is to produce a reliable assessment of the credit risk to which the Group
Westpac’s internal credit risk rating system for transaction-managed customers assigns a Customer Risk Grade (CRG) to each
customer, corresponding to their expected probability of default (PD). Each facility is assigned a loss given default (LGD). The
Westpac risk rating system has a tiered scale of risk grades for both non-defaulted customers and defaulted customers.
Non-defaulted CRGs are mapped to Moody’s and Standard & Poor’s (S&P) external senior ranking unsecured ratings.
Customers that are not transaction-managed (referred to as the program-managed portfolio) are segmented into pools of
similar risk. Segments are created by analysing characteristics that have historically proven predictive in determining if an
account is likely to go into default. Customers are then grouped according to these predictive characteristics and each segment
assigned a PD and LGD.
high-level CRG groupings are shown.
The table below shows the current alignment between Westpac’s CRGs and the corresponding external rating. Note that only
Financial Statement Disclosure
Westpac CRG
Moody’s Rating
Strong
Good/satisfactory
Weak
A
B
C
D
E
F
Aaa – Aa3
A1 – A3
Ba1 – B1
Baa1 – Baa3
BBB+ – BBB–
S&P Rating
AAA – AA–
A+ – A–
BB+ – B+
Watchlist
Special Mention
Substandard/Default
Weak/default/non-performing
G – H
Control mechanisms for the credit risk rating system
Westpac’s credit risk rating system is reviewed annually to confirm that the rating criteria and procedures are appropriate given
the current portfolio and external conditions. The BRCC, RISKCO and CREDCO monitor the risk profile, performance and
management of Westpac’s credit portfolio and development and review of key credit risk policies. All models materially
impacting the risk rating process are periodically reviewed in accordance with Westpac’s model risk policies. Specific credit risk
estimates (including PD, LGD and exposure at default (EAD) levels) are overseen, reviewed annually and approved by the
Credit Risk Estimates Committee (a subcommittee of RISKCO).
Notes to the financial statements
Note 22. Financial risk (continued)
22.2.4 Credit risk mitigation, collateral and other credit enhancements
Westpac uses a variety of techniques to reduce the credit risk arising from its lending activities. Enforceable legal
documentation establishes Westpac’s direct, irrevocable and unconditional recourse to any collateral, security or other credit
enhancements provided.
The table below describes the nature of collateral held for financial asset classes:
Cash and other balances held
with central banks, including
regulatory deposits
These exposures are generally considered to be low risk due to the nature of the
counterparties. Collateral is generally not sought on these balances.
Receivables due from other
financial institutions
These exposures are mainly to relatively lower risk banks (Rated A or better). Collateral is
generally not sought on these balances.
Derivative financial instruments Master netting agreements are typically used to enable the effects of derivative assets and
liabilities with the same counterparty to be offset when measuring these exposures.
Additionally, collateralisation agreements are also typically entered into with major
institutional counterparties to avoid the potential build-up of excessive mark-to-market
positions. Derivative transactions are increasingly being cleared through central clearers.
Trading securities and financial
assets designated at fair value
These exposures are carried at fair value which reflects the credit risk. No collateral is sought
directly from the issuer or counterparty; however this may be implicit in the terms of
the instrument (such as an asset-backed security). The terms of debt securities may
include collateralisation.
Available-for-sale securities
Collateral is not sought directly with respect to these exposures; however collateralisation
may be implicit in the structure of the asset.
Loans – housing and personal1 Housing loans are secured by a mortgage over property, and additional security may take
Loans – business1
Life insurance assets
the form of guarantees and deposits. Personal lending (including credit cards and overdrafts)
is predominantly unsecured. Where security is taken for non-housing personal lending, it is
restricted to eligible motor vehicles, caravans, campers, motor homes and boats.
Loans – business may be secured, partially secured or unsecured. Security is typically taken
by way of a mortgage over property and/or a general security agreement over business
assets, or other assets. Other forms of credit protection may also be sought or taken out
if warranted.
These assets are carried at fair value, which reflects the credit risk. Collateral is typically not
held other than for investments in Australian mortgages where recourse to a charge over the
underlying properties is held.
Due from subsidiaries
These exposures are generally considered to be low risk due to the nature of the
counterparties. Collateral is generally not sought on these balances.
1 This includes collateral held in relation to associated credit commitments.
Risk reduction
Westpac recognises the following as eligible collateral for credit risk mitigation:
cash, primarily in Australian dollars (AUD), New Zealand dollars (NZD), US dollars (USD), Canadian dollars (CAD), British
pounds (GBP) or European Union euro (EUR);
bonds issued by Australian Commonwealth, State and Territory governments or their Public Sector Enterprises, provided
these attract a zero risk-weighting under Australian Prudential Standard (APS) 112;
securities issued by other specified AA– / Aa3 or better rated sovereign governments; and
credit-linked notes (provided the proceeds are invested in cash or other eligible collateral described above).
Risk transfer
For mitigation by way of risk transfer, Westpac only recognises unconditional irrevocable guarantees or standby letters of credit
issued by, or eligible credit derivative protection bought from, the following entities provided they are not related to the
underlying obligor:
sovereign entities;
public sector entities in Australia and New Zealand;
ADIs and overseas banks with a minimum risk grade equivalent of A- / A3; and
other entities with a minimum risk grade equivalent of A3 / A–.
174
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
175
3
Note 22. Financial risk (continued)
Management of risk mitigation
Westpac facilitates the management of these risks through controls covering:
collateral valuation and management;
credit portfolio management;
netting; and
central clearing.
Collateral valuation and management
Westpac revalues collateral related to financial markets positions on a daily basis to monitor the net risk position, and has
formal processes in place so that calls for collateral top-up or exposure reduction are made promptly. An independent
operational unit has responsibility for monitoring these positions. The collaterisation arrangements are documented via the
Credit Support Annex of the International Swaps and Derivatives Association (ISDA) dealing agreements.
Credit Portfolio Management
Credit Portfolio Management (CPM) is a division that manages the overall risk in Westpac’s corporate, sovereign and bank
credit portfolios. CPM includes a dedicated portfolio trading desk with the specific mandate of actively monitoring the underlying
exposure and any offsetting hedge positions. Specific reporting is maintained and monitored on the matching of hedges with
underlying facilities, with any adjustments to hedges (including unwinds or extensions) managed dynamically. CPM purchases
credit protection from entities meeting our acceptability criteria as described under the Risk reduction and Risk transfer sections
above. CPM also sells protection to diversify risk.
Netting
Risk reduction by way of current account set-off is recognised for exposures to creditworthy customers domiciled in Australia
and New Zealand only. Customers are required to enter into formal agreements giving Westpac the unfettered right to set-off
gross credit and debit balances in their nominated accounts to determine Westpac’s net exposure within each of these two
jurisdictions. Cross-border set-offs are not permitted.
Close-out netting is undertaken for off balance sheet financial market transactions with counterparties with whom Westpac has
entered into a single bilateral master netting agreement which allows such netting in specified jurisdictions, and is supported by
a written and reasoned legal opinion on the enforceability of that agreement. Close-out netting effectively aggregates pre-
settlement risk exposure at time of default, thus reducing overall exposure.
Central clearing
Westpac increasingly executes derivative transactions through central clearing counterparties. Westpac’s credit exposure to
central clearing counterparties is mitigated through the risk management framework employed by the central clearing
counterparties which includes stringent membership requirements, initial margin collected on all trades and the structure of the
default waterfall.
22.2.5 Credit risk concentrations
A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar
economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in
economic or other conditions.
Westpac monitors its credit portfolio to manage risk concentrations. Exposures are actively managed from a portfolio
perspective, with risk mitigation techniques used to rebalance the portfolio.
Individual customers or groups of related customers
Westpac has large exposure limits governing the aggregate size of credit exposure normally acceptable to individual customers
and groups of related customers. These limits are tiered by customer risk grade.
Specific industries
Exposures to businesses, governments and other financial institutions are classified into a number of industry clusters based
on groupings of related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored
against industry risk appetite limits. The level of industry risk is measured on a dynamic basis.
Individual countries
Westpac has limits governing risks related to individual countries, such as political situations, government policies, economic
conditions or other country-specific events, that may adversely affect either a customer’s ability to purchase or transfer currency
to meet its obligations to Westpac, or Westpac’s ability to realise its assets in a particular country. Such risks include, but are
not limited to, exchange control events, nationalisation, war, disaster, economic meltdown or government failure.
Note 22. Financial risk (continued)
The table below sets out the maximum exposure to credit risk (excluding any collateral received) and the credit risk
concentrations to which the Group and the Parent Entity are exposed. The total will not reconcile to the Group or Parent Entity’s
total assets on the balance sheet as cash, non-financial assets and other financial assets have been excluded from the table
below. Investments in subsidiaries and amounts due from subsidiaries have also been excluded from the Parent
Notes to the financial statements
Trading Securities
Loans -
& Financial
Available
Housing
Assets Designated
-For-Sale
and
Loans -
at Fair Value
Securities
Personal
Business Derivatives1
Total
(On
Life
Credit
Insurance
Balance
Commit-
Assets
Sheet)
ments
Entity’s disclosure.
Consolidated 2015
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Property, property services and
business services
Manufacturing
Mining
Services2
Trade3
Utilities4
Retail Lending
Other
Total Australia
New Zealand
Transport and storage
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Transport and storage
Services2
Trade3
Utilities4
Retail lending
Other
4,547
54,790
61,030
19,848
19,970
49,223
400,174
145,481
42,545
12,956
670,349
151,788
6,183
12,475
11,286
37,700
2,803
13,251
35,710
10,032
-
4
42
244
110
105
100
146
142
307
112
-
-
-
10
-
2
-
-
10
52
-
8
244
127
515
1
218
34
944
593
99
42
-
359
541
839
620
10
444
17
16
193
28
390,007
6,908
1,146
1,244
246
77
27,793
-
42
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,446
7,614
5,599
793
9,320
4,407
10,812
15,445
9,903
3,507
585
2,009
182
6,829
361
1,726
292
2,110
408
6,223
1,175
2,019
1,094
1,021
45
-
1,880
1,865
11
991
2,081
22
63
57
1,112
1,340
774
915
405
206
817
932
25
167
1
61
4
338
118
1
89
57
22
45
439
6
24
3,758
51
18
-
-
746
302
673
442
201
171
275
-
45
128
28
-
4
-
3
-
-
1
-
-
-
-
5
390,729
80,230
2,249
816
7,763
7,808
6,231
79,265
52,081
11,868
5,627
12,719
16,591
11,325
5,063
542
7,445
1,204
9,103
4,614
2,686
426
13,222
2,379
3,285
1,395
1,636
27,844
32
1,305
1,924
3,958
10,344
912
7,294
3,943
5,982
7,752
4,112
3,368
105
697
565
2,073
611
1,497
76
2,382
1,106
1,464
916
1,382
8,118
26
Total New Zealand
3,838
3,114
40,244
23,485
4,963
169
75,813
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
21,018
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
176
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
177
Note 22. Financial risk (continued)
Management of risk mitigation
Westpac facilitates the management of these risks through controls covering:
collateral valuation and management;
credit portfolio management;
netting; and
central clearing.
Collateral valuation and management
Westpac revalues collateral related to financial markets positions on a daily basis to monitor the net risk position, and has
formal processes in place so that calls for collateral top-up or exposure reduction are made promptly. An independent
operational unit has responsibility for monitoring these positions. The collaterisation arrangements are documented via the
Credit Support Annex of the International Swaps and Derivatives Association (ISDA) dealing agreements.
Credit Portfolio Management
Credit Portfolio Management (CPM) is a division that manages the overall risk in Westpac’s corporate, sovereign and bank
credit portfolios. CPM includes a dedicated portfolio trading desk with the specific mandate of actively monitoring the underlying
exposure and any offsetting hedge positions. Specific reporting is maintained and monitored on the matching of hedges with
underlying facilities, with any adjustments to hedges (including unwinds or extensions) managed dynamically. CPM purchases
credit protection from entities meeting our acceptability criteria as described under the Risk reduction and Risk transfer sections
above. CPM also sells protection to diversify risk.
Netting
Risk reduction by way of current account set-off is recognised for exposures to creditworthy customers domiciled in Australia
and New Zealand only. Customers are required to enter into formal agreements giving Westpac the unfettered right to set-off
gross credit and debit balances in their nominated accounts to determine Westpac’s net exposure within each of these two
jurisdictions. Cross-border set-offs are not permitted.
Close-out netting is undertaken for off balance sheet financial market transactions with counterparties with whom Westpac has
entered into a single bilateral master netting agreement which allows such netting in specified jurisdictions, and is supported by
a written and reasoned legal opinion on the enforceability of that agreement. Close-out netting effectively aggregates pre-
settlement risk exposure at time of default, thus reducing overall exposure.
Central clearing
Westpac increasingly executes derivative transactions through central clearing counterparties. Westpac’s credit exposure to
central clearing counterparties is mitigated through the risk management framework employed by the central clearing
counterparties which includes stringent membership requirements, initial margin collected on all trades and the structure of the
default waterfall.
22.2.5 Credit risk concentrations
economic or other conditions.
A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar
economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in
Westpac monitors its credit portfolio to manage risk concentrations. Exposures are actively managed from a portfolio
perspective, with risk mitigation techniques used to rebalance the portfolio.
Individual customers or groups of related customers
Westpac has large exposure limits governing the aggregate size of credit exposure normally acceptable to individual customers
and groups of related customers. These limits are tiered by customer risk grade.
Exposures to businesses, governments and other financial institutions are classified into a number of industry clusters based
on groupings of related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored
against industry risk appetite limits. The level of industry risk is measured on a dynamic basis.
Specific industries
Individual countries
Westpac has limits governing risks related to individual countries, such as political situations, government policies, economic
conditions or other country-specific events, that may adversely affect either a customer’s ability to purchase or transfer currency
to meet its obligations to Westpac, or Westpac’s ability to realise its assets in a particular country. Such risks include, but are
not limited to, exchange control events, nationalisation, war, disaster, economic meltdown or government failure.
Notes to the financial statements
Note 22. Financial risk (continued)
The table below sets out the maximum exposure to credit risk (excluding any collateral received) and the credit risk
concentrations to which the Group and the Parent Entity are exposed. The total will not reconcile to the Group or Parent Entity’s
total assets on the balance sheet as cash, non-financial assets and other financial assets have been excluded from the table
below. Investments in subsidiaries and amounts due from subsidiaries have also been excluded from the Parent
Entity’s disclosure.
Consolidated 2015
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail Lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
Trading Securities
& Financial
Assets Designated
at Fair Value
Available
-For-Sale
Securities
Loans -
Housing
and
Personal
Loans -
Business Derivatives1
Life
Insurance
Assets
Total
(On
Balance
Sheet)
Credit
Commit-
ments
-
4
42
6,183
12,475
244
110
105
100
146
142
307
112
-
-
-
-
11,286
37,700
-
-
244
127
515
2,803
1
218
34
7,446
7,614
5,599
13,251
793
9,320
4,407
-
16
-
193
-
-
28
4,547
54,790
944
593
99
42
390,007
-
10,812
15,445
9,903
3,507
585
2,009
22
63
57
35,710
1,112
1,340
774
915
405
206
817
932
25
167
51
-
18
10,032
-
746
302
7,763
7,808
6,231
79,265
52,081
11,868
5,627
1,305
1,924
3,958
10,344
912
7,294
3,943
673
442
201
171
275
-
45
61,030
19,848
12,719
16,591
11,325
5,063
390,729
2,249
5,982
7,752
4,112
3,368
80,230
816
19,970
49,223
400,174
145,481
42,545
12,956
670,349
151,788
-
10
-
1,880
1,865
11
-
2
-
-
10
52
-
8
-
-
-
991
2,081
-
-
-
-
-
-
42
-
-
359
541
839
620
10
444
17
6,908
1,146
1,244
246
77
27,793
-
182
6,829
361
1,726
292
2,110
408
6,223
1,175
2,019
1,094
1,021
45
-
1
61
4
3,758
338
118
1
89
57
22
45
439
6
24
-
4
-
128
28
3
-
-
1
-
-
5
-
-
542
7,445
1,204
9,103
4,614
2,686
426
13,222
2,379
3,285
1,395
1,636
27,844
32
105
697
565
2,073
611
1,497
76
2,382
1,106
1,464
916
1,382
8,118
26
21,018
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
176
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
177
Total New Zealand
3,114
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
40,244
75,813
23,485
3,838
4,963
169
3
Note 22. Financial risk (continued)
Consolidated 2015
$m
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
Total other overseas
Other risk concentrations
Amounts due from financial institutions
Regulatory deposits
Trading Securities
& Financial
Assets Designated
at Fair Value
Available
-For-Sale
Securities
Loans -
Housing
and
Personal
Loans -
Business Derivatives1
Life
Insurance
Assets
Total
(On
Balance
Sheet)
Credit
Commit-
ments
-
-
-
1,458
2,072
92
-
-
-
-
-
24
-
-
-
-
-
1,009
1,487
-
-
-
-
-
-
-
-
-
4
1
7
1
-
4
-
62
5
8
4
-
1,123
30
107
567
240
4,296
130
3,844
778
479
448
2,890
1,095
722
68
47
3,646
2,496
1,249
15,711
-
19
-
562
-
7
-
-
1
-
76
-
-
-
665
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
111
587
247
7,326
3,689
3,947
778
541
454
2,898
1,175
746
1,191
77
13
491
138
3,764
47
5,438
3,378
559
231
3,631
710
313
38
36
23,767
18,787
9,583
1,309
Total gross credit risk
54,833
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
780,821
441,667
184,677
13,125
48,173
27,454
191,593
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
178
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
179
Note 22. Financial risk (continued)
Consolidated 2014
Notes to the financial statements
Trading
Securities
& Financial
Assets
Available
Housing
Loans -
Designated
-For-Sale
and
Loans -
at Fair Value
Securities
Personal
Business Derivatives1
Total
(On
Life
Credit
Insurance
Balance
Commit-
Assets
Sheet)
ments
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Property, property services and
business services
Manufacturing
Mining
Services2
Trade3
Utilities4
Retail Lending
Other
Total Australia
New Zealand
Transport and storage
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Transport and storage
Services2
Trade3
Utilities4
Retail lending
Other
4,178
50,972
56,386
17,149
36,076
31,573
374,352
136,903
37,367
10,797
627,068
146,318
10,824
24,126
11,746
19,492
2,295
12,349
33,883
7,143
-
-
3
73
81
54
187
114
47
427
140
-
-
2
-
4
-
3
8
-
12
60
-
1
191
125
365,334
-
-
-
-
-
2
9
-
-
8
-
-
-
-
-
-
-
-
-
-
39
37
185
124
474
4
189
39
841
562
91
36
-
275
474
702
715
5
357
18
6,034
1,075
1,001
173
59
26,300
3
7,262
7,100
5,942
780
9,080
3,254
10,033
15,054
9,239
3,236
488
2,114
160
5,999
362
1,159
349
1,848
484
5,984
998
1,878
868
1,004
51
135
1,659
1,392
555
2,100
11
19
31
371
484
168
477
131
223
544
867
43
115
-
27
2
3,059
147
55
-
163
4
10
26
241
-
1
69
31
-
-
1,185
599
703
403
206
63
389
137
53
-
6
1
2
1
4
1
-
2
-
-
-
-
9
366,005
75,427
2,243
1,077
7,527
7,243
6,481
78,240
44,773
11,011
4,141
11,604
16,159
10,175
5,080
436
6,504
1,067
7,284
4,046
2,268
503
2,087
2,889
1,079
1,412
26,351
177
1,081
1,699
3,648
11,838
1,366
7,114
2,948
6,162
8,241
4,824
3,744
80
685
452
1,754
916
1,611
60
799
1,363
415
1,473
6,982
248
12,184
2,340
Total New Zealand
3,141
2,731
37,191
21,279
3,735
210
68,287
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
19,178
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
Note 22. Financial risk (continued)
Note 22. Financial risk (continued)
Notes to the financial statements
Consolidated 2015
$m
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Transport and storage
Services2
Trade3
Utilities4
Retail lending
Other
Total other overseas
Other risk concentrations
Amounts due from financial institutions
Regulatory deposits
Total gross credit risk
1,458
2,072
92
1,009
1,487
-
-
-
-
-
-
-
-
-
-
24
-
-
-
-
-
-
-
-
-
-
-
-
4
1
7
1
-
4
-
5
8
4
-
62
1,123
30
107
567
240
4,296
130
3,844
778
479
448
2,890
1,095
722
68
47
19
-
-
562
-
7
-
-
1
-
-
-
-
76
Total
(On
111
587
247
7,326
3,689
3,947
778
541
454
2,898
1,175
746
1,191
77
9,583
1,309
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13
491
138
3,764
47
5,438
3,378
3,631
559
231
710
313
38
36
3,646
2,496
1,249
15,711
665
23,767
18,787
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
27,454
54,833
441,667
184,677
48,173
13,125
780,821
191,593
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
Trading Securities
Loans -
& Financial
Available
Housing
Assets Designated
-For-Sale
and
Loans -
at Fair Value
Securities
Personal
Business Derivatives1
Life
Credit
Insurance
Balance
Commit-
Assets
Sheet)
ments
Consolidated 2014
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail Lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
Trading
Securities
& Financial
Assets
Designated
at Fair Value
Available
-For-Sale
Securities
Loans -
Housing
and
Personal
Loans -
Business Derivatives1
Life
Insurance
Assets
Total
(On
Balance
Sheet)
Credit
Commit-
ments
-
-
3
-
-
-
185
124
474
7,262
7,100
5,942
11
19
31
69
-
31
10,824
24,126
11,746
19,492
73
81
54
187
114
47
427
140
-
-
-
2
9
-
191
125
-
8
2,295
12,349
33,883
7,143
4
189
39
780
9,080
3,254
4,178
50,972
841
562
91
36
365,334
-
10,033
15,054
9,239
3,236
488
2,114
371
484
168
477
131
223
544
867
43
115
-
1,185
599
703
403
206
63
389
-
6
7,527
7,243
6,481
78,240
44,773
11,011
4,141
1,081
1,699
3,648
11,838
1,366
7,114
2,948
56,386
17,149
11,604
16,159
10,175
5,080
6,162
8,241
4,824
3,744
366,005
75,427
2,243
1,077
36,076
31,573
374,352
136,903
37,367
10,797
627,068
146,318
-
2
-
-
-
-
1,659
1,392
555
2,100
4
-
3
8
-
12
60
-
1
-
-
-
-
-
-
39
-
37
275
474
702
715
5
357
18
6,034
1,075
1,001
173
59
26,300
3
160
5,999
362
1,159
349
1,848
484
5,984
998
1,878
868
1,004
51
135
-
27
2
3,059
147
55
-
163
4
10
26
241
-
1
1
2
1
137
53
4
1
-
2
-
-
9
-
-
436
6,504
1,067
7,284
4,046
2,268
503
80
685
452
1,754
916
1,611
60
12,184
2,340
2,087
2,889
1,079
1,412
26,351
177
799
1,363
415
1,473
6,982
248
19,178
Total New Zealand
2,731
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
37,191
68,287
21,279
3,141
3,735
210
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
178
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
179
3
Note 22. Financial risk (continued)
Consolidated 2014
$m
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration
and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
Total other overseas
Other risk concentrations
Amounts due from financial institutions
Regulatory deposits
Trading
Securities
& Financial
Assets
Designated
at Fair Value
Available
-For-Sale
Securities
Loans -
Housing
and
Personal
Loans -
Business Derivatives1
Life
Insurance
Assets
Total
(On
Balance
Sheet)
Credit
Commit-
ments
-
-
-
2,188
4,418
31
43
-
-
-
-
12
-
-
-
-
-
717
986
-
-
-
-
-
-
17
-
-
3
1
8
1
1
3
-
58
6
8
4
-
1,052
12
124
464
112
2,005
34
2,883
1,508
372
407
3,240
685
701
59
40
-
-
-
285
4
11
2
-
-
-
-
-
-
-
6,692
1,720
1,157
12,634
302
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
127
465
120
32
179
157
5,196
2,437
5,443
2,928
1,553
430
413
51
4,264
1,188
368
21
3,248
1,455
689
730
1,111
52
187
203
38
76
22,505
10,656
7,424
1,528
Total gross credit risk
36,024
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
726,812
412,700
170,816
45,909
41,404
11,007
176,152
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
180
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
181
Note 22. Financial risk (continued)
Parent Entity 2015
Notes to the financial statements
Trading
Securities
& Financial
Assets
Available
Housing
Loans -
Designated
-For-Sale
and
Loans -
at Fair Value
Securities
Personal
Business Derivatives1
Total
(On
Life
Credit
Insurance
Balance
Commit-
Assets
Sheet)
ments
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Property, property services and
business services
Manufacturing
Mining
Services2
Trade3
Utilities4
Retail Lending
Other
Total Australia
New Zealand
Transport and storage
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Transport and storage
Services2
Trade3
Utilities4
Retail lending
Other
4,242
53,314
58,576
19,831
19,310
49,024
394,246
138,478
42,502
5,551
12,474
11,286
37,699
2,805
13,101
35,667
-
4
42
244
107
105
100
146
118
307
112
-
-
-
-
2
-
-
7
-
8
10
10
842
1,050
11
16
15
8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
244
127
510
1
215
33
943
589
97
41
384,399
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,295
7,376
4,605
736
8,869
4,256
10,124
14,783
9,211
3,470
1,338
-
-
2
5
-
1
-
7
3
2
-
-
-
90
218
22
63
57
1,112
1,340
774
915
405
206
817
932
25
167
1
61
4
338
118
1
89
57
22
45
439
6
24
3,195
384,536
80,230
1,513
811
643,560
151,697
7,561
7,570
5,214
68,410
52,022
10,668
5,170
11,588
15,724
10,258
4,750
1
73
9
4,037
1,389
219
1
98
60
240
57
446
6
32
1,305
1,921
3,957
10,344
912
7,292
3,942
5,959
7,723
4,102
3,368
-
6
13
61
24
116
-
37
4
209
209
204
14
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total New Zealand
1,940
328
4,400
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
6,668
897
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
Note 22. Financial risk (continued)
Consolidated 2014
Trading
Securities
& Financial
Assets
Available
Housing
Loans -
Designated
-For-Sale
and
Loans -
at Fair Value
Securities
Personal
Business Derivatives1
Life
Credit
Insurance
Balance
Commit-
Assets
Sheet)
ments
$m
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration
and defence
Manufacturing
Mining
Property, property services and
business services
Transport and storage
Services2
Trade3
Utilities4
Retail lending
Other
Total other overseas
Other risk concentrations
Amounts due from financial institutions
Regulatory deposits
Total gross credit risk
2,188
4,418
31
43
-
-
-
-
-
-
-
-
-
717
986
-
-
-
-
-
-
-
-
-
-
-
3
1
8
1
1
3
-
6
8
4
-
58
1,052
12
124
464
112
2,005
34
2,883
1,508
3,240
372
407
685
701
59
40
12
17
285
4
11
2
-
-
-
-
-
-
-
-
-
-
Total
(On
127
465
120
5,443
2,928
1,553
430
413
689
730
1,111
52
7,424
1,528
5,196
2,437
3,248
1,455
32
179
157
51
4,264
1,188
368
21
187
203
38
76
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,692
1,720
1,157
12,634
302
22,505
10,656
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
45,909
36,024
412,700
170,816
41,404
11,007
726,812
176,152
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
Note 22. Financial risk (continued)
Notes to the financial statements
Trading
Securities
& Financial
Assets
Designated
at Fair Value
Available
-For-Sale
Securities
Loans -
Housing
and
Personal
Loans -
Business Derivatives1
Life
Insurance
Assets
Total
(On
Balance
Sheet)
Credit
Commit-
ments
Parent Entity 2015
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail Lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
-
4
42
-
-
-
244
127
510
7,295
7,376
4,605
22
63
57
5,551
12,474
11,286
37,699
244
107
105
100
146
118
307
112
-
-
-
-
16
-
15
-
-
8
2,805
13,101
35,667
1
215
33
736
8,869
4,256
4,242
53,314
943
589
97
41
384,399
10,124
14,783
9,211
3,470
-
-
1,338
1,112
1,340
774
915
405
206
817
932
25
167
19,310
49,024
394,246
138,478
42,502
-
10
-
842
1,050
11
-
2
-
-
10
7
-
8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
5
-
1
90
-
7
3
218
2
-
-
-
1
61
4
3,195
338
118
1
89
57
22
45
439
6
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,561
7,570
5,214
68,410
52,022
10,668
5,170
1,305
1,921
3,957
10,344
912
7,292
3,942
58,576
19,831
11,588
15,724
10,258
4,750
5,959
7,723
4,102
3,368
384,536
80,230
1,513
811
643,560
151,697
1
73
9
4,037
1,389
219
1
98
60
240
57
446
6
32
-
6
13
61
24
116
-
37
4
209
209
204
14
-
897
Total New Zealand
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
6,668
4,400
1,940
328
-
-
-
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
180
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
181
3
Note 22. Financial risk (continued)
Parent Entity 2015
$m
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration
and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
Total other overseas
Other risk concentrations
Amounts due from financial institutions
Regulatory deposits
Trading
Securities
& Financial
Assets
Designated
at Fair Value
Available
-For-Sale
Securities
Loans -
Housing
and
Personal
Loans -
Business Derivatives1
Life
Insurance
Assets
Total
(On
Balance
Sheet)
Credit
Commit-
ments
-
-
-
1,458
2,072
92
-
-
-
-
-
24
-
-
-
-
-
801
519
-
-
-
-
-
-
-
-
-
3,646
1,320
3
1
5
1
-
3
-
34
3
7
3
-
573
30
663
90
566
199
4,250
130
3,814
777
279
412
2,745
780
702
44
45
14,833
-
19
-
536
-
6
-
-
1
-
76
-
-
-
638
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
93
586
204
13
491
132
7,046
3,763
2,721
3,915
777
313
416
47
5,290
3,360
536
230
2,752
3,469
Transport and storage
859
726
617
75
685
308
25
6
21,100
18,355
8,741
1,152
Total gross credit risk
50,344
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
681,221
394,909
153,639
47,540
24,896
170,949
-
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
182
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
183
Note 22. Financial risk (continued)
Parent Entity 2014
Notes to the financial statements
Trading
Securities
& Financial
Assets
Available
Housing
Loans -
Designated
-For-Sale
and
Loans -
at Fair Value
Securities
Personal
Business Derivatives1
Total
(On
Life
Credit
Insurance
Balance
Commit-
Assets
Sheet)
ments
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Property, property services and
business services
Manufacturing
Mining
Services2
Trade3
Utilities4
Retail Lending
Other
Total Australia
New Zealand
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
Total New Zealand
4,177
48,605
53,315
17,144
10,373
24,119
11,736
19,491
2,295
12,054
33,879
15
358,167
35,578
31,261
367,186
128,241
37,362
-
-
-
-
-
2
9
-
-
-
8
-
-
-
-
-
-
-
-
-
-
-
-
-
6,855
6,586
4,966
708
8,595
3,113
9,137
14,004
8,553
3,199
462
1,404
81
196
6
4
1
4
4
5
4
-
-
-
185
124
474
4
189
40
841
562
91
37
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
19
31
371
484
168
477
130
223
544
867
43
115
27
2
147
55
163
4
10
26
241
-
1
2,992
73
65
54
187
114
23
427
140
-
-
3
-
2
-
4
3
8
-
873
1,129
12
22
-
1
2,054
358,812
75,427
1,527
1,071
599,628
146,147
7,051
6,729
5,474
70,337
44,693
9,341
3,386
10,304
14,903
9,226
4,530
35
6
3,866
1,280
140
170
17
206
42
263
-
2
1,080
1,699
3,647
11,838
1,366
7,114
2,947
6,156
8,095
4,819
3,744
14
11
74
113
120
30
5
231
43
226
13
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
305
3,668
6,027
881
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
Note 22. Financial risk (continued)
Notes to the financial statements
Trading
Securities
& Financial
Assets
Designated
at Fair Value
Available
-For-Sale
Securities
Loans -
Housing
and
Personal
Loans -
Business Derivatives1
Life
Insurance
Assets
Total
(On
Balance
Sheet)
Credit
Commit-
ments
Note 22. Financial risk (continued)
Parent Entity 2015
Trading
Securities
& Financial
Assets
Available
Housing
Loans -
Designated
-For-Sale
and
Loans -
at Fair Value
Securities
Personal
Business Derivatives1
Total
(On
Life
Credit
Insurance
Balance
Commit-
Assets
Sheet)
ments
$m
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration
and defence
Manufacturing
Mining
Property, property services and
business services
Transport and storage
Services2
Trade3
Utilities4
Retail lending
Other
Total other overseas
Other risk concentrations
Amounts due from financial institutions
Regulatory deposits
Total gross credit risk
1,458
2,072
92
-
-
-
-
-
-
-
-
-
-
24
801
519
-
-
-
-
-
-
-
-
-
-
-
-
90
566
199
4,250
130
3,814
777
2,745
279
412
780
702
44
45
3
1
5
1
-
3
-
3
7
3
-
34
573
30
663
19
-
-
536
-
6
-
-
1
-
-
-
-
76
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
93
586
204
13
491
132
7,046
3,763
2,721
3,915
777
47
5,290
3,360
2,752
3,469
536
230
685
308
25
6
313
416
859
726
617
75
8,741
1,152
3,646
1,320
14,833
638
21,100
18,355
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
Parent Entity 2014
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail Lending
Other
Total Australia
New Zealand
Agriculture, forestry and fishing
Construction
Finance and insurance
24,896
50,344
394,909
153,639
47,540
-
681,221
170,949
Government, administration and defence
Manufacturing
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
-
-
3
-
-
-
185
124
474
6,855
6,586
4,966
11
19
31
10,373
24,119
11,736
19,491
73
65
54
187
114
23
427
140
-
-
-
2
9
-
15
-
-
8
2,295
12,054
33,879
4
189
40
708
8,595
3,113
4,177
48,605
841
562
91
37
358,167
-
9,137
14,004
8,553
3,199
462
1,404
371
484
168
477
130
223
544
867
43
115
35,578
31,261
367,186
128,241
37,362
2
-
873
1,129
4
3
8
-
12
22
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6
4
1
4
81
4
5
196
4
-
-
-
27
2
2,992
147
55
163
4
10
26
241
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,051
6,729
5,474
70,337
44,693
9,341
3,386
1,080
1,699
3,647
11,838
1,366
7,114
2,947
53,315
17,144
10,304
14,903
9,226
4,530
6,156
8,095
4,819
3,744
358,812
75,427
1,527
1,071
599,628
146,147
35
6
3,866
1,280
140
170
17
206
42
263
-
2
14
11
74
113
120
30
5
231
43
226
13
1
881
Total New Zealand
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
3,668
6,027
2,054
305
-
-
-
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
182
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
183
3
Note 22. Financial risk (continued)
Parent Entity 2014
$m
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration
and defence
Manufacturing
Mining
Property, property services and
business services
Services2
Trade3
Transport and storage
Utilities4
Retail lending
Other
Total other overseas
Other risk concentrations
Amounts due from financial institutions
Regulatory deposits
Trading
Securities
& Financial
Assets
Designated
at Fair Value
Available
-For-Sale
Securities
Loans -
Housing
and
Personal
Loans -
Business Derivatives1
Life
Insurance
Assets
Total
(On
Balance
Sheet)
Credit
Commit-
ments
-
-
-
2,188
4,418
31
43
-
-
-
-
12
-
-
-
-
-
377
371
-
-
-
-
-
-
-
-
-
6,692
748
3
1
5
1
-
2
-
25
3
5
3
-
543
9
600
92
461
84
1,970
34
2,817
1,501
178
373
3,112
509
665
28
37
-
-
-
271
4
-
2
-
-
-
-
-
-
-
11,861
277
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
95
462
89
32
178
150
4,807
2,436
4,827
2,850
1,546
203
376
51
4,147
1,173
349
20
3,117
1,325
512
677
571
46
166
202
30
3
20,178
10,262
Trading securities and financial assets
5,483
1,389
Total gross credit risk
32,009
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
140,407
367,786
632,705
41,307
44,324
157,290
-
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
22.2.6 Credit quality of financial assets
The tables below segregate the financial assets of the Group and Parent Entity between financial assets that are neither past
due nor impaired, past due but not impaired and impaired. Non-financial assets of the Group and Parent Entity are excluded
from the tables below and therefore the total will not reconcile to total assets on the balance sheets.
An asset is considered to be past due when any payment under the contractual terms has been missed. The amount included
as past due is the entire contractual balance, rather than the overdue portion. The breakdown in the tables below does not
always align with the underlying basis by which credit risk is managed within Westpac.
184
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
185
Note 22. Financial risk (continued)
Financial assets of the Group at 30 September can be disaggregated as follows:
Notes to the financial statements
Past Due
But Not
Impaired
Impaired
Total
Provision
Impairment
Carrying
Consolidated 2015
$m
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets
designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Life insurance assets
Regulatory deposits with central banks overseas
Other financial assets
Total
$m
Consolidated 2014
Cash and balances with central banks
Receivables due from other financial institutions
designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Life insurance assets
Other financial assets
Total
Parent Entity 2015
$m
designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Due from subsidiaries
Other financial assets
Total
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets
Regulatory deposits with central banks overseas
Neither Past
Due Nor
Impaired
14,770
9,583
27,454
48,173
54,833
426,731
179,809
13,121
1,309
3,041
Neither Past
Due Nor
Impaired
25,760
7,424
45,908
41,404
36,024
397,583
165,458
11,002
1,528
5,049
13,372
8,741
24,896
47,540
50,344
381,795
149,756
1,152
145,560
2,429
825,585
14,439
3,470
497
1,398
(1,197)
(1,831)
778,824
17,946
1,898
798,668
(3,028)
Past Due
But Not
Impaired
Impaired
Total
Provision
Impairment
Carrying
4
-
33
5
-
39
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
-
-
-
-
-
-
-
3
-
-
1
-
-
-
-
5
-
-
-
-
-
-
-
2
14,770
9,583
27,454
48,173
54,833
441,667
184,677
13,125
1,309
3,077
25,760
7,424
45,909
41,404
36,024
412,700
170,816
11,007
1,528
5,093
13,372
8,741
24,896
47,540
50,344
394,909
153,639
1,152
145,560
2,458
12,750
2,832
364
1,051
(993)
(1,480)
15,609
1,417
842,611
(2,473)
Total
Value
14,770
9,583
27,454
48,173
54,833
440,470
182,846
13,125
1,309
3,077
795,640
Total
Value
25,760
7,424
45,909
41,404
36,024
411,583
168,760
11,007
1,528
5,093
754,492
Total
Value
13,372
8,741
24,896
47,540
50,344
393,916
152,159
1,152
145,560
2,458
840,138
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,649
3,486
468
1,872
(1,117)
(2,056)
Regulatory deposits with central banks overseas
Financial assets of the Parent Entity at 30 September can be disaggregated as follows:
737,140
18,179
2,346
757,665
(3,173)
Neither Past
Due Nor
Impaired
Past Due
But Not
Impaired
Impaired
Total
Provision
Impairment
Carrying
Trading
Securities
& Financial
Assets
Available
Housing
Loans -
Designated
-For-Sale
and
Loans -
at Fair Value
Securities
Personal
Business Derivatives1
Total
(On
Life
Credit
Insurance
Balance
Commit-
Assets
Sheet)
ments
2,188
4,418
31
43
-
-
-
-
-
-
-
-
-
12
377
371
-
-
-
-
-
-
-
-
-
-
-
-
3
1
5
1
-
2
-
3
5
3
-
9
25
543
92
461
84
1,970
34
2,817
1,501
3,112
178
373
509
665
28
37
-
-
-
4
-
2
-
-
-
-
-
-
-
271
4,807
2,436
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
95
462
89
32
178
150
4,827
2,850
1,546
51
4,147
1,173
3,117
1,325
349
20
166
202
30
3
203
376
512
677
571
46
5,483
1,389
6,692
748
600
11,861
277
20,178
10,262
$m
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration
and defence
Manufacturing
Mining
Property, property services and
business services
Transport and storage
Services2
Trade3
Utilities4
Retail lending
Other
Total other overseas
Other risk concentrations
Amounts due from financial institutions
Regulatory deposits
Total gross credit risk
1 Derivatives give rise to credit risk where there is a positive current fair value. Credit derivatives also expose the writer of the contract to the risk of
default of the referenced entity. See Note 21 for further details regarding credit derivative exposures.
2 Services include education, health and community services, cultural and recreational services and personal and other services.
44,324
32,009
367,786
140,407
41,307
-
632,705
157,290
3 Trade includes wholesale trade and retail trade.
4 Utilities include electricity, gas and water and communication services.
22.2.6 Credit quality of financial assets
The tables below segregate the financial assets of the Group and Parent Entity between financial assets that are neither past
due nor impaired, past due but not impaired and impaired. Non-financial assets of the Group and Parent Entity are excluded
from the tables below and therefore the total will not reconcile to total assets on the balance sheets.
An asset is considered to be past due when any payment under the contractual terms has been missed. The amount included
as past due is the entire contractual balance, rather than the overdue portion. The breakdown in the tables below does not
always align with the underlying basis by which credit risk is managed within Westpac.
Note 22. Financial risk (continued)
Parent Entity 2014
Note 22. Financial risk (continued)
Financial assets of the Group at 30 September can be disaggregated as follows:
Notes to the financial statements
Consolidated 2015
$m
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets
designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Life insurance assets
Regulatory deposits with central banks overseas
Other financial assets
Total
Consolidated 2014
$m
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets
designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Life insurance assets
Regulatory deposits with central banks overseas
Other financial assets
Total
Neither Past
Due Nor
Impaired
Past Due
But Not
Impaired
Impaired
14,770
9,583
27,454
48,173
54,833
426,731
179,809
13,121
1,309
3,041
-
-
-
-
-
-
-
-
-
-
14,439
3,470
497
1,398
4
-
33
-
-
3
Total
14,770
9,583
27,454
48,173
54,833
441,667
184,677
13,125
1,309
3,077
Impairment
Provision
-
-
-
-
-
(1,197)
(1,831)
-
-
-
778,824
17,946
1,898
798,668
(3,028)
Neither Past
Due Nor
Impaired
Past Due
But Not
Impaired
Impaired
25,760
7,424
45,908
41,404
36,024
397,583
165,458
11,002
1,528
5,049
-
-
-
-
-
-
-
1
-
-
14,649
3,486
468
1,872
5
-
39
-
-
5
Total
25,760
7,424
45,909
41,404
36,024
412,700
170,816
11,007
1,528
5,093
Impairment
Provision
-
-
-
-
-
(1,117)
(2,056)
-
-
-
737,140
18,179
2,346
757,665
(3,173)
Financial assets of the Parent Entity at 30 September can be disaggregated as follows:
Parent Entity 2015
$m
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets
designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Regulatory deposits with central banks overseas
Due from subsidiaries
Other financial assets
Total
Neither Past
Due Nor
Impaired
Past Due
But Not
Impaired
Impaired
-
-
-
-
-
-
-
-
-
-
12,750
2,832
364
1,051
-
-
27
-
-
2
Total
13,372
8,741
24,896
47,540
50,344
394,909
153,639
1,152
145,560
2,458
Impairment
Provision
-
-
-
-
-
(993)
(1,480)
-
-
-
15,609
1,417
842,611
(2,473)
13,372
8,741
24,896
47,540
50,344
381,795
149,756
1,152
145,560
2,429
825,585
Total
Carrying
Value
14,770
9,583
27,454
48,173
54,833
440,470
182,846
13,125
1,309
3,077
795,640
Total
Carrying
Value
25,760
7,424
45,909
41,404
36,024
411,583
168,760
11,007
1,528
5,093
754,492
Total
Carrying
Value
13,372
8,741
24,896
47,540
50,344
393,916
152,159
1,152
145,560
2,458
840,138
184
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
185
3
15,836
1,901
800,730
(2,589)
Neither Past
Due Nor
Impaired
Past Due
But Not
Impaired
Impaired
23,400
5,483
44,323
41,307
32,009
354,597
135,897
1,389
140,098
4,490
782,993
Total
Carrying
Value
23,400
5,483
44,324
41,307
32,009
366,897
138,707
1,389
140,098
4,527
798,141
-
-
-
-
-
-
-
1
-
-
12,809
2,994
380
1,516
-
-
33
-
-
4
Total
23,400
5,483
44,324
41,307
32,009
367,786
140,407
1,389
140,098
4,527
Impairment
Provision
-
-
-
-
-
(889)
(1,700)
-
-
-
Note 22. Financial risk (continued)
Parent Entity 2014
$m
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets
designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Regulatory deposits with central banks overseas
Due from subsidiaries
Other financial assets
Total
Note 22. Financial risk (continued)
Parent Entity
$m
Cash and balances with central banks
Receivables due from other
financial institutions
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Regulatory deposits with
central banks overseas
Due from subsidiaries
Other financial assets1
Total financial assets
Notes to the financial statements
Strong
Satisfactory Weak
Strong
Satisfactory
Weak
Total
13,372
23,400
8,741
5,439
24,896
47,540
50,344
44,134
40,008
31,974
109
21
2014
Good/
-
44
187
1,253
18
2015
Good/
-
-
113
926
22
6
-
256
-
-
2
-
7
13,372
8,741
24,781
46,505
50,301
305,373
75,366
1,042
145,560
2,166
75,388
71,329
1,034
3,061
381,795
298,686
149,756
66,898
54,892
65,217
1,019
3,782
354,597
135,897
104
1,152
1,300
145,560
140,098
2,429
4,225
6
-
255
1,389
140,098
4,490
Total
23,400
5,483
44,323
41,307
32,009
-
-
2
46
17
83
-
10
1 Other financial assets includes accrued interest of $927 million (2014: $1,029 million) which is allocated to the relevant credit quality classifications in
proportionate to the loan balances to which it relates. Securities sold not yet delivered of $725 million (2014: $2,765 million) is also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
673,207
148,040
4,338
825,585
656,162
121,872
4,959
782,993
The following analysis shows our assessment of the coverage provided by collateral held in support of financial assets that are
neither past due nor impaired. The estimated realisable value of collateral held is based on a combination of:
formal valuations currently held in respect of such collateral; and
management’s assessment of the estimated realisable value of all collateral held given its experience with similar types of
assets in similar situations and the circumstances peculiar to the subject collateral.
This analysis also takes into consideration any other relevant knowledge available to management at the time. It is our practice
to obtain updated valuations when either management considers that it cannot satisfactorily estimate a realisable value or when
it is determined to be necessary to move to a forced sale of the collateral.
In the following table, a financial asset that is neither past due nor impaired is deemed to be ‘fully secured’ where the ratio of
the asset amount to our current estimated net present value of the realisable collateral is less than or equal to 100%. Such
assets are deemed to be ‘partially secured’ when this ratio exceeds 100% but not more than 150%, and ‘unsecured’ when
either no security is held (e.g. can include credit cards, personal loans, and exposure to highly rated corporate entities) or
where the secured loan to estimated recoverable value exceeds 150%.
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Loans –
Housing and
Personal
96.1
1.4
2.5
100.0
97.5
0.3
2.2
100.0
Loans –
Housing and
Personal
2015
Loans –
Business
51.3
24.8
23.9
100.0
2015
Loans –
Business
51.5
23.7
24.8
100.0
Loans –
Housing and
Personal
95.5
1.8
2.7
100.0
97.3
0.4
2.3
100.0
Loans –
Housing and
Personal
Total
82.8
8.4
8.8
100.0
Total
84.6
6.9
8.5
100.0
2014
Loans –
Business
52.3
24.5
23.2
100.0
2014
Loans –
Business
52.5
23.5
24.0
100.0
Total
82.8
8.5
8.7
100.0
Total
84.9
6.8
8.3
100.0
187
22.2.7 Financial assets that are neither past due nor impaired1
The credit quality of financial assets of the Group that are neither past due nor impaired have been assessed by reference to
the credit risk rating system adopted internally:
Consolidated
2015
Good/
$m
Cash and balances with central banks
Strong
14,770
Satisfactory Weak
-
-
Total
14,770
Strong
25,760
Receivables due from other
financial institutions
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Life insurance assets2
9,583
27,325
47,137
53,951
317,870
83,938
13,073
-
127
927
861
-
2
109
21
9,583
7,380
27,454
48,173
54,833
45,684
40,105
35,355
107,349
92,020
1,512
3,851
179,809
426,731
312,648
48
-
13,121
74,323
10,934
2014
Good/
Satisfactory
-
44
222
1,253
652
83,672
86,438
68
Weak
-
Total
25,760
-
7,424
2
46
17
45,908
41,404
36,024
1,263
4,697
397,583
165,458
-
11,002
1,042
Regulatory deposits with
central banks overseas
Other financial assets3
Total financial assets
201,860
1 The classification of mortgage exposures into risk categories was updated over the year following the implementation of new risk scoring models.
2 Life insurance assets include $6,480 million (2014: $8,951 million) of unit linked investment contract assets and $191 million (2014: $170 million) of
unrated investments in managed schemes and mortgages. The Group has no direct exposure to unit linked investments as the liability to policy
holders is directly linked to the performance of these assets. The investments in managed schemes and mortgages are predominantly managed by
the BT Financial Group.
558,157
571,355
778,824
172,862
737,140
5,609
4,665
1,303
5,049
1,528
2,666
6,121
3,041
1,309
163
104
365
371
142
10
13
83
3 Other financial assets includes accrued interest of $1,108 million (2014: $1,214 million) which is allocated to the relevant credit quality classifications
in proportion to the loan balances to which it relates. Securities sold not yet delivered of $740 million (2014: $2,768 million) is also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
186
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2015 Westpac Group Annual Report
Notes to the financial statements
8,741
24,781
46,505
50,301
-
113
926
22
-
2
109
21
8,741
5,439
24,896
47,540
50,344
44,134
40,008
31,974
Receivables due from other
financial institutions
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Regulatory deposits with
central banks overseas
2014
Good/
Satisfactory
-
44
187
1,253
18
Weak
-
Total
23,400
-
2
46
17
5,483
44,323
41,307
32,009
305,373
75,366
75,388
71,329
1,034
3,061
381,795
298,686
149,756
66,898
54,892
65,217
1,019
3,782
354,597
135,897
1,042
6
104
1,152
1,300
6
83
1,389
Note 22. Financial risk (continued)
Parent Entity
2015
Good/
$m
Cash and balances with central banks
Strong
13,372
Satisfactory Weak
-
-
Total
13,372
Strong
23,400
Note 22. Financial risk (continued)
Parent Entity 2014
$m
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets
designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Due from subsidiaries
Other financial assets
Total
Regulatory deposits with central banks overseas
Neither Past
Due Nor
Impaired
23,400
5,483
44,323
41,307
32,009
354,597
135,897
1,389
140,098
4,490
782,993
Past Due
But Not
Impaired
Impaired
Total
Provision
Impairment
Carrying
-
-
-
-
-
-
-
33
-
-
1
-
-
-
-
4
23,400
5,483
44,324
41,307
32,009
367,786
140,407
1,389
140,098
4,527
12,809
2,994
380
1,516
(889)
(1,700)
15,836
1,901
800,730
(2,589)
Total
Value
23,400
5,483
44,324
41,307
32,009
366,897
138,707
1,389
140,098
4,527
798,141
-
-
-
-
-
-
-
-
22.2.7 Financial assets that are neither past due nor impaired1
The credit quality of financial assets of the Group that are neither past due nor impaired have been assessed by reference to
the credit risk rating system adopted internally:
Consolidated
$m
Cash and balances with central banks
Receivables due from other
financial institutions
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans:
Loans – housing and personal
Loans – business
Life insurance assets2
Regulatory deposits with
central banks overseas
Other financial assets3
Total financial assets
Strong
Satisfactory Weak
Strong
Satisfactory
Weak
2015
Good/
-
-
127
927
861
48
163
365
14,770
9,583
27,325
47,137
53,951
317,870
83,938
13,073
1,042
2,666
Total
14,770
25,760
9,583
7,380
27,454
48,173
54,833
45,684
40,105
35,355
-
-
2
109
21
107,349
92,020
1,512
3,851
426,731
312,648
179,809
-
13,121
74,323
10,934
104
10
1,309
3,041
1,303
4,665
2014
Good/
-
44
222
1,253
652
83,672
86,438
68
142
371
Total
25,760
7,424
45,908
41,404
36,024
-
-
2
46
17
1,263
4,697
397,583
165,458
-
11,002
83
13
1,528
5,049
1 The classification of mortgage exposures into risk categories was updated over the year following the implementation of new risk scoring models.
2 Life insurance assets include $6,480 million (2014: $8,951 million) of unit linked investment contract assets and $191 million (2014: $170 million) of
unrated investments in managed schemes and mortgages. The Group has no direct exposure to unit linked investments as the liability to policy
holders is directly linked to the performance of these assets. The investments in managed schemes and mortgages are predominantly managed by
571,355
201,860
5,609
778,824
558,157
172,862
6,121
737,140
the BT Financial Group.
3 Other financial assets includes accrued interest of $1,108 million (2014: $1,214 million) which is allocated to the relevant credit quality classifications
in proportion to the loan balances to which it relates. Securities sold not yet delivered of $740 million (2014: $2,768 million) is also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
Due from subsidiaries
Other financial assets1
Total financial assets
1 Other financial assets includes accrued interest of $927 million (2014: $1,029 million) which is allocated to the relevant credit quality classifications in
proportionate to the loan balances to which it relates. Securities sold not yet delivered of $725 million (2014: $2,765 million) is also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
656,162
140,098
673,207
782,993
121,872
825,585
148,040
140,098
145,560
145,560
4,338
4,490
4,225
2,166
4,959
2,429
256
255
10
7
-
-
-
-
The following analysis shows our assessment of the coverage provided by collateral held in support of financial assets that are
neither past due nor impaired. The estimated realisable value of collateral held is based on a combination of:
formal valuations currently held in respect of such collateral; and
management’s assessment of the estimated realisable value of all collateral held given its experience with similar types of
assets in similar situations and the circumstances peculiar to the subject collateral.
This analysis also takes into consideration any other relevant knowledge available to management at the time. It is our practice
to obtain updated valuations when either management considers that it cannot satisfactorily estimate a realisable value or when
it is determined to be necessary to move to a forced sale of the collateral.
In the following table, a financial asset that is neither past due nor impaired is deemed to be ‘fully secured’ where the ratio of
the asset amount to our current estimated net present value of the realisable collateral is less than or equal to 100%. Such
assets are deemed to be ‘partially secured’ when this ratio exceeds 100% but not more than 150%, and ‘unsecured’ when
either no security is held (e.g. can include credit cards, personal loans, and exposure to highly rated corporate entities) or
where the secured loan to estimated recoverable value exceeds 150%.
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Loans –
Housing and
Personal
96.1
1.4
2.5
100.0
Loans –
Housing and
Personal
97.5
0.3
2.2
100.0
2015
Loans –
Business
51.3
24.8
23.9
100.0
2015
Loans –
Business
51.5
23.7
24.8
100.0
Loans –
Housing and
Personal
95.5
1.8
2.7
100.0
Loans –
Housing and
Personal
97.3
0.4
2.3
100.0
Total
82.8
8.4
8.8
100.0
Total
84.6
6.9
8.5
100.0
2014
Loans –
Business
52.3
24.5
23.2
100.0
2014
Loans –
Business
52.5
23.5
24.0
100.0
186
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
Total
82.8
8.5
8.7
100.0
Total
84.9
6.8
8.3
100.0
187
3
Note 22. Financial risk (continued)
22.2.8 Financial assets that are past due, but not impaired
An age analysis of financial assets that are past due, but not impaired is set out in the following table. For the purposes of this
analysis an asset is considered to be past due when any payment under the contractual terms has been missed. The amount
included is the entire contractual amount, rather than the overdue amount.
The Group expends considerable effort in monitoring overdue assets. Assets may be overdue for a number of reasons,
including late payments or incomplete documentation. Late payment may be influenced by factors such as the holiday periods
and the timing of weekends.
Financial assets that were past due, but not impaired can be disaggregated based on days overdue at 30 September
as follows:
Consolidated
$m
Loans:
Loans – housing and personal
Loans – business
Life insurance assets
Other financial assets
Total
Parent Entity
$m
Loans:
Loans – housing and personal
Loans – business
Other financial assets
Total
2015
2014
These include financial assets that are:
1-5 days
6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
currently 90 days or more past due but well secured;
3,997
838
-
9
8,867
2,151
4
20
1,575
14,439
481
3,470
-
4
4
33
4,253
780
-
11
8,872
2,274
5
24
1,524
14,649
432
3,486
-
4
5
39
4,844
11,042
2,060
17,946
5,044
11,175
1,960
18,179
2015
2014
1-5 days
6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
3,648
640
8
7,573
1,860
16
1,529
12,750
3,797
332
2,832
3
27
570
9
7,557
2,052
20
1,455
12,809
372
4
2,994
33
4,296
9,449
1,864
15,609
4,376
9,629
1,831
15,836
Note 22. Financial risk (continued)
Notes to the financial statements
Loans –
Housing and
Personal
95.4
0.7
3.9
100.0
2015
Loans –
Business
47.5
26.2
26.3
100.0
Loans –
Housing and
Personal
95.3
0.7
4.0
100.0
Total
86.8
5.3
7.9
100.0
2014
Loans –
Business
51.0
27.8
21.2
100.0
Total
87.0
5.8
7.2
100.0
22.2.9 Items 90 days past due, or otherwise in default and not impaired
assets that were, but are no longer 90 days past due however are yet to satisfactorily demonstrate sustained improvement
to allow reclassification; and
other assets in default and not impaired, such as where an order for bankruptcy or similar legal action has been instituted
in respect of credit obligations (e.g. appointment of an Administrator or Receiver).
Consolidated
Australia
New Zealand
Other Overseas
$m
Gross Amount
2015
2,149
2014
2,134
2013
2,329
2015
130
2014
85
2013
136
2015
13
2014
22
2013
22
2015
2,292
Total
2014
2,241
2013
2,487
22.2.10 Impaired loans
Financial assets assessed as impaired
The gross amount of impaired loans, along with the provision for impairment, by class of asset at 30 September, is summarised
The following analysis shows our assessment of the coverage provided by collateral held in support of financial assets that are
past due but not impaired. The estimated realisable value of collateral held is based on a combination of:
formal valuations currently held in respect of such collateral; and
management’s assessment of the estimated realisable value of all collateral held given its experience with similar types of
assets in similar situations and the circumstances peculiar to the subject collateral.
This analysis also takes into consideration any other relevant knowledge available to management at the time. It is our practice
to obtain updated valuations when either management considers that it cannot satisfactorily estimate a realisable value or when
it is determined to be necessary to move to a forced sale of the collateral.
In the following table, a financial asset that is past due but not impaired is deemed to be ‘fully secured’ where the ratio of the
asset amount to our current estimated net present value of the realisable collateral is less than or equal to 100%. Such assets
are deemed to be ‘partially secured’ when this ratio exceeds 100% but not more than 150%, and ‘unsecured’ when either no
security is held (e.g. can include credit cards, personal loans, and exposure to highly rated corporate entities) or where the
secured loan to estimated recoverable value exceeds 150%.
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Loans –
Housing and
Personal
92.5
2.6
4.9
100.0
2015
Loans –
Business
48.6
27.7
23.7
100.0
Loans –
Housing and
Personal
91.2
3.1
5.7
100.0
Total
84.1
7.4
8.5
100.0
2014
Loans –
Business
52.1
27.2
20.7
100.0
Total
83.8
7.7
8.5
100.0
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
in the tables below:
Consolidated
$m
Individually impaired
Gross amount
Impairment provision
Carrying amount
Collectively impaired
Gross amount
Impairment provision
Carrying amount
Total gross amount
Total impairment provision
Total carrying amount
Parent Entity
$m
Individually impaired
Gross amount
Impairment provision
Carrying amount
Collectively impaired
Gross amount
Impairment provision
Carrying amount
Total gross amount
Total impairment provision
Total carrying amount
188
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
Loans –
Housing and
Personal
2015
Loans –
Business
Loans –
Housing and
Total
Personal
2014
Loans –
Business
Loans –
Housing and
Personal
2015
Loans –
Business
Loans –
Housing and
Total
Personal
2014
Loans –
Business
168
(88)
80
329
(178)
151
497
(266)
231
110
(64)
46
254
(141)
113
364
(205)
159
1,287
(581)
706
111
(30)
81
1,398
(611)
787
946
(479)
467
105
(28)
77
1,051
(507)
544
1,455
(669)
786
440
(208)
232
1,895
(877)
1,018
1,056
(543)
513
359
(169)
190
1,415
(712)
703
202
(96)
106
266
(150)
116
468
(246)
222
153
(72)
81
227
(127)
100
380
(199)
181
1,785
(771)
1,014
87
(30)
57
1,872
(801)
1,071
1,430
(647)
783
86
(24)
62
1,516
(671)
845
Total
1,987
(867)
1,120
353
(180)
173
2,340
(1,047)
1,293
Total
1,583
(719)
864
313
(151)
162
1,896
(870)
1,026
189
22.2.9 Items 90 days past due, or otherwise in default and not impaired
These include financial assets that are:
Note 22. Financial risk (continued)
22.2.8 Financial assets that are past due, but not impaired
An age analysis of financial assets that are past due, but not impaired is set out in the following table. For the purposes of this
analysis an asset is considered to be past due when any payment under the contractual terms has been missed. The amount
included is the entire contractual amount, rather than the overdue amount.
The Group expends considerable effort in monitoring overdue assets. Assets may be overdue for a number of reasons,
including late payments or incomplete documentation. Late payment may be influenced by factors such as the holiday periods
Financial assets that were past due, but not impaired can be disaggregated based on days overdue at 30 September
Note 22. Financial risk (continued)
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Notes to the financial statements
Loans –
Housing and
Personal
95.4
0.7
3.9
100.0
2015
Loans –
Business
47.5
26.2
26.3
100.0
Loans –
Housing and
Personal
95.3
0.7
4.0
100.0
Total
86.8
5.3
7.9
100.0
2014
Loans –
Business
51.0
27.8
21.2
100.0
Total
87.0
5.8
7.2
100.0
currently 90 days or more past due but well secured;
assets that were, but are no longer 90 days past due however are yet to satisfactorily demonstrate sustained improvement
to allow reclassification; and
other assets in default and not impaired, such as where an order for bankruptcy or similar legal action has been instituted
in respect of credit obligations (e.g. appointment of an Administrator or Receiver).
and the timing of weekends.
as follows:
Consolidated
$m
Loans:
Loans – housing and personal
Loans – business
Life insurance assets
Other financial assets
Total
Parent Entity
$m
Loans:
Loans – housing and personal
Loans – business
Other financial assets
Total
2015
2014
1-5 days
6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
3,997
838
-
9
8,867
2,151
4
20
1,575
14,439
481
3,470
-
4
4
33
4,253
780
-
11
8,872
2,274
5
24
1,524
14,649
432
3,486
-
4
5
39
4,844
11,042
2,060
17,946
5,044
11,175
1,960
18,179
2015
2014
1-5 days
6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
3,648
640
8
7,573
1,860
16
1,529
12,750
3,797
332
2,832
3
27
570
9
7,557
2,052
20
1,455
12,809
372
4
2,994
33
4,296
9,449
1,864
15,609
4,376
9,629
1,831
15,836
The following analysis shows our assessment of the coverage provided by collateral held in support of financial assets that are
past due but not impaired. The estimated realisable value of collateral held is based on a combination of:
formal valuations currently held in respect of such collateral; and
management’s assessment of the estimated realisable value of all collateral held given its experience with similar types of
assets in similar situations and the circumstances peculiar to the subject collateral.
This analysis also takes into consideration any other relevant knowledge available to management at the time. It is our practice
to obtain updated valuations when either management considers that it cannot satisfactorily estimate a realisable value or when
it is determined to be necessary to move to a forced sale of the collateral.
In the following table, a financial asset that is past due but not impaired is deemed to be ‘fully secured’ where the ratio of the
asset amount to our current estimated net present value of the realisable collateral is less than or equal to 100%. Such assets
are deemed to be ‘partially secured’ when this ratio exceeds 100% but not more than 150%, and ‘unsecured’ when either no
security is held (e.g. can include credit cards, personal loans, and exposure to highly rated corporate entities) or where the
secured loan to estimated recoverable value exceeds 150%.
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Loans –
Housing and
Personal
92.5
2.6
4.9
100.0
2015
Loans –
Business
48.6
27.7
23.7
100.0
Loans –
Housing and
Personal
91.2
3.1
5.7
100.0
Total
84.1
7.4
8.5
100.0
2014
Loans –
Business
52.1
27.2
20.7
100.0
Total
83.8
7.7
8.5
100.0
Consolidated
$m
Gross Amount
Australia
New Zealand
Other Overseas
2015
2,149
2014
2,134
2013
2,329
2015
130
2014
85
2013
136
2015
13
2014
22
2013
22
2015
2,292
Total
2014
2,241
2013
2,487
22.2.10 Impaired loans
Financial assets assessed as impaired
The gross amount of impaired loans, along with the provision for impairment, by class of asset at 30 September, is summarised
in the tables below:
Consolidated
$m
Individually impaired
Gross amount
Impairment provision
Carrying amount
Collectively impaired
Gross amount
Impairment provision
Carrying amount
Total gross amount
Total impairment provision
Total carrying amount
Parent Entity
$m
Individually impaired
Gross amount
Impairment provision
Carrying amount
Collectively impaired
Gross amount
Impairment provision
Carrying amount
Total gross amount
Total impairment provision
Total carrying amount
Loans –
Housing and
Personal
2015
Loans –
Business
168
(88)
80
329
(178)
151
497
(266)
231
1,287
(581)
706
111
(30)
81
1,398
(611)
787
Loans –
Housing and
Personal
2015
Loans –
Business
110
(64)
46
254
(141)
113
364
(205)
159
946
(479)
467
105
(28)
77
1,051
(507)
544
Loans –
Housing and
Personal
2014
Loans –
Business
202
(96)
106
266
(150)
116
468
(246)
222
1,785
(771)
1,014
87
(30)
57
1,872
(801)
1,071
Loans –
Housing and
Personal
2014
Loans –
Business
153
(72)
81
227
(127)
100
380
(199)
181
1,430
(647)
783
86
(24)
62
1,516
(671)
845
Total
1,455
(669)
786
440
(208)
232
1,895
(877)
1,018
Total
1,056
(543)
513
359
(169)
190
1,415
(712)
703
188
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
Total
1,987
(867)
1,120
353
(180)
173
2,340
(1,047)
1,293
Total
1,583
(719)
864
313
(151)
162
1,896
(870)
1,026
189
3
Note 22. Financial risk (continued)
The following analysis shows our assessment of the coverage provided by collateral held in support of impaired financial
assets. The estimated realisable value of collateral held is based on a combination of:
formal valuations currently held in respect of such collateral; and
management’s assessment of the estimated realisable value of all collateral held given its experience with similar types of
assets in similar situations and the circumstances peculiar to the subject collateral.
This analysis also takes into consideration any other relevant knowledge available to management at the time. It is our practice
to obtain updated valuations when either management considers that it cannot satisfactorily estimate a realisable value or when
it is determined to be necessary to move to a forced sale of the collateral.
In the following table, an individually impaired financial asset is deemed to be ‘fully secured’ where the ratio of the impaired
asset amount to our current estimated net present value of realisable collateral is less than or equal to 100%. Such assets are
deemed to be ‘partially secured’ when this ratio exceeds 100% but not more than 150%, and ‘unsecured’ when either no
security is held (e.g. can include credit cards, personal loans and exposure to corporate entities) or where the secured loan to
recoverable value exceeds 150%.
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Loans –
Housing and
Personal
59.2
16.3
24.5
100.0
Loans –
Housing and
Personal
67.6
6.9
25.5
100.0
2015
Loans –
Business
23.2
34.8
42.0
100.0
2015
Loans –
Business
17.3
34.7
48.0
100.0
Loans –
Housing and
Personal
61.1
10.9
28.0
100.0
Loans –
Housing and
Personal
66.2
8.6
25.2
100.0
Total
32.6
29.9
37.5
100.0
Total
30.2
27.6
42.2
100.0
2014
Loans –
Business
25.1
24.8
50.1
100.0
2014
Loans –
Business
25.9
23.3
50.8
100.0
Total
32.3
22.0
45.7
100.0
Total
33.6
20.5
45.9
100.0
Impaired loans comprise non-performing loans, overdrafts, personal loans, revolving credit facilities greater than 90 days past
due and restructured loans.
Non-performing loans
Non-performing loans are loans with an impaired internal risk grade, excluding restructured assets. These were attributed to the
following geographical segments:
Consolidated
$m
Gross amount
Impairment provision
Net
Australia
New Zealand
Other Overseas
2015
1,220
(572)
648
2014
1,580
(697)
883
2013
2,574
(1,099)
1,475
2015
348
(104)
244
2014
397
(130)
267
2013
586
(210)
376
2015
25
(13)
12
2014
53
(35)
18
2013
89
(54)
35
2015
1,593
(689)
904
Total
2014
2,030
(862)
1,168
2013
3,249
(1,363)
1,886
Overdrafts, personal loans and revolving credit facilities greater than 90 days past due
Overdrafts, personal loans and revolving credit facilities greater than 90 days past due for the Group were attributed to the
following geographical segments:
Consolidated
$m
Gross amount
Impairment provision
Net
Australia
New Zealand
Other Overseas
2015
252
(164)
88
2014
203
(132)
71
2013
181
(126)
55
2015
10
(7)
3
2014
13
(9)
4
2013
14
(9)
5
2015
1
(1)
-
2014
1
-
1
2013
-
-
-
2015
263
(172)
91
Total
2014
217
(141)
76
2013
195
(135)
60
Parent Entity
Gross amount
Impairment provision
Consolidated 2015
Interest received
Interest forgone
$m
Net
$m
Net
$m
Notes to the financial statements
Note 22. Financial risk (continued)
Restructured financial assets
Assets are deemed to be restructured financial assets when 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.
Restructured financial assets for the Group were attributed to the following geographical segments:
Consolidated
Australia
New Zealand
Other Overseas
Total
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
Gross amount
Impairment provision
22
(12)
10
34
(23)
11
34
(23)
11
17
(4)
13
-
-
-
-
-
-
-
-
-
59
(21)
38
122
(33)
89
39
(16)
23
93
(44)
49
156
(56)
100
Restructured financial assets of the Parent Entity as at 30 September were:
2015
22
(12)
10
2014
92
(44)
48
Australia
Overseas
8
98
14
4
Total
22
102
The following table summarises the interest received and forgone on impaired and restructured financial assets:
22.3 Funding and liquidity risk management
potentially arise as a result of:
Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due. This risk could
an inability to meet both expected and unexpected current and future cashflows and collateral needs without affecting
either daily operations or the financial condition of the bank; and/or
inadequate market depth or market disruption impacting the ability to offset or eliminate a position at the market price.
The Group has a liquidity risk management framework designed with the objective of meeting cash flow obligations under a
wide range of market conditions, including name specific and market-wide stress scenarios as well as meeting the regulatory
requirements of the Liquidity Coverage Ratio ("LCR").
The annual review of the liquidity risk management framework encompasses the funding scenarios modelled, the modelling
approach, wholesale funding capacity, limit determination and minimum holdings of liquid assets. The liquidity risk management
framework is reviewed by ALCO prior to approval by the BRCC.
Responsibility for managing the Group's liquidity and funding positions in accordance with the Group's Liquidity Risk
Management Framework is delegated to Treasury, under the oversight of ALCO. Daily liquidity risk reports are circulated to,
and reviewed by, local and senior staff in both Treasury and the Liquidity Risk team. Liquidity reports are presented to
ALCO monthly and to the BRCC quarterly.
Treasury is responsible for monitoring and managing our funding base so that it is prudently maintained, stable and adequately
diversified. Treasury undertakes an annual funding review that outlines the funding strategy for the coming year. This review
encompasses trends in global markets, peer analysis, wholesale funding capacity, expected funding requirements and a
funding risk analysis. This strategy is continuously reviewed to take account of changing market conditions, investor sentiment
and estimations of asset and liability growth rates. The annual funding strategy is reviewed and supported by ALCO prior to
approval by the BRCC.
Treasury maintains a contingency funding plan that details the broad actions to be taken in response to severe disruptions in
our ability to fund some or all of our activities in a timely manner and at a reasonable cost. This document defines a committee
of senior executives to manage a crisis and allocates responsibility to individuals for key tasks. The plan is reviewed and
approved by ALCO and is aligned with Westpac's broader Liquidity Crisis Management Policy which is approved annually by
the BRCC.
190
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
191
Note 22. Financial risk (continued)
The following analysis shows our assessment of the coverage provided by collateral held in support of impaired financial
assets. The estimated realisable value of collateral held is based on a combination of:
formal valuations currently held in respect of such collateral; and
management’s assessment of the estimated realisable value of all collateral held given its experience with similar types of
assets in similar situations and the circumstances peculiar to the subject collateral.
This analysis also takes into consideration any other relevant knowledge available to management at the time. It is our practice
to obtain updated valuations when either management considers that it cannot satisfactorily estimate a realisable value or when
it is determined to be necessary to move to a forced sale of the collateral.
In the following table, an individually impaired financial asset is deemed to be ‘fully secured’ where the ratio of the impaired
asset amount to our current estimated net present value of realisable collateral is less than or equal to 100%. Such assets are
deemed to be ‘partially secured’ when this ratio exceeds 100% but not more than 150%, and ‘unsecured’ when either no
security is held (e.g. can include credit cards, personal loans and exposure to corporate entities) or where the secured loan to
recoverable value exceeds 150%.
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Loans –
Housing and
Personal
Loans –
Housing and
Total
Personal
2015
Loans –
Business
23.2
34.8
42.0
100.0
2015
Loans –
Business
17.3
34.7
48.0
100.0
59.2
16.3
24.5
100.0
67.6
6.9
25.5
100.0
32.6
29.9
37.5
100.0
30.2
27.6
42.2
100.0
2014
Loans –
Business
25.1
24.8
50.1
100.0
2014
Loans –
Business
25.9
23.3
50.8
100.0
61.1
10.9
28.0
100.0
66.2
8.6
25.2
100.0
Total
32.3
22.0
45.7
100.0
Total
33.6
20.5
45.9
100.0
Loans –
Housing and
Personal
Loans –
Housing and
Total
Personal
Impaired loans comprise non-performing loans, overdrafts, personal loans, revolving credit facilities greater than 90 days past
due and restructured loans.
Non-performing loans
following geographical segments:
Non-performing loans are loans with an impaired internal risk grade, excluding restructured assets. These were attributed to the
Consolidated
Australia
New Zealand
Other Overseas
Gross amount
Impairment provision
2015
1,220
(572)
648
2014
1,580
(697)
883
2013
2,574
(1,099)
1,475
2015
348
(104)
244
2014
397
(130)
267
2013
586
(210)
376
2015
2014
2013
25
(13)
12
53
(35)
18
89
(54)
35
2015
1,593
(689)
904
Total
2014
2,030
(862)
1,168
2013
3,249
(1,363)
1,886
Overdrafts, personal loans and revolving credit facilities greater than 90 days past due
Overdrafts, personal loans and revolving credit facilities greater than 90 days past due for the Group were attributed to the
following geographical segments:
Consolidated
Australia
New Zealand
Other Overseas
Gross amount
Impairment provision
2015
252
(164)
88
2014
203
(132)
71
2013
181
(126)
55
2015
2014
2013
2015
2014
2013
10
(7)
3
13
(9)
4
14
(9)
5
1
(1)
-
1
-
1
-
-
-
Total
2014
217
(141)
76
2015
263
(172)
91
2013
195
(135)
60
$m
Net
$m
Net
Notes to the financial statements
Note 22. Financial risk (continued)
Restructured financial assets
Assets are deemed to be restructured financial assets when 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.
Restructured financial assets for the Group were attributed to the following geographical segments:
Consolidated
$m
Gross amount
Impairment provision
Net
Australia
New Zealand
Other Overseas
2015
22
(12)
10
2014
34
(23)
11
2013
34
(23)
11
2015
17
(4)
13
2014
-
-
-
2013
-
-
-
2015
-
-
-
2014
59
(21)
38
2013
122
(33)
89
Total
2014
93
(44)
49
2015
39
(16)
23
2013
156
(56)
100
Restructured financial assets of the Parent Entity as at 30 September were:
Parent Entity
$m
Gross amount
Impairment provision
Net
2015
22
(12)
10
2014
92
(44)
48
The following table summarises the interest received and forgone on impaired and restructured financial assets:
Consolidated 2015
$m
Interest received
Interest forgone
Australia
8
98
Overseas
14
4
Total
22
102
22.3 Funding and liquidity risk management
Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due. This risk could
potentially arise as a result of:
an inability to meet both expected and unexpected current and future cashflows and collateral needs without affecting
either daily operations or the financial condition of the bank; and/or
inadequate market depth or market disruption impacting the ability to offset or eliminate a position at the market price.
The Group has a liquidity risk management framework designed with the objective of meeting cash flow obligations under a
wide range of market conditions, including name specific and market-wide stress scenarios as well as meeting the regulatory
requirements of the Liquidity Coverage Ratio ("LCR").
The annual review of the liquidity risk management framework encompasses the funding scenarios modelled, the modelling
approach, wholesale funding capacity, limit determination and minimum holdings of liquid assets. The liquidity risk management
framework is reviewed by ALCO prior to approval by the BRCC.
Responsibility for managing the Group's liquidity and funding positions in accordance with the Group's Liquidity Risk
Management Framework is delegated to Treasury, under the oversight of ALCO. Daily liquidity risk reports are circulated to,
and reviewed by, local and senior staff in both Treasury and the Liquidity Risk team. Liquidity reports are presented to
ALCO monthly and to the BRCC quarterly.
Treasury is responsible for monitoring and managing our funding base so that it is prudently maintained, stable and adequately
diversified. Treasury undertakes an annual funding review that outlines the funding strategy for the coming year. This review
encompasses trends in global markets, peer analysis, wholesale funding capacity, expected funding requirements and a
funding risk analysis. This strategy is continuously reviewed to take account of changing market conditions, investor sentiment
and estimations of asset and liability growth rates. The annual funding strategy is reviewed and supported by ALCO prior to
approval by the BRCC.
Treasury maintains a contingency funding plan that details the broad actions to be taken in response to severe disruptions in
our ability to fund some or all of our activities in a timely manner and at a reasonable cost. This document defines a committee
of senior executives to manage a crisis and allocates responsibility to individuals for key tasks. The plan is reviewed and
approved by ALCO and is aligned with Westpac's broader Liquidity Crisis Management Policy which is approved annually by
the BRCC.
190
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
191
3
Note 22. Financial risk (continued)
22.3.1 Liquidity modelling
As required under APRA's liquidity prudential standard, the Group maintains a 'going concern' model with reports issued and
reviewed on a daily basis. Under the 'going concern' model wholesale debt maturities are added to planned net asset growth to
provide an estimate of the wholesale funding task across a range of time horizons. Maturity concentrations are measured
against a Board approved limit structure; with limits, set at intervals from one week to 15 months.
Stress testing is carried out to assess Westpac's ability to meet cash flow obligations under a range of market conditions,
including name specific and market wide stress scenarios. These scenarios inform liquidity limits and strategic planning.
The LCR requires banks to hold sufficient high-quality liquid assets, as defined, to withstand 30 days under a regulator-defined
acute stress scenario. The LCR came into effect on 1 January 2015. Westpac maintains a buffer over the regulatory minimum
of 100%. The Group's LCR as at 30 September 2015, including the Committed Liquidity Facility (CLF) of $66 billion, was 121%
and the average monthly LCR for the quarter ending 30 September 2015 was 121%.
22.3.2 Sources of liquidity
Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, product and term. Sources
include, but are not limited to:
deposits;
debt issues;
proceeds from sale of marketable securities;
repurchase agreements with central banks;
principal repayments on loans;
interest income; and
fee income.
Wholesale funding
The Group monitors the composition and stability of its funding so that it remains within the Group's funding risk appetite. This
includes targeting a Stable Funding Ratio (SFR) of greater than 75%. Stable funding includes customer deposits, wholesale
term funding with residual maturity greater than 12 months, securitisation and equity.
In 2015, the Group continued to focus on funding asset growth through stable sources, ending the year with the Stable Funding
Ratio at 83.8%, up 68bps from 30 September 2014.
The Group's overall funding composition was relatively unchanged, with customer deposits representing 59.3% of the Group's
total funding at 30 September 2015 (30 September 2014: 60.2%), a further 1.7% from securitisation (30 September 2014:
1.7%), 15.4% from long term funding with a residual maturity greater than one year (30 September 2014: 14.2%) and 7.4%
from equity (30 September 2014: 7.1%).
At 30 September 2015, the Group had $116.6 billion of wholesale funding with a residual maturity within one year representing
16.2% of the Group’s total funding (30 September 2014: 16.8%). This short term funding has a weighted average maturity of
130 days and is more than covered by the $135.6 billion of repo-eligible liquid assets held by the Group.
$m
Cash
Maintaining a diverse funding base with the capacity and flexibility to access a wide range of funding markets, debt investors,
currencies and products is an important part of managing liquidity risk.
In 2015, the Group raised $31.3 billion of term wholesale funding with a weighted average maturity of 4.9 years
(excluding securitisation).
The Group executed benchmark senior bond trades in US$ and A$, benchmark covered bond trades in Euro and US$, RMBS
transactions and an auto ABS transaction in A$, as well as smaller senior bond trades in Swiss Franc and Sterling. Westpac is
the only major Australian bank with an active Auto ABS capability, the only Australian bank with access to the US SEC
registered market and a regular issuer of RMBS. The Group took advantage of these capabilities in 2015.
New term issuance also included $2.2 billion of Basel III compliant Additional Tier 1 and Tier 2 capital during the year.
Borrowings and outstandings from existing debt programs and issuing shelves at 30 September 2015 can be found in various
notes to the financial statements including Note 16, Note 17, Note 19 and Note 20.
Note 22. Financial risk (continued)
Credit ratings
As at 30 September 2015 the Parent Entity's credit ratings were:
2015
Standard & Poor’s
Moody’s Investors Services
Fitch Ratings
Notes to the financial statements
Short-term
Long-term
Outlook
A-1+
P-1
F1+
AA-
Aa2
AA-
Stable
Stable
Stable
As of 30 September 2015, approximately 33% of the Group’s total funding originated from wholesale funding markets,
principally in Australia, the United States, Europe and Japan. Investors in these markets have historically relied significantly
upon credit ratings issued by independent credit rating organisations in making their investment decisions. If Westpac’s credit
ratings were to be lowered from current levels, the Group’s borrowing costs and capacity may be adversely affected. A
downgrade in Westpac’s credit ratings from current levels is likely to require the Group to pay higher interest rates than we do
currently on our wholesale borrowings. This would increase the Group’s funding costs and could reduce net interest margins. In
addition, the Group’s borrowing capacity could be diminished, which may adversely affect the Group’s ability to fund the growth
of our balance sheet or reduce our liquidity.
A credit rating is not a recommendation to buy, sell or hold Westpac securities. Such ratings are subject to revision or
withdrawal at any time by the assigning rating agency. Investors are cautioned to evaluate each rating independently of any
other rating.
Liquid assets
Treasury holds a portfolio of high-quality liquid assets as a buffer against unforeseen funding requirements. These assets are
eligible for repurchase agreements with the Reserve Bank of Australia or another central bank and are held in cash,
Government, State Government and highly rated investment grade paper. The level of liquid asset holdings is reviewed
frequently and is consistent with both the requirements of the balance sheet and market conditions.
Liquid assets that qualify as eligible collateral for repurchase agreements with an applicable central bank (including internal
securitisation) have increased by $1.2 billion to $135.6 billion over the last 12 months.
Given the limited amount of government debt in Australia, the Reserve Bank of Australia (RBA), jointly with the Australian
Prudential Regulation Authority (APRA), has made available to Australian Deposit-taking Institutions (ADIs) a CLF that subject
to satisfaction of qualifying conditions, can be accessed to help meet the LCR requirement. In order to access the CLF, ADIs
are required to pay a fee of 15 basis points (0.15%) per annum to the RBA on the approved facility. Westpac has received
approval from APRA for a CLF of $58.6 billion for the 2016 calendar year (2015: $66.0 billion).
A summary of liquid asset holdings is as follows:
2015
2014
Actual
14,375
11
10,968
52,815
57,249
201
Average
18,159
355
16,898
43,098
61,111
269
Actual
22,497
655
18,272
34,205
58,448
368
Average
19,017
1,090
24,317
31,097
55,650
449
135,619
139,890
134,445
131,620
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans1
Regulatory deposits with central banks
Total liquid assets
Bank of New Zealand.
1 Loans are self-originated AAA rated mortgage backed securities which are eligible for repurchase with the Reserve Bank of Australia and Reserve
22.3.3 Contractual maturity of financial liabilities
The tables below present cash flows associated with financial liabilities including derivative liabilities, payable at the balance
sheet date, by remaining contractual maturity. The amounts disclosed in the table are the contractual undiscounted cash flows,
whereas the Group manages inherent liquidity risk based on expected cash flows.
Cash flows associated with financial liabilities include both principal payments as well as fixed or variable interest payments
incorporated into the relevant coupon period. Principal payments reflect the earliest contractual maturity date. Derivative
liabilities designed for hedging purposes are expected to be held for their remaining contractual lives, and reflect gross cash
flows derived as the fixed rate and/or the expected variable rate applied to the notional principal over the remaining contractual
term and where relevant includes the receipt and payment of the notional amount under the contract.
Foreign exchange obligations have been translated to Australian dollars using the closing spot rates at the end of the
financial year.
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193
Note 22. Financial risk (continued)
22.3.1 Liquidity modelling
As required under APRA's liquidity prudential standard, the Group maintains a 'going concern' model with reports issued and
reviewed on a daily basis. Under the 'going concern' model wholesale debt maturities are added to planned net asset growth to
provide an estimate of the wholesale funding task across a range of time horizons. Maturity concentrations are measured
against a Board approved limit structure; with limits, set at intervals from one week to 15 months.
Stress testing is carried out to assess Westpac's ability to meet cash flow obligations under a range of market conditions,
including name specific and market wide stress scenarios. These scenarios inform liquidity limits and strategic planning.
The LCR requires banks to hold sufficient high-quality liquid assets, as defined, to withstand 30 days under a regulator-defined
acute stress scenario. The LCR came into effect on 1 January 2015. Westpac maintains a buffer over the regulatory minimum
of 100%. The Group's LCR as at 30 September 2015, including the Committed Liquidity Facility (CLF) of $66 billion, was 121%
and the average monthly LCR for the quarter ending 30 September 2015 was 121%.
Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, product and term. Sources
22.3.2 Sources of liquidity
include, but are not limited to:
deposits;
debt issues;
proceeds from sale of marketable securities;
repurchase agreements with central banks;
principal repayments on loans;
interest income; and
fee income.
Wholesale funding
The Group monitors the composition and stability of its funding so that it remains within the Group's funding risk appetite. This
includes targeting a Stable Funding Ratio (SFR) of greater than 75%. Stable funding includes customer deposits, wholesale
term funding with residual maturity greater than 12 months, securitisation and equity.
In 2015, the Group continued to focus on funding asset growth through stable sources, ending the year with the Stable Funding
Ratio at 83.8%, up 68bps from 30 September 2014.
The Group's overall funding composition was relatively unchanged, with customer deposits representing 59.3% of the Group's
total funding at 30 September 2015 (30 September 2014: 60.2%), a further 1.7% from securitisation (30 September 2014:
1.7%), 15.4% from long term funding with a residual maturity greater than one year (30 September 2014: 14.2%) and 7.4%
from equity (30 September 2014: 7.1%).
At 30 September 2015, the Group had $116.6 billion of wholesale funding with a residual maturity within one year representing
16.2% of the Group’s total funding (30 September 2014: 16.8%). This short term funding has a weighted average maturity of
130 days and is more than covered by the $135.6 billion of repo-eligible liquid assets held by the Group.
Maintaining a diverse funding base with the capacity and flexibility to access a wide range of funding markets, debt investors,
currencies and products is an important part of managing liquidity risk.
In 2015, the Group raised $31.3 billion of term wholesale funding with a weighted average maturity of 4.9 years
(excluding securitisation).
The Group executed benchmark senior bond trades in US$ and A$, benchmark covered bond trades in Euro and US$, RMBS
transactions and an auto ABS transaction in A$, as well as smaller senior bond trades in Swiss Franc and Sterling. Westpac is
the only major Australian bank with an active Auto ABS capability, the only Australian bank with access to the US SEC
registered market and a regular issuer of RMBS. The Group took advantage of these capabilities in 2015.
New term issuance also included $2.2 billion of Basel III compliant Additional Tier 1 and Tier 2 capital during the year.
Borrowings and outstandings from existing debt programs and issuing shelves at 30 September 2015 can be found in various
notes to the financial statements including Note 16, Note 17, Note 19 and Note 20.
Note 22. Financial risk (continued)
Credit ratings
As at 30 September 2015 the Parent Entity's credit ratings were:
2015
Standard & Poor’s
Moody’s Investors Services
Fitch Ratings
Notes to the financial statements
Short-term
A-1+
Long-term
AA-
P-1
F1+
Aa2
AA-
Outlook
Stable
Stable
Stable
As of 30 September 2015, approximately 33% of the Group’s total funding originated from wholesale funding markets,
principally in Australia, the United States, Europe and Japan. Investors in these markets have historically relied significantly
upon credit ratings issued by independent credit rating organisations in making their investment decisions. If Westpac’s credit
ratings were to be lowered from current levels, the Group’s borrowing costs and capacity may be adversely affected. A
downgrade in Westpac’s credit ratings from current levels is likely to require the Group to pay higher interest rates than we do
currently on our wholesale borrowings. This would increase the Group’s funding costs and could reduce net interest margins. In
addition, the Group’s borrowing capacity could be diminished, which may adversely affect the Group’s ability to fund the growth
of our balance sheet or reduce our liquidity.
A credit rating is not a recommendation to buy, sell or hold Westpac securities. Such ratings are subject to revision or
withdrawal at any time by the assigning rating agency. Investors are cautioned to evaluate each rating independently of any
other rating.
Liquid assets
Treasury holds a portfolio of high-quality liquid assets as a buffer against unforeseen funding requirements. These assets are
eligible for repurchase agreements with the Reserve Bank of Australia or another central bank and are held in cash,
Government, State Government and highly rated investment grade paper. The level of liquid asset holdings is reviewed
frequently and is consistent with both the requirements of the balance sheet and market conditions.
Liquid assets that qualify as eligible collateral for repurchase agreements with an applicable central bank (including internal
securitisation) have increased by $1.2 billion to $135.6 billion over the last 12 months.
Given the limited amount of government debt in Australia, the Reserve Bank of Australia (RBA), jointly with the Australian
Prudential Regulation Authority (APRA), has made available to Australian Deposit-taking Institutions (ADIs) a CLF that subject
to satisfaction of qualifying conditions, can be accessed to help meet the LCR requirement. In order to access the CLF, ADIs
are required to pay a fee of 15 basis points (0.15%) per annum to the RBA on the approved facility. Westpac has received
approval from APRA for a CLF of $58.6 billion for the 2016 calendar year (2015: $66.0 billion).
A summary of liquid asset holdings is as follows:
$m
Cash
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans1
Regulatory deposits with central banks
2015
2014
Actual
14,375
11
10,968
52,815
57,249
201
Average
18,159
355
16,898
43,098
61,111
269
Actual
22,497
655
18,272
34,205
58,448
368
Average
19,017
1,090
24,317
31,097
55,650
449
Total liquid assets
131,620
1 Loans are self-originated AAA rated mortgage backed securities which are eligible for repurchase with the Reserve Bank of Australia and Reserve
139,890
135,619
134,445
Bank of New Zealand.
22.3.3 Contractual maturity of financial liabilities
The tables below present cash flows associated with financial liabilities including derivative liabilities, payable at the balance
sheet date, by remaining contractual maturity. The amounts disclosed in the table are the contractual undiscounted cash flows,
whereas the Group manages inherent liquidity risk based on expected cash flows.
Cash flows associated with financial liabilities include both principal payments as well as fixed or variable interest payments
incorporated into the relevant coupon period. Principal payments reflect the earliest contractual maturity date. Derivative
liabilities designed for hedging purposes are expected to be held for their remaining contractual lives, and reflect gross cash
flows derived as the fixed rate and/or the expected variable rate applied to the notional principal over the remaining contractual
term and where relevant includes the receipt and payment of the notional amount under the contract.
Foreign exchange obligations have been translated to Australian dollars using the closing spot rates at the end of the
financial year.
192
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193
3
Note 22. Financial risk (continued)
The balances in the tables below will not necessarily agree to amounts presented on the face of the balance sheet as amounts
in the table incorporate cash flows on an undiscounted basis and include both principal and associated future
interest payments.
Other financial liabilities at fair value through income statement are not all managed for liquidity purposes on the basis of their
contractual maturity. The liabilities that we manage based on their contractual maturity are presented on a contractual
undiscounted basis in the tables below:
Up to
1 Month
Over 1 Month
to 3 Months
Over 3 Months
to 1 Year
Over 1 Year
to 5 Years
Over
5 Years
Total
Consolidated 2015
$m
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net settled)
Held for hedging purposes (gross settled):
Cash outflow
Cash inflow
Debt issues
Other financial liabilities
Total liabilities excluding loan capital
Loan capital1
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Commitments to extend credit
Other commitments
Consolidated 2014
$m
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments:
Held for trading1
Held for hedging purposes (net settled)
Held for hedging purposes (gross settled):
Cash outflow1
Cash inflow
Debt issues
Other financial liabilities
Total liabilities excluding loan capital
Loan capital2
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Commitments to extend credit
Other commitments
14,941
306,518
5,941
43,475
129
3,687
(3,580)
5,369
1,289
377,769
5,795
383,564
174,391
184
2,331
78,744
2,250
-
221
4,152
(3,965)
12,930
563
97,226
169
97,395
-
-
14,716
290,569
17,811
34,225
103
113
(80)
2,751
1,395
361,603
3,897
365,500
159,131
763
2,865
79,225
1,436
-
154
4,304
(3,899)
10,710
462
95,257
64
95,321
-
-
1,221
79,312
251
-
1,050
5,621
(5,393)
49,385
2,533
349
12,998
432
-
18,842
233
372
477,805
9,246
-
-
43,475
2,743
333
4,476
2,466
(2,197)
992
16,918
(977)
(16,112)
98,791
13,750
180,225
-
-
4,385
133,980
115,582
14,703
739,260
740
6,573
1,484
14,761
134,720
122,155
16,187
754,021
859
79,770
242
15,145
-
18,682
377
465,086
-
-
-
-
-
-
456
1,945
316
19,247
34,225
2,974
3,853
(3,314)
47,730
2,078
19,926
2,103
30,299
(17,405)
(1,888)
(26,586)
81,488
20,758
163,437
-
-
3,935
131,432
101,341
21,666
711,299
218
7,087
599
11,865
131,650
108,428
22,265
723,164
-
-
-
-
-
-
159,131
763
159,894
Up to
1 Month
Over 1 Month
to 3 Months
Over 3 Months
to 1 Year
Over 1 Year
to 5 Years
Over
5 Years
Total
Total undiscounted contingent liabilities and commitments
1 Comparatives have been revised to improve comparability.
2 Where the terms of loan capital instruments include contingent settlement clauses, amounts due have been disclosed as up to one month.
159,894
-
-
-
-
Total undiscounted contingent liabilities and commitments
-
1 Where the terms of loan capital instruments include contingent settlement clauses, amounts due have been disclosed as up to one month.
174,575
-
-
-
-
-
-
-
-
-
174,391
184
174,575
Parent Entity 2014
$m
Liabilities
Up to
Over 1 Month
Over 3 Months
Over 1 Year
Over
1 Month
to 3 Months
to 1 Year
to 5 Years
5 Years
Total
Notes to the financial statements
Up to
Over 1 Month
Over 3 Months
Over 1 Year
Over
1 Month
to 3 Months
to 1 Year
to 5 Years
5 Years
Total
Total undiscounted contingent liabilities and commitments
154,559
1 Where the terms of loan capital instruments include contingent settlement clauses, amounts due have been disclosed as up to one month.
Note 22. Financial risk (continued)
Parent Entity 2015
$m
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net settled)
Held for hedging purposes (gross settled):
Cash outflow
Cash inflow
Debt issues
Due to subsidiaries
Other financial liabilities
Total liabilities excluding loan capital
Loan capital1
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Commitments to extend credit
Other commitments
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments:
Held for trading1
Held for hedging purposes (net settled)
Held for hedging purposes (gross settled):
Cash outflow1
Cash inflow
Debt issues
Due to Subsidiaries
Other financial liabilities
Total liabilities excluding loan capital
Loan capital2
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Commitments to extend credit
Other commitments
14,490
279,413
5,941
43,917
109
3,631
(3,526)
4,817
144,650
1,243
494,685
5,795
500,480
154,375
184
14,526
263,657
17,811
34,403
86
49
(28)
1,676
135,066
1,248
468,494
3,897
472,391
140,909
763
2,332
66,983
2,250
-
192
3,586
(3,444)
10,568
-
491
82,958
169
83,127
-
-
-
-
-
-
2,865
71,248
1,436
-
132
4,413
(3,748)
8,669
-
381
85,396
64
85,460
1,221
69,461
251
-
801
5,511
(5,306)
42,765
2,210
116,914
201
11,183
432
18,244
427,273
9,246
233
372
2,431
324
43,917
3,857
778
(745)
176
13,682
(169)
(13,190)
83,412
10,683
152,245
144,650
3,944
97,692
11,619
803,868
740
6,573
1,484
14,761
117,654
104,265
13,103
818,629
859
69,240
207
13,222
377
417,744
426
1,862
308
10,746
1,796
19,471
(8,950)
(1,600)
(16,284)
67,528
14,440
136,384
2,467
(1,958)
44,071
1,715
116,820
84,615
15,321
770,646
218
7,087
599
11,865
117,038
91,702
15,920
782,511
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
154,375
184
154,559
18,457
19,247
34,403
2,814
135,066
3,344
140,909
763
141,672
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total undiscounted contingent liabilities and commitments
141,672
1 Comparatives have been revised to improve comparability.
2 Where the terms of loan capital instruments include contingent settlement clauses, amounts due have been disclosed as up to one month.
194
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195
Note 22. Financial risk (continued)
The balances in the tables below will not necessarily agree to amounts presented on the face of the balance sheet as amounts
in the table incorporate cash flows on an undiscounted basis and include both principal and associated future
Other financial liabilities at fair value through income statement are not all managed for liquidity purposes on the basis of their
contractual maturity. The liabilities that we manage based on their contractual maturity are presented on a contractual
undiscounted basis in the tables below:
Up to
Over 1 Month
Over 3 Months
Over 1 Year
Over
1 Month
to 3 Months
to 1 Year
to 5 Years
5 Years
Total
interest payments.
Consolidated 2015
$m
Liabilities
Total undiscounted contingent liabilities and commitments
174,575
1 Where the terms of loan capital instruments include contingent settlement clauses, amounts due have been disclosed as up to one month.
Up to
Over 1 Month
Over 3 Months
Over 1 Year
Over
1 Month
to 3 Months
to 1 Year
to 5 Years
5 Years
Total
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net settled)
Held for hedging purposes (gross settled):
Cash outflow
Cash inflow
Debt issues
Other financial liabilities
Total liabilities excluding loan capital
Loan capital1
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Commitments to extend credit
Other commitments
Consolidated 2014
$m
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments:
Held for trading1
Held for hedging purposes (net settled)
Held for hedging purposes (gross settled):
Cash outflow1
Cash inflow
Debt issues
Other financial liabilities
Total liabilities excluding loan capital
Loan capital2
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Commitments to extend credit
Other commitments
14,941
306,518
5,941
43,475
129
3,687
(3,580)
5,369
1,289
377,769
5,795
383,564
174,391
184
14,716
290,569
17,811
34,225
103
113
(80)
2,751
1,395
361,603
3,897
365,500
159,131
763
2,331
78,744
2,250
-
221
4,152
(3,965)
12,930
563
97,226
169
97,395
-
-
-
-
-
-
2,865
79,225
1,436
-
154
4,304
(3,899)
10,710
462
95,257
64
95,321
1,221
79,312
251
-
1,050
5,621
(5,393)
49,385
2,533
349
12,998
432
233
372
-
-
18,842
477,805
9,246
43,475
4,476
2,743
333
2,466
(2,197)
992
16,918
(977)
(16,112)
98,791
13,750
180,225
-
4,385
133,980
115,582
14,703
739,260
740
6,573
1,484
14,761
134,720
122,155
16,187
754,021
-
-
-
-
-
-
-
-
-
174,391
184
174,575
18,682
19,247
34,225
2,974
159,131
763
159,894
859
79,770
242
15,145
456
1,945
316
3,853
(3,314)
47,730
2,078
19,926
2,103
30,299
(17,405)
(1,888)
(26,586)
81,488
20,758
163,437
-
3,935
131,432
101,341
21,666
711,299
218
7,087
599
11,865
131,650
108,428
22,265
723,164
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total undiscounted contingent liabilities and commitments
159,894
1 Comparatives have been revised to improve comparability.
2 Where the terms of loan capital instruments include contingent settlement clauses, amounts due have been disclosed as up to one month.
Note 22. Financial risk (continued)
Parent Entity 2015
$m
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net settled)
Held for hedging purposes (gross settled):
Cash outflow
Cash inflow
Debt issues
Due to subsidiaries
Other financial liabilities
Total liabilities excluding loan capital
Loan capital1
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Commitments to extend credit
Other commitments
Parent Entity 2014
$m
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments:
Held for trading1
Held for hedging purposes (net settled)
377
465,086
Held for hedging purposes (gross settled):
Cash outflow1
Cash inflow
Debt issues
Due to Subsidiaries
Other financial liabilities
Total liabilities excluding loan capital
Loan capital2
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Commitments to extend credit
Other commitments
Notes to the financial statements
Up to
1 Month
Over 1 Month
to 3 Months
Over 3 Months
to 1 Year
Over 1 Year
to 5 Years
Over
5 Years
Total
14,490
279,413
5,941
43,917
109
3,631
(3,526)
4,817
144,650
1,243
494,685
5,795
500,480
154,375
184
2,332
66,983
2,250
-
192
3,586
(3,444)
10,568
-
491
82,958
169
83,127
-
-
14,526
263,657
17,811
34,403
86
49
(28)
1,676
135,066
1,248
468,494
3,897
472,391
140,909
763
2,865
71,248
1,436
-
132
4,413
(3,748)
8,669
-
381
85,396
64
85,460
-
-
1,221
69,461
251
-
801
5,511
(5,306)
42,765
-
2,210
116,914
201
11,183
432
-
18,244
233
372
427,273
9,246
-
-
43,917
2,431
324
3,857
778
(745)
176
13,682
(169)
(13,190)
83,412
10,683
152,245
-
-
-
-
144,650
3,944
97,692
11,619
803,868
740
6,573
1,484
14,761
117,654
104,265
13,103
818,629
-
-
-
-
-
-
154,375
184
154,559
859
69,240
207
13,222
-
18,457
377
417,744
-
-
-
-
-
-
426
1,862
308
19,247
34,403
2,814
2,467
(1,958)
44,071
-
1,715
116,820
10,746
1,796
19,471
(8,950)
(1,600)
(16,284)
67,528
14,440
136,384
-
-
-
-
135,066
3,344
84,615
15,321
770,646
218
7,087
599
11,865
117,038
91,702
15,920
782,511
-
-
-
-
-
-
140,909
763
141,672
Total undiscounted contingent liabilities and commitments
-
1 Where the terms of loan capital instruments include contingent settlement clauses, amounts due have been disclosed as up to one month.
154,559
-
-
-
Up to
1 Month
Over 1 Month
to 3 Months
Over 3 Months
to 1 Year
Over 1 Year
to 5 Years
Over
5 Years
Total
Total undiscounted contingent liabilities and commitments
1 Comparatives have been revised to improve comparability.
2 Where the terms of loan capital instruments include contingent settlement clauses, amounts due have been disclosed as up to one month.
141,672
-
-
-
-
194
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195
3
Note 22. Financial risk (continued)
22.3.4 Expected maturity
The tables below present the balance sheet based on expected maturity dates based on historical behaviours. The liability
balances in the following tables will not agree to the contractual maturity tables (22.3.3 Contractual maturity of financial
liabilities) due to the analysis below being based on expected rather than contractual maturities, the impact of discounting and
the exclusion of interest accruals beyond the reporting period. Included in the tables below are equity securities classified as
trading securities, available-for-sale investments and life insurance assets that have no specific maturity. These assets have
been classified based on the expected period of disposal. Deposits are presented in the following table, on a contractual basis,
however as part of our normal banking operations we would expect a large proportion of these balances to be retained.
Consolidated 2015
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Life insurance assets
Regulatory deposits with central banks overseas
Investments in associates
All other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets/(net liabilities)
Due within
12 Months
Greater than
12 Months
14,770
9,583
19,613
36,479
13,687
86,049
6,730
1,309
-
5,608
193,828
18,437
463,473
9,226
33,511
62,076
770
9,375
596,868
1,446
598,314
(404,486)
-
-
7,841
11,694
41,146
537,267
6,395
-
756
13,229
618,328
294
11,855
-
14,793
108,978
10,789
824
147,533
12,394
159,927
458,401
Total
14,770
9,583
27,454
48,173
54,833
623,316
13,125
1,309
756
18,837
812,156
18,731
475,328
9,226
48,304
171,054
11,559
10,199
744,401
13,840
758,241
53,915
196
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
Note 22. Financial risk (continued)
Consolidated 2014
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Life insurance assets
Regulatory deposits with central banks overseas
All other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets/(net liabilities)
Parent Entity 2015
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Regulatory deposits with central banks overseas
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Due from subsidiaries
Investments in subsidiaries
All other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Due to subsidiaries
All other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets/(net liabilities)
Notes to the financial statements
Due within
12 Months
Greater than
12 Months
Due within
12 Months
Greater than
12 Months
25,760
7,424
31,234
32,248
2,101
83,089
2,518
529
6,278
191,181
18,394
446,099
19,236
29,514
59,203
9,480
581,934
8
-
581,934
(390,753)
13,372
8,741
17,883
36,417
12,138
70,477
1,152
145,560
-
4,745
310,485
17,987
415,334
9,226
33,457
56,002
143,885
7,539
683,430
1,446
684,876
(374,391)
-
-
14,675
9,156
33,923
497,254
8,489
999
15,165
579,661
242
14,723
-
10,025
93,048
9,629
1,046
128,713
10,858
139,571
440,090
-
-
-
-
-
-
7,013
11,123
38,206
475,598
4,585
10,546
547,071
146
10,175
14,593
88,713
744
114,371
12,394
126,765
420,306
49,337
Total
25,760
7,424
45,909
41,404
36,024
580,343
11,007
1,528
21,443
770,842
18,636
460,822
19,236
39,539
152,251
9,637
10,526
710,647
10,858
721,505
Total
13,372
8,741
24,896
47,540
50,344
546,075
1,152
145,560
4,585
15,291
857,556
18,133
425,509
9,226
48,050
144,715
143,885
8,283
797,801
13,840
811,641
45,915
197
Notes to the financial statements
Note 22. Financial risk (continued)
22.3.4 Expected maturity
The tables below present the balance sheet based on expected maturity dates based on historical behaviours. The liability
balances in the following tables will not agree to the contractual maturity tables (22.3.3 Contractual maturity of financial
liabilities) due to the analysis below being based on expected rather than contractual maturities, the impact of discounting and
the exclusion of interest accruals beyond the reporting period. Included in the tables below are equity securities classified as
trading securities, available-for-sale investments and life insurance assets that have no specific maturity. These assets have
been classified based on the expected period of disposal. Deposits are presented in the following table, on a contractual basis,
however as part of our normal banking operations we would expect a large proportion of these balances to be retained.
Due within
12 Months
Greater than
12 Months
Consolidated 2015
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Life insurance assets
Regulatory deposits with central banks overseas
Investments in associates
All other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets/(net liabilities)
14,770
9,583
19,613
36,479
13,687
86,049
6,730
1,309
-
5,608
193,828
18,437
463,473
9,226
33,511
62,076
770
9,375
596,868
1,446
598,314
(404,486)
-
-
7,841
11,694
41,146
537,267
6,395
-
756
13,229
618,328
294
11,855
-
14,793
108,978
10,789
824
147,533
12,394
159,927
458,401
Total
14,770
9,583
27,454
48,173
54,833
623,316
13,125
1,309
756
18,837
812,156
18,731
475,328
9,226
48,304
171,054
11,559
10,199
744,401
13,840
758,241
53,915
Note 22. Financial risk (continued)
Consolidated 2014
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Life insurance assets
Regulatory deposits with central banks overseas
All other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets/(net liabilities)
Parent Entity 2015
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Regulatory deposits with central banks overseas
Due from subsidiaries
Investments in subsidiaries
All other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Due to subsidiaries
All other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets/(net liabilities)
Due within
12 Months
Greater than
12 Months
25,760
7,424
31,234
32,248
2,101
83,089
2,518
529
6,278
191,181
18,394
446,099
19,236
29,514
59,203
8
9,480
581,934
-
581,934
(390,753)
Due within
12 Months
13,372
8,741
17,883
36,417
12,138
70,477
1,152
145,560
-
4,745
310,485
17,987
415,334
9,226
33,457
56,002
143,885
7,539
683,430
1,446
684,876
(374,391)
-
-
14,675
9,156
33,923
497,254
8,489
999
15,165
579,661
242
14,723
-
10,025
93,048
9,629
1,046
128,713
10,858
139,571
440,090
Greater than
12 Months
-
-
7,013
11,123
38,206
475,598
-
-
4,585
10,546
547,071
146
10,175
-
14,593
88,713
-
744
114,371
12,394
126,765
420,306
196
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
Total
25,760
7,424
45,909
41,404
36,024
580,343
11,007
1,528
21,443
770,842
18,636
460,822
19,236
39,539
152,251
9,637
10,526
710,647
10,858
721,505
49,337
Total
13,372
8,741
24,896
47,540
50,344
546,075
1,152
145,560
4,585
15,291
857,556
18,133
425,509
9,226
48,050
144,715
143,885
8,283
797,801
13,840
811,641
45,915
197
3
Note 22. Financial risk (continued)
Parent Entity 2014
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Regulatory deposits with central banks overseas
Due from subsidiaries
Investments in subsidiaries
All other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Due to subsidiaries
All other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets/(net liabilities)
Due within
12 Months
Greater than
12 Months
23,400
5,483
29,989
32,219
743
67,949
389
140,098
-
5,349
305,619
18,204
401,236
19,155
29,451
52,802
135,066
7,478
663,392
-
663,392
(357,773)
-
-
14,335
9,088
31,266
437,655
1,000
-
4,687
11,818
509,849
207
12,947
-
9,690
75,044
-
948
98,836
10,858
109,694
400,155
Total
23,400
5,483
44,324
41,307
32,009
505,604
1,389
140,098
4,687
17,167
815,468
18,411
414,183
19,155
39,141
127,846
135,066
8,426
762,228
10,858
773,086
42,382
22.4 Market risk
Market risk is the risk of an adverse impact on earnings resulting from changes in market factors, such as foreign exchange
rates, interest rates, commodity prices and equity prices. This includes interest rate risk in the banking book – the risk to
interest income from a mismatch between the duration of assets and liabilities that arises in the normal course of
business activities.
22.4.1 Traded market risk
Approach
Westpac’s exposure to traded market risk arises out of the trading activities of Financial Markets and Treasury. These activities
are controlled by a Board-approved Market Risk Framework that incorporates a Board-approved Value at Risk (VaR) limit. VaR
is the primary mechanism for measuring and controlling market risk. Market risk is managed using VaR and structural risk limits
(including volume limits and basis point value limits) in conjunction with scenario analysis and stress testing. Market risk limits
are allocated to business managers based upon business strategies and experience, in addition to the consideration of market
liquidity and concentration of risks. All trades are fair valued daily, using the appropriate fair value methodology as described in
Note 23. Rates that have limited independent sources are reviewed at least on a monthly basis.
Financial Market’s trading book activity represents dealings that encompass book running and distribution activity. The types of
market risk arising from these activities include interest rate, foreign exchange, commodity, equity price, credit spread and
volatility risk.
Treasury’s trading activity represents dealings that include the management of interest rate, foreign exchange and credit
spread risk associated with wholesale funding, liquid asset portfolios and foreign exchange repatriations.
VaR limits
Market risk arising from trading book activities is primarily measured using VaR based on an historical simulation methodology.
VaR is the potential loss in earnings from adverse market movements calculated over a one-day time horizon to a 99%
confidence level using a minimum of one year of historical data. VaR seeks to take account of all material market variables that
may cause a change in the value of the trading portfolio, including interest rates, foreign exchange rates, price changes,
volatility and the correlations between these variables.
In addition to the Board approved market risk VaR limit for trading activities, RISKCO has approved separate VaR sub-limits for
the trading activities of Financial Markets and Treasury.
198
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
Notes to the financial statements
Note 22. Financial risk (continued)
Daily backtesting of VaR results is performed to support model integrity. A review of both the potential profit and loss outcomes
is also undertaken to monitor any skew created by the historical data.
Daily stress testing against pre-determined scenarios is carried out to analyse potential losses arising from extreme or
unexpected movements beyond the 99% confidence level. An escalation framework around selective stress tests has been
approved by RISKCO. Stress and scenario tests include historical market movements, those defined by RISKCO or Financial
Markets and Treasury Risk (FMTR) and independent scenarios developed by Westpac’s economics department.
Profit or loss notification framework
The BRCC has approved a profit or loss notification framework. Included in this framework are levels of escalation in
accordance with the size of the profit or loss. Triggers are applied to both a 1-day and a rolling 20-day cumulative total.
Backtesting
Stress testing
Risk reporting
Daily monitoring of current exposure and limit utilisation is conducted independently by the FMTR unit, which monitors market
risk exposures against VaR and structural limits. Daily VaR position reports are produced by risk type, by product lines and by
geographic region. These are supplemented by structural risk reporting, advice of profit or loss trigger levels and stress testing
escalation trigger points. Model accreditation has been granted by APRA to use the internal model for the determination of
regulatory capital for the key classes of interest rate (general market), foreign exchange, commodity and equity risks (including
specific risk). Under the model, regulatory capital is derived from both the current VaR window (market data is based upon the
most recent 12 months of historical data) and a Stressed VaR window (12 months of market data that includes a period of
significant financial stress), where these VaR measures are calculated as a 10-day, 99th percentile, one-tailed confidence
interval. Specific risk refers to the variations in individual security prices that cannot be explained by general market movements
and event and default risk. Interest rate specific risk capital (specific issuer risk) is calculated using the Standard method and is
added to the VaR regulatory capital measure.
Risk mitigation
Market risk positions are managed by the trading desks consistent with delegated trading and product authorities. Risks are
consolidated into portfolios based on product and risk types. Risk management is carried out by suitably qualified personnel
with varying levels of seniority commensurate with the nature and scale of market risks under management.
Determination of fair value
Refer to Note 23 for the basis for determining fair value.
The following controls allow for continuous monitoring of market risk by management:
trading authorities and responsibilities are clearly delineated at all levels to provide accountability;
a structured system of limits and reporting of exposures;
all new products and significant product variations undergo an approval process to confirm business risks have been
identified prior to launch;
models that are used to determine risk or profit or loss for Westpac’s financial statements are independently reviewed;
duties are segregated so that employees involved in the origination, processing and valuation of transactions operate
under separate reporting lines, minimising the opportunity for collusion;
legal counsel approves documentation for compliance with relevant laws and regulations;
daily profit and loss reviews/attribution; and
reconciliations.
The table below depicts the aggregate VaR, by risk type, for the year ended 30 September:
Consolidated and Parent Entity
2015
2014
2013
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
Includes electricity risk.
High
18.1
11.8
0.6
5.7
6.7
n/a
23.5
Low Average
Low Average
Low Average
7.0
0.5
0.1
1.7
2.9
n/a
9.0
11.4
3.6
0.3
3.1
4.6
(7.2)
15.8
High
30.7
7.6
0.7
2.9
11.3
n/a
40.2
6.3
1.2
0.1
1.3
5.4
n/a
9.5
15.6
3.0
0.3
2.0
9.2
(8.2)
22.0
High
30.8
5.7
0.8
6.1
13.0
n/a
35.4
9.1
0.5
0.1
1.2
5.8
n/a
12.5
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
1
2
16.7
2.1
0.3
2.9
7.9
(10.7)
19.2
199
Note 22. Financial risk (continued)
Parent Entity 2014
$m
Assets
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Regulatory deposits with central banks overseas
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Due from subsidiaries
Investments in subsidiaries
All other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Total liabilities excluding loan capital
Debt issues
Due to subsidiaries
All other liabilities
Loan capital
Total liabilities
Net assets/(net liabilities)
22.4 Market risk
business activities.
22.4.1 Traded market risk
Approach
Due within
12 Months
Greater than
12 Months
23,400
5,483
29,989
32,219
743
67,949
389
140,098
-
5,349
305,619
18,204
401,236
19,155
29,451
52,802
135,066
7,478
663,392
-
663,392
(357,773)
-
-
-
-
-
14,335
9,088
31,266
437,655
1,000
4,687
11,818
509,849
207
12,947
9,690
75,044
948
98,836
10,858
109,694
400,155
Total
23,400
5,483
44,324
41,307
32,009
505,604
1,389
140,098
4,687
17,167
815,468
18,411
414,183
19,155
39,141
127,846
135,066
8,426
762,228
10,858
773,086
42,382
Market risk is the risk of an adverse impact on earnings resulting from changes in market factors, such as foreign exchange
rates, interest rates, commodity prices and equity prices. This includes interest rate risk in the banking book – the risk to
interest income from a mismatch between the duration of assets and liabilities that arises in the normal course of
Westpac’s exposure to traded market risk arises out of the trading activities of Financial Markets and Treasury. These activities
are controlled by a Board-approved Market Risk Framework that incorporates a Board-approved Value at Risk (VaR) limit. VaR
is the primary mechanism for measuring and controlling market risk. Market risk is managed using VaR and structural risk limits
(including volume limits and basis point value limits) in conjunction with scenario analysis and stress testing. Market risk limits
are allocated to business managers based upon business strategies and experience, in addition to the consideration of market
liquidity and concentration of risks. All trades are fair valued daily, using the appropriate fair value methodology as described in
Note 23. Rates that have limited independent sources are reviewed at least on a monthly basis.
Financial Market’s trading book activity represents dealings that encompass book running and distribution activity. The types of
market risk arising from these activities include interest rate, foreign exchange, commodity, equity price, credit spread and
Treasury’s trading activity represents dealings that include the management of interest rate, foreign exchange and credit
spread risk associated with wholesale funding, liquid asset portfolios and foreign exchange repatriations.
volatility risk.
VaR limits
Market risk arising from trading book activities is primarily measured using VaR based on an historical simulation methodology.
VaR is the potential loss in earnings from adverse market movements calculated over a one-day time horizon to a 99%
confidence level using a minimum of one year of historical data. VaR seeks to take account of all material market variables that
may cause a change in the value of the trading portfolio, including interest rates, foreign exchange rates, price changes,
volatility and the correlations between these variables.
In addition to the Board approved market risk VaR limit for trading activities, RISKCO has approved separate VaR sub-limits for
the trading activities of Financial Markets and Treasury.
Notes to the financial statements
Note 22. Financial risk (continued)
Backtesting
Daily backtesting of VaR results is performed to support model integrity. A review of both the potential profit and loss outcomes
is also undertaken to monitor any skew created by the historical data.
Stress testing
Daily stress testing against pre-determined scenarios is carried out to analyse potential losses arising from extreme or
unexpected movements beyond the 99% confidence level. An escalation framework around selective stress tests has been
approved by RISKCO. Stress and scenario tests include historical market movements, those defined by RISKCO or Financial
Markets and Treasury Risk (FMTR) and independent scenarios developed by Westpac’s economics department.
Profit or loss notification framework
The BRCC has approved a profit or loss notification framework. Included in this framework are levels of escalation in
accordance with the size of the profit or loss. Triggers are applied to both a 1-day and a rolling 20-day cumulative total.
Risk reporting
Daily monitoring of current exposure and limit utilisation is conducted independently by the FMTR unit, which monitors market
risk exposures against VaR and structural limits. Daily VaR position reports are produced by risk type, by product lines and by
geographic region. These are supplemented by structural risk reporting, advice of profit or loss trigger levels and stress testing
escalation trigger points. Model accreditation has been granted by APRA to use the internal model for the determination of
regulatory capital for the key classes of interest rate (general market), foreign exchange, commodity and equity risks (including
specific risk). Under the model, regulatory capital is derived from both the current VaR window (market data is based upon the
most recent 12 months of historical data) and a Stressed VaR window (12 months of market data that includes a period of
significant financial stress), where these VaR measures are calculated as a 10-day, 99th percentile, one-tailed confidence
interval. Specific risk refers to the variations in individual security prices that cannot be explained by general market movements
and event and default risk. Interest rate specific risk capital (specific issuer risk) is calculated using the Standard method and is
added to the VaR regulatory capital measure.
Risk mitigation
Market risk positions are managed by the trading desks consistent with delegated trading and product authorities. Risks are
consolidated into portfolios based on product and risk types. Risk management is carried out by suitably qualified personnel
with varying levels of seniority commensurate with the nature and scale of market risks under management.
Determination of fair value
Refer to Note 23 for the basis for determining fair value.
The following controls allow for continuous monitoring of market risk by management:
trading authorities and responsibilities are clearly delineated at all levels to provide accountability;
a structured system of limits and reporting of exposures;
all new products and significant product variations undergo an approval process to confirm business risks have been
identified prior to launch;
models that are used to determine risk or profit or loss for Westpac’s financial statements are independently reviewed;
duties are segregated so that employees involved in the origination, processing and valuation of transactions operate
under separate reporting lines, minimising the opportunity for collusion;
legal counsel approves documentation for compliance with relevant laws and regulations;
daily profit and loss reviews/attribution; and
reconciliations.
The table below depicts the aggregate VaR, by risk type, for the year ended 30 September:
Consolidated and Parent Entity
2015
2014
2013
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
1
2
High
18.1
11.8
0.6
5.7
6.7
n/a
23.5
Low Average
11.4
7.0
0.5
0.1
1.7
2.9
n/a
9.0
3.6
0.3
3.1
4.6
(7.2)
15.8
High
30.7
7.6
0.7
2.9
11.3
n/a
40.2
Low Average
15.6
6.3
1.2
0.1
1.3
5.4
n/a
9.5
3.0
0.3
2.0
9.2
(8.2)
22.0
High
30.8
5.7
0.8
6.1
13.0
n/a
35.4
Low Average
16.7
9.1
0.5
0.1
1.2
5.8
n/a
12.5
2.1
0.3
2.9
7.9
(10.7)
19.2
Includes electricity risk.
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
198
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
199
3
Note 22. Financial risk (continued)
Commodity, Carbon and Energy trading
Commodity, Carbon and Energy trading (CCE) activity is part of our Financial Markets business. All trades are marked-to-
market daily, using independently sourced or reviewed rates. Rates are compared to Australian Financial Market Association
published prices, brokers’ quotes, and futures prices as appropriate. Rates that have limited independent sources are reviewed
on a regular basis by the WIB Revaluation Committee. The CCE business is managed within market risk structural and VaR
limits. Credit risk is controlled by pre-settlement risk limits by counterparty.
CCE trading activities include electricity, gas, oil, emission, agricultural products, base metals and precious metals. These
activities involve dealings in swaps, options, swaptions, Asian options and futures. Energy trading also includes Settlement
Residue Auctions (SRAs). Carbon trading activities includes Australian, New Zealand and European carbon units and
Renewable Energy Certificates (RECs).
CCE also includes the Structured Commodities Finance (SCF) desk which facilitates financing for commodity clients.
The total fair value of commodity, carbon and energy contracts outstanding as at 30 September 2015 was $151 million
(2014: $14 million).
22.4.2 Non-traded market risk
Approach
The banking book activities that give rise to market risk include lending activities, balance sheet funding and capital
management. Interest rate risk, currency risk and funding and liquidity risk are inherent in these activities. Treasury’s Asset and
Liability Management (ALM) unit is responsible for managing the interest rate risk arising from these activities.
All material regions, business lines and legal entities are included in Westpac’s IRRBB framework.
Asset and Liability Management
ALM manages the structural interest rate mismatch associated with the transfer priced balance sheet, including the investment
of Westpac’s capital to its agreed benchmark duration. A key risk management objective is to achieve reasonable stability of
net interest income (NII) over time. These activities are overseen by the independent FMTR unit, reviewed by RISKCO and
conducted within a risk framework and appetite set down by the BRCC.
Material non-traded interest rate risk is managed in five centres: Sydney manages risk associated with the Australian balance
sheet, the Auckland office manages risk associated with the New Zealand balance sheet, the Singapore office manages risk
associated with the Asian balance sheet, while New York and London centres manage risk associated with those locations
respectively. The risk from these five centres is monitored both at a local and aggregate level.
NII sensitivity
NII sensitivity is managed in terms of the net interest income-at-risk (NaR) modelled over a three year time horizon using a 99%
confidence interval for movements in wholesale market interest rates. The position managed covers the Australian and
New Zealand banking books, where the banking book is defined as the entire banking balance sheet less the trading book. A
simulation model is used to calculate Westpac’s potential NaR. The NII simulation framework combines the underlying balance
sheet data with assumptions about run off and new business, expected repricing behaviour and changes in wholesale market
interest rates. Simulations using a range of interest rate scenarios are used to provide a series of potential future NII outcomes.
The interest rate scenarios modelled include those projected using historical market interest rate volatility as well as 100 and
200 basis point shifts up and down from the current market yield curves in Australia and New Zealand. Additional stressed
interest rate scenarios are also considered and modelled.
A comparison between the NII outcomes from these modelled scenarios indicates the sensitivity to interest rate changes.
NaR limit
The BRCC has approved a NaR limit. This limit is managed by the Group Treasurer and is expressed as a deviation from
benchmark hedge levels over a one-year rolling time frame, to a 99% confidence level. This limit is monitored by FMTR.
VaR limit
The BRCC has also approved a VaR limit for ALM activities. This limit is managed by the Group Treasurer and monitored by
FMTR. Additionally, FMTR sets structural risk limits to prevent undue concentration of risk.
Structural foreign exchange risk
Structural foreign exchange rate risk results from the generation of foreign currency denominated earnings and from the foreign
currency capital that we have deployed in offshore branches and subsidiaries with functional currencies other than
Australian dollars.
Notes to the financial statements
Note 22. Financial risk (continued)
As a result of the requirement to translate earnings and net assets of the foreign operations into our Australian dollar
consolidated financial statements, movements in exchange rates could lead to changes in the Australian dollar equivalent of
offshore earnings and capital which could introduce variability to our reported financial results. This is referred to as translation
risk. In order to minimise this exposure, we manage the foreign exchange rate risk associated with offshore earnings and
capital as follows:
foreign currency denominated earnings that are generated during the current financial year are hedged;
capital that is defined to be permanently employed in an offshore jurisdiction (for example to meet regulatory or prudential
requirements) and which has no fixed term is hedged;
capital or profits that are denominated in currencies to which we have an immaterial exposure are not hedged; and
ALCO determines the appropriateness of the foreign exchange earnings hedges and associated limits.
Assets held as Available-for-Sale
Financial assets classified as available-for-sale are subject to market risk which is not captured by the market risk VaR. Regular
reviews are performed to substantiate the value of these assets and are regularly reviewed by management. Whilst the fair
value of individual securities classified as available-for-sale can fluctuate considerably, the overall impact to the Group is
not material.
Risk reporting
IRRBB risk measurement systems and personnel are centralised in Sydney. These include front office product systems, which
capture all treasury funding and derivative transactions; the transfer pricing system, which captures all retail transactions in
Australia and New Zealand; non-traded VaR systems; and the NII system, which calculates NII and NaR for the Australian and
New Zealand balance sheets.
Daily monitoring of current exposure and limit utilisation is conducted independently by FMTR, which monitors market risk
exposures against VaR and NaR limits. Reports detailing structural positions and VaR are produced and distributed daily for
use by dealers and management across all stakeholder groups. Monthly and quarterly reports are produced for the senior
management market risk forums of RISKCO and the BRCC to provide transparency of material market risks and issues.
Risk mitigation
IRRBB stems from the ordinary course of banking activities, including structural interest rate risk (the mismatch between the
duration of assets and liabilities) and capital management. Hedging Westpac’s exposure to interest rate risk is undertaken
using derivatives. The hedge accounting strategy adopted is to utilise a combination of cash flow, fair value and net investment
hedge approaches. Some derivatives held for economic hedging purposes do not meet the criteria for hedge accounting as
defined under AASB 139 Financial Instruments: Recognition and Measurement, and therefore are accounted for in the same
way as derivatives held for trading.
The same controls as used to monitor traded market risk allow for the continuous monitoring by management of IRRBB.
Value at Risk – IRRBB
The table below depicts VaR for IRRBB:
$m
Consolidated
As at
2.7
2015
High
5.9
Low
0.8
Average
2.9
As at
3.1
2014
High
10.7
Low
1.2
Average
4.7
As at 30 September 2015 the Value at Risk – IRRBB for the Parent Entity was $19.3 million (2014: $25.1 million).
Net interest income-at-risk (NaR)
reported net interest income:
The table below depicts NaR assuming a 100 basis point shock (decrease) over the next 12 months as a percentage of
%
Consolidated
Parent Entity
2015
2014
Maximum
Minimum
Average
Exposure
Exposure
Exposure
0.66
0.41
(0.26)
(0.50)
0.23
0.04
As at
0.12
(0.11)
As at
0.27
0.10
Maximum
Exposure
Minimum
Exposure
Average
Exposure
0.66
0.82
(0.12)
(0.25)
0.20
0.17
200
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201
Notes to the financial statements
Note 22. Financial risk (continued)
As a result of the requirement to translate earnings and net assets of the foreign operations into our Australian dollar
consolidated financial statements, movements in exchange rates could lead to changes in the Australian dollar equivalent of
offshore earnings and capital which could introduce variability to our reported financial results. This is referred to as translation
risk. In order to minimise this exposure, we manage the foreign exchange rate risk associated with offshore earnings and
capital as follows:
foreign currency denominated earnings that are generated during the current financial year are hedged;
capital that is defined to be permanently employed in an offshore jurisdiction (for example to meet regulatory or prudential
requirements) and which has no fixed term is hedged;
capital or profits that are denominated in currencies to which we have an immaterial exposure are not hedged; and
ALCO determines the appropriateness of the foreign exchange earnings hedges and associated limits.
Assets held as Available-for-Sale
Financial assets classified as available-for-sale are subject to market risk which is not captured by the market risk VaR. Regular
reviews are performed to substantiate the value of these assets and are regularly reviewed by management. Whilst the fair
value of individual securities classified as available-for-sale can fluctuate considerably, the overall impact to the Group is
not material.
Note 22. Financial risk (continued)
Commodity, Carbon and Energy trading
Commodity, Carbon and Energy trading (CCE) activity is part of our Financial Markets business. All trades are marked-to-
market daily, using independently sourced or reviewed rates. Rates are compared to Australian Financial Market Association
published prices, brokers’ quotes, and futures prices as appropriate. Rates that have limited independent sources are reviewed
on a regular basis by the WIB Revaluation Committee. The CCE business is managed within market risk structural and VaR
limits. Credit risk is controlled by pre-settlement risk limits by counterparty.
CCE trading activities include electricity, gas, oil, emission, agricultural products, base metals and precious metals. These
activities involve dealings in swaps, options, swaptions, Asian options and futures. Energy trading also includes Settlement
Residue Auctions (SRAs). Carbon trading activities includes Australian, New Zealand and European carbon units and
Renewable Energy Certificates (RECs).
CCE also includes the Structured Commodities Finance (SCF) desk which facilitates financing for commodity clients.
The total fair value of commodity, carbon and energy contracts outstanding as at 30 September 2015 was $151 million
(2014: $14 million).
22.4.2 Non-traded market risk
Approach
The banking book activities that give rise to market risk include lending activities, balance sheet funding and capital
management. Interest rate risk, currency risk and funding and liquidity risk are inherent in these activities. Treasury’s Asset and
Liability Management (ALM) unit is responsible for managing the interest rate risk arising from these activities.
All material regions, business lines and legal entities are included in Westpac’s IRRBB framework.
Asset and Liability Management
ALM manages the structural interest rate mismatch associated with the transfer priced balance sheet, including the investment
of Westpac’s capital to its agreed benchmark duration. A key risk management objective is to achieve reasonable stability of
net interest income (NII) over time. These activities are overseen by the independent FMTR unit, reviewed by RISKCO and
conducted within a risk framework and appetite set down by the BRCC.
Material non-traded interest rate risk is managed in five centres: Sydney manages risk associated with the Australian balance
sheet, the Auckland office manages risk associated with the New Zealand balance sheet, the Singapore office manages risk
associated with the Asian balance sheet, while New York and London centres manage risk associated with those locations
respectively. The risk from these five centres is monitored both at a local and aggregate level.
NII sensitivity
NII sensitivity is managed in terms of the net interest income-at-risk (NaR) modelled over a three year time horizon using a 99%
confidence interval for movements in wholesale market interest rates. The position managed covers the Australian and
New Zealand banking books, where the banking book is defined as the entire banking balance sheet less the trading book. A
simulation model is used to calculate Westpac’s potential NaR. The NII simulation framework combines the underlying balance
sheet data with assumptions about run off and new business, expected repricing behaviour and changes in wholesale market
interest rates. Simulations using a range of interest rate scenarios are used to provide a series of potential future NII outcomes.
The interest rate scenarios modelled include those projected using historical market interest rate volatility as well as 100 and
200 basis point shifts up and down from the current market yield curves in Australia and New Zealand. Additional stressed
interest rate scenarios are also considered and modelled.
A comparison between the NII outcomes from these modelled scenarios indicates the sensitivity to interest rate changes.
NaR limit
VaR limit
The BRCC has approved a NaR limit. This limit is managed by the Group Treasurer and is expressed as a deviation from
benchmark hedge levels over a one-year rolling time frame, to a 99% confidence level. This limit is monitored by FMTR.
The BRCC has also approved a VaR limit for ALM activities. This limit is managed by the Group Treasurer and monitored by
FMTR. Additionally, FMTR sets structural risk limits to prevent undue concentration of risk.
Structural foreign exchange risk
Australian dollars.
Structural foreign exchange rate risk results from the generation of foreign currency denominated earnings and from the foreign
currency capital that we have deployed in offshore branches and subsidiaries with functional currencies other than
Risk reporting
IRRBB risk measurement systems and personnel are centralised in Sydney. These include front office product systems, which
capture all treasury funding and derivative transactions; the transfer pricing system, which captures all retail transactions in
Australia and New Zealand; non-traded VaR systems; and the NII system, which calculates NII and NaR for the Australian and
New Zealand balance sheets.
Daily monitoring of current exposure and limit utilisation is conducted independently by FMTR, which monitors market risk
exposures against VaR and NaR limits. Reports detailing structural positions and VaR are produced and distributed daily for
use by dealers and management across all stakeholder groups. Monthly and quarterly reports are produced for the senior
management market risk forums of RISKCO and the BRCC to provide transparency of material market risks and issues.
Risk mitigation
IRRBB stems from the ordinary course of banking activities, including structural interest rate risk (the mismatch between the
duration of assets and liabilities) and capital management. Hedging Westpac’s exposure to interest rate risk is undertaken
using derivatives. The hedge accounting strategy adopted is to utilise a combination of cash flow, fair value and net investment
hedge approaches. Some derivatives held for economic hedging purposes do not meet the criteria for hedge accounting as
defined under AASB 139 Financial Instruments: Recognition and Measurement, and therefore are accounted for in the same
way as derivatives held for trading.
The same controls as used to monitor traded market risk allow for the continuous monitoring by management of IRRBB.
Value at Risk – IRRBB
The table below depicts VaR for IRRBB:
$m
Consolidated
As at
2.7
2015
High
5.9
Low
0.8
Average
2.9
As at
3.1
2014
High
10.7
Low
1.2
Average
4.7
As at 30 September 2015 the Value at Risk – IRRBB for the Parent Entity was $19.3 million (2014: $25.1 million).
Net interest income-at-risk (NaR)
The table below depicts NaR assuming a 100 basis point shock (decrease) over the next 12 months as a percentage of
reported net interest income:
%
Consolidated
Parent Entity
2015
2014
Maximum
Exposure
Minimum
Exposure
Average
Exposure
0.66
0.41
(0.26)
(0.50)
0.23
0.04
As at
0.12
(0.11)
As at
0.27
0.10
Maximum
Exposure
Minimum
Exposure
Average
Exposure
0.66
0.82
(0.12)
(0.25)
0.20
0.17
200
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201
3
Note 23. Fair values of financial assets and financial liabilities
Accounting policy
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
On initial recognition, the transaction price generally represents the fair value of the financial instrument unless there is
observable information available in an active market to the contrary. If fair value can be evidenced by comparison with other
observable current market transactions in the same instrument, without modification or repackaging, or is based on a valuation
technique whose inputs include only data from observable markets, then the instrument is recognised at the fair value derived
from such observable market data. The difference between the transaction price and fair value is recognised as a gain or loss
(day one profit or loss) in the income statement as non-interest income. In cases where use is made of data which is not
observable, day one profit or loss is only recognised in the income statement when the inputs become observable, or over the
life of the instrument.
For financial liabilities measured at fair value, the carrying amount reflects the effect on fair value of changes in own credit
spreads derived from observable market data.
Subsequent measurement of the fair value of a financial instrument is, wherever possible, determined by reference to a quoted
market price for that instrument. Where quoted prices are not available the Group applies present value estimates or other
market accepted valuation techniques. The use of a market accepted valuation technique will typically involve the use of a
valuation model and appropriate inputs to the model.
The majority of valuation models used by the Group employ only observable market data as inputs. However, for certain
financial instruments data may be employed which is not readily observable in current markets.
The determination of the fair value of financial assets and liabilities is one of the Group’s critical accounting assumptions and
estimates as detailed in Note 1d(i).
Fair Valuation Control Framework
The Group’s control environment uses a Fair Valuation Control Framework where the fair value is either determined or
validated by a function independent of the party that undertakes the transaction. This framework formalises the policies and
procedures used by the Group to achieve compliance with relevant accounting, industry and regulatory standards. The
framework includes specific controls relating to the revaluation of financial instruments, independent price verification, fair value
adjustments and financial reporting.
A key element of the Fair Valuation Control Framework is the WIB Revaluation Committee, comprising senior valuation
specialists from within the Group. The WIB Revaluation Committee review the application of the agreed policies and
procedures to assess that a fair value measurement basis is applied.
The method of determining fair value according to the Fair Valuation Control Framework differs depending on the
information available.
Fair value hierarchy
The Group categorises all fair value instruments according to the following hierarchy:
Level 1
Financial instruments valued using recent unadjusted quoted prices in active markets for identical assets or liabilities. An
active market is one in which prices are readily and regularly available and those prices represent actual and regularly
occurring market transactions on an arm’s length basis.
Valuation of Level 1 instruments require little or no management judgment.
Financial instruments included in this class are Commonwealth of Australia and New Zealand government bonds, spot and
exchange traded derivatives for equities, foreign exchange, commodities and interest rate products.
Level 2
Valuation techniques utilising observable market prices applied to these assets or liabilities include the use of market
standard discounting methodologies, option pricing models and other valuation techniques widely used and accepted by
market participants.
The financial instruments included in this category are mainly Over The Counter (OTC) derivatives with observable market
inputs and financial instruments with fair value derived from consensus pricing with sufficient contributors. Financial
instruments included in the Level 2 category are:
– trading securities – including government bonds (excluding Australian and New Zealand government bonds), Australian
state government bonds, corporate fixed rate bonds and floating rate bonds; and
– derivatives – including interest rate swaps, interest rate futures, credit default swaps, foreign exchange swaps, foreign
exchange futures and forwards, foreign exchange options and equity options.
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Level 3
Financial instruments valued using at least one input that could have a significant effect on the instrument’s valuation
which is not based on observable market data (unobservable input). Unobservable inputs are those not readily available in
an active market due to illiquidity or complexity of the product. These inputs are generally derived and extrapolated from
other relevant market data and calibrated against current market trends and historic transactions.
These valuations are calculated using a high degree of management judgment.
Financial instruments included in the Level 3 category include some asset-backed products and non-Australian dollar-
denominated government securities issued by governments where there are no observable secondary markets.
A financial instrument’s categorisation within the valuation hierarchy is based on the lowest level input that is significant to the
fair value measurement.
Valuation techniques
The Group applies market accepted valuation techniques in determining the fair valuation of Over the Counter (OTC)
derivatives. This includes credit valuation adjustments (CVA) and funding valuation adjustments (FVA), which incorporates
credit risk and funding costs and benefits that arise in relation to uncollateralised derivative positions, respectively.
The specific valuation techniques, the observability of the inputs used in valuation models and the subsequent classification for
each significant product category are outlined below:
Interest rate derivative products
These are products linked to interest rates (e.g. Bank Bill Swap Rate (BBSW) or London Interbank Offered Rate (LIBOR))
or inflation indices. This includes exchange traded interest rate futures, interest rate and inflation swaps, swaptions, caps,
floors, exchange traded interest rate options on futures, inflation options, collars and other non-vanilla interest
rate derivatives.
Exchange traded interest rate futures and options on futures are traded in liquid, active markets where prices are readily
observable. No modelling or assumptions are used in the valuation. Exchange traded interest rate futures and options on
futures are classified as Level 1 instruments.
Interest rate derivative cash flows are valued using interest rate curves whereby observable market data is used to
construct the term structure of forward rates. This term structure is used to project and discount future cash flows based on
the terms of the trade. Instruments with optionality are valued using market observable or consensus provided volatilities.
Non-vanilla interest rate derivatives are valued using industry standard models based on market observable inputs which
are determined separately for each parameter. Where unobservable, inputs will be set with reference to an
observable proxy.
Foreign exchange products
In general, interest rate derivatives are classified as Level 2 instruments.
These are products linked to the foreign exchange market. This includes FX spot and future contracts, FX forward
contracts, FX swaps, FX options and other non-vanilla FX derivatives.
There are observable markets for futures and spot contracts in major global currencies. No modelling or assumptions are
used in valuation of these instruments. FX spot and future contracts are classified as Level 1 instruments.
FX swap and forward valuations are derived from market observable inputs or consensus pricing providers using industry
standard models. FX swaps and forwards are classified as Level 2 instruments.
FX options and other FX derivatives are valued using industry standard models and market observable inputs. Where
unobservable, inputs will be set with reference to an observable proxy. In general, FX options and other FX derivatives are
classified as Level 2 instruments.
Asset backed products
These are debt and derivative products that are linked to the cash flows of a pool of referenced assets via securitisation.
This category includes residential mortgage backed securities (RMBS), collateralised debt obligations (CDOs),
collateralised loan obligations (CLOs) and other asset backed securities (ABS).
Australian RMBS denominated in Australian dollars are valued using a market accepted model with observable inputs
sourced from a consensus data provider. The main inputs to the model are the trading margin and the weighted average
life of the security. They are classified as Level 2 instruments.
Despite the availability of an RMBS model in Westpac, input data for the trading margin on Australian issued RMBS,
denominated in foreign currency, is considered unobservable. Trading volumes in these instruments are low. Proxy data
from the Australian denominated RMBS market is used to derive the fair value for these instruments. Australian issued
RMBS denominated in foreign currency are classified as Level 3 instruments.
202
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Note 23. Fair values of financial assets and financial liabilities
Accounting policy
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
On initial recognition, the transaction price generally represents the fair value of the financial instrument unless there is
observable information available in an active market to the contrary. If fair value can be evidenced by comparison with other
observable current market transactions in the same instrument, without modification or repackaging, or is based on a valuation
technique whose inputs include only data from observable markets, then the instrument is recognised at the fair value derived
from such observable market data. The difference between the transaction price and fair value is recognised as a gain or loss
(day one profit or loss) in the income statement as non-interest income. In cases where use is made of data which is not
observable, day one profit or loss is only recognised in the income statement when the inputs become observable, or over the
life of the instrument.
For financial liabilities measured at fair value, the carrying amount reflects the effect on fair value of changes in own credit
spreads derived from observable market data.
Subsequent measurement of the fair value of a financial instrument is, wherever possible, determined by reference to a quoted
market price for that instrument. Where quoted prices are not available the Group applies present value estimates or other
market accepted valuation techniques. The use of a market accepted valuation technique will typically involve the use of a
valuation model and appropriate inputs to the model.
The majority of valuation models used by the Group employ only observable market data as inputs. However, for certain
financial instruments data may be employed which is not readily observable in current markets.
The determination of the fair value of financial assets and liabilities is one of the Group’s critical accounting assumptions and
estimates as detailed in Note 1d(i).
Fair Valuation Control Framework
The Group’s control environment uses a Fair Valuation Control Framework where the fair value is either determined or
validated by a function independent of the party that undertakes the transaction. This framework formalises the policies and
procedures used by the Group to achieve compliance with relevant accounting, industry and regulatory standards. The
framework includes specific controls relating to the revaluation of financial instruments, independent price verification, fair value
adjustments and financial reporting.
A key element of the Fair Valuation Control Framework is the WIB Revaluation Committee, comprising senior valuation
specialists from within the Group. The WIB Revaluation Committee review the application of the agreed policies and
procedures to assess that a fair value measurement basis is applied.
The method of determining fair value according to the Fair Valuation Control Framework differs depending on the
information available.
Fair value hierarchy
Level 1
The Group categorises all fair value instruments according to the following hierarchy:
Financial instruments valued using recent unadjusted quoted prices in active markets for identical assets or liabilities. An
active market is one in which prices are readily and regularly available and those prices represent actual and regularly
occurring market transactions on an arm’s length basis.
Valuation of Level 1 instruments require little or no management judgment.
Financial instruments included in this class are Commonwealth of Australia and New Zealand government bonds, spot and
exchange traded derivatives for equities, foreign exchange, commodities and interest rate products.
Level 2
market participants.
Valuation techniques utilising observable market prices applied to these assets or liabilities include the use of market
standard discounting methodologies, option pricing models and other valuation techniques widely used and accepted by
The financial instruments included in this category are mainly Over The Counter (OTC) derivatives with observable market
inputs and financial instruments with fair value derived from consensus pricing with sufficient contributors. Financial
instruments included in the Level 2 category are:
– trading securities – including government bonds (excluding Australian and New Zealand government bonds), Australian
state government bonds, corporate fixed rate bonds and floating rate bonds; and
– derivatives – including interest rate swaps, interest rate futures, credit default swaps, foreign exchange swaps, foreign
exchange futures and forwards, foreign exchange options and equity options.
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Level 3
Financial instruments valued using at least one input that could have a significant effect on the instrument’s valuation
which is not based on observable market data (unobservable input). Unobservable inputs are those not readily available in
an active market due to illiquidity or complexity of the product. These inputs are generally derived and extrapolated from
other relevant market data and calibrated against current market trends and historic transactions.
These valuations are calculated using a high degree of management judgment.
Financial instruments included in the Level 3 category include some asset-backed products and non-Australian dollar-
denominated government securities issued by governments where there are no observable secondary markets.
A financial instrument’s categorisation within the valuation hierarchy is based on the lowest level input that is significant to the
fair value measurement.
Valuation techniques
The Group applies market accepted valuation techniques in determining the fair valuation of Over the Counter (OTC)
derivatives. This includes credit valuation adjustments (CVA) and funding valuation adjustments (FVA), which incorporates
credit risk and funding costs and benefits that arise in relation to uncollateralised derivative positions, respectively.
The specific valuation techniques, the observability of the inputs used in valuation models and the subsequent classification for
each significant product category are outlined below:
Interest rate derivative products
These are products linked to interest rates (e.g. Bank Bill Swap Rate (BBSW) or London Interbank Offered Rate (LIBOR))
or inflation indices. This includes exchange traded interest rate futures, interest rate and inflation swaps, swaptions, caps,
floors, exchange traded interest rate options on futures, inflation options, collars and other non-vanilla interest
rate derivatives.
Exchange traded interest rate futures and options on futures are traded in liquid, active markets where prices are readily
observable. No modelling or assumptions are used in the valuation. Exchange traded interest rate futures and options on
futures are classified as Level 1 instruments.
Interest rate derivative cash flows are valued using interest rate curves whereby observable market data is used to
construct the term structure of forward rates. This term structure is used to project and discount future cash flows based on
the terms of the trade. Instruments with optionality are valued using market observable or consensus provided volatilities.
Non-vanilla interest rate derivatives are valued using industry standard models based on market observable inputs which
are determined separately for each parameter. Where unobservable, inputs will be set with reference to an
observable proxy.
In general, interest rate derivatives are classified as Level 2 instruments.
Foreign exchange products
These are products linked to the foreign exchange market. This includes FX spot and future contracts, FX forward
contracts, FX swaps, FX options and other non-vanilla FX derivatives.
There are observable markets for futures and spot contracts in major global currencies. No modelling or assumptions are
used in valuation of these instruments. FX spot and future contracts are classified as Level 1 instruments.
FX swap and forward valuations are derived from market observable inputs or consensus pricing providers using industry
standard models. FX swaps and forwards are classified as Level 2 instruments.
FX options and other FX derivatives are valued using industry standard models and market observable inputs. Where
unobservable, inputs will be set with reference to an observable proxy. In general, FX options and other FX derivatives are
classified as Level 2 instruments.
Asset backed products
These are debt and derivative products that are linked to the cash flows of a pool of referenced assets via securitisation.
This category includes residential mortgage backed securities (RMBS), collateralised debt obligations (CDOs),
collateralised loan obligations (CLOs) and other asset backed securities (ABS).
Australian RMBS denominated in Australian dollars are valued using a market accepted model with observable inputs
sourced from a consensus data provider. The main inputs to the model are the trading margin and the weighted average
life of the security. They are classified as Level 2 instruments.
Despite the availability of an RMBS model in Westpac, input data for the trading margin on Australian issued RMBS,
denominated in foreign currency, is considered unobservable. Trading volumes in these instruments are low. Proxy data
from the Australian denominated RMBS market is used to derive the fair value for these instruments. Australian issued
RMBS denominated in foreign currency are classified as Level 3 instruments.
202
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3
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 23. Fair values of financial assets and financial liabilities (continued)
The fair value of Offshore RMBS is determined using consensus data. These are classified as Level 2 instruments.
Life insurance assets
As synthetic CDO prices are not generally available, Synthetic CDOs are valued using a model. The model uses a
combination of established analytic and numerical approaches. The model calculates fair value based on observable and
unobservable parameters including credit spreads, recovery rates, correlations and interest rates. As some of the model
inputs (e.g. correlations) are indirectly implied or unobservable, synthetic CDOs are classified as Level 3 instruments.
Where available, cash CDO, CLO and ABS products are valued using prices obtained from consensus data providers and
classified as Level 2 instruments. Where consensus prices are not available, these products are valued using quotes
provided by a third party broker or independent lead manager and classified as Level 3 instruments. The Group has no
material exposure to CDOs.
Other credit products
These products are linked to the credit spread of a referenced entity or index and include Single Name and Index CDS.
CDS are valued using an industry standard model that incorporates the credit spread as its principal input. Credit spreads
are obtained from consensus market data providers. Single name and index CDS are classified as Level 2 instruments.
Non-asset backed debt instruments
There are observable markets for Australian and New Zealand government bonds in which Westpac is a primary dealer.
Australian government bonds are valued using unadjusted quoted market yields. New Zealand government bonds are
valued using unadjusted quoted market prices. These products are classified as Level 1 instruments.
Other government bonds, state government bonds, corporate bonds and commercial paper are valued using observable
market prices which are sourced from consensus pricing services, broker quotes or inter-dealer prices. These products are
classified as Level 2 instruments, with the exception of government securities where there are no observable secondary
markets which are classified as Level 3 instruments.
Equity products
This category includes cash equities and equity indices, exchange traded equity options, OTC equity options and OTC
equity warrants.
Cash equities and equity indices are traded on major global exchanges in liquid markets. No modelling or assumptions are
used in valuation. These are categorised as Level 1 instruments.
Exchange traded equity options, OTC equity options and equity warrants are valued using industry standard models. The
models calculate fair value based on input parameters such as stock prices, dividends, volatilities and interest rates. In
general, input parameters are deemed observable. These are classified as Level 2 instruments.
Commodity products
These products are exchange traded and OTC derivatives based on underlying commodities such as energy, carbon,
agriculture, metals, crude oil and refined products, power and natural gas.
Commodity spot and futures, energy spot and futures together with carbon futures are traded on major global exchanges
in liquid markets. No modelling or assumptions are used in the valuation of these instruments. These are classified as
Level 1 instruments.
The valuation of commodity, carbon and energy derivatives are determined using industry standard models incorporating
discounting of cash flows and other industry standard modelling techniques. Valuation inputs include forward curves,
volatilities implied from market observable inputs, discount curves and underlying spot and futures prices. The significant
inputs are market observable or available through a consensus data service. Where unobservable, inputs will be set with
reference to an observable proxy.
In general, commodity, carbon and energy derivatives are classified as Level 2 instruments.
Certificates of deposit
The fair value of certificates of deposit is determined using a discounted cash flow analysis using markets rates offered for
deposits of similar remaining maturities. Certificates of deposit are classified as Level 2 instruments.
Debt issues at fair value
Where a quoted price is not available the fair value of debt issues is determined using a discounted cash flow approach,
using a discount rate which reflects the terms of the instrument and the timing of cash flows adjusted for market
observable changes in the applicable credit rating of Westpac. These instruments are classified as Level 2 instruments.
Notes to the financial statements
These assets represent investments which back life insurance policy liabilities. This includes listed equities, exchange
traded and over the counter derivatives, investment grade corporate bonds and units in unlisted unit trusts.
Listed equities and exchange traded derivatives are traded in liquid, active markets where prices are readily observable.
No modelling or assumptions are used in the valuation. They are classified as Level 1 instruments.
Investment grade corporate bonds, over the counter derivatives, units in unlisted unit trusts and certain listed equities
subject to transfer restrictions are valued utilising observable market prices or other widely used and accepted valuation
techniques utilising observable market inputs. They are classified as Level 2 instruments.
Life insurance liabilities
Life insurance liabilities consist of life insurance contract liabilities, life investment contract liabilities and external liabilities
of managed investment schemes controlled by statutory life funds. These are valued utilising observable market prices or
other widely used and accepted valuation techniques utilising observable market inputs.
Short sales of listed equities within controlled managed investment schemes are traded in liquid, active markets where
prices are readily observable. No modelling or assumptions are used in the valuation. They are classified as Level 1
instruments. All other instruments are classified as Level 2.
Where a quoted price is not available the fair value of fixed rate bills is determined using a discounted cash flow approach,
using a discount rate which reflects the terms of the instrument and the timing of cash flows, adjusted for creditworthiness
based on market observable inputs. These are classified as Level 2 instruments.
The table below summarises the attribution of financial instruments carried at fair value to the fair value hierarchy:
Loans at fair value
Consolidated
2015
Valuation
Valuation
Quoted
Techniques
Techniques
Market
(Market
(Non-Market
Prices
Observable)
Observable)
2014
Valuation
Valuation
Quoted
Techniques
Techniques
Market
(Market
(Non-Market
Prices
Observable)
Observable)
$m
(Level 1)
(Level 2)
(Level 3)
Total
(Level 1)
(Level 2)
(Level 3)
Total
Financial assets measured at fair
value on a recurring basis
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans
Life insurance assets
Total assets carried at fair value
Financial liabilities measured at
fair value on a recurring basis
Deposits and other borrowings at fair value
Other financial liabilities at fair
value through income statement
Derivative financial instruments
Debt issues at fair value
Life insurance liabilities
139,543
1,969
150,628
11,546
130,297
1,815 143,658
2,446
39
2,071
4,560
9,116
-
-
414
35
-
775
24,001
48,090
51,811
7,076
8,565
46,239
8,812
48,230
9,300
10,784
1,007
44
918
-
-
-
-
-
39
18
27,454
48,173
54,800
7,076
13,125
46,239
9,226
48,304
9,318
11,559
5,258
51
1,765
4,472
1,134
37
-
-
-
-
39,663
41,348
33,421
9,330
6,535
49,636
18,102
39,472
9,524
9,637
988
45,909
5
41,404
822
36,008
9,330
11,007
-
-
-
-
-
30
18
49,636
19,236
39,539
9,542
9,637
Total liabilities carried at fair value
1,224
123,365
57
124,646
1,171
126,371
48 127,590
204
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
205
Note 23. Fair values of financial assets and financial liabilities (continued)
The fair value of Offshore RMBS is determined using consensus data. These are classified as Level 2 instruments.
As synthetic CDO prices are not generally available, Synthetic CDOs are valued using a model. The model uses a
combination of established analytic and numerical approaches. The model calculates fair value based on observable and
unobservable parameters including credit spreads, recovery rates, correlations and interest rates. As some of the model
inputs (e.g. correlations) are indirectly implied or unobservable, synthetic CDOs are classified as Level 3 instruments.
Where available, cash CDO, CLO and ABS products are valued using prices obtained from consensus data providers and
classified as Level 2 instruments. Where consensus prices are not available, these products are valued using quotes
provided by a third party broker or independent lead manager and classified as Level 3 instruments. The Group has no
material exposure to CDOs.
Other credit products
These products are linked to the credit spread of a referenced entity or index and include Single Name and Index CDS.
CDS are valued using an industry standard model that incorporates the credit spread as its principal input. Credit spreads
are obtained from consensus market data providers. Single name and index CDS are classified as Level 2 instruments.
Non-asset backed debt instruments
There are observable markets for Australian and New Zealand government bonds in which Westpac is a primary dealer.
Australian government bonds are valued using unadjusted quoted market yields. New Zealand government bonds are
valued using unadjusted quoted market prices. These products are classified as Level 1 instruments.
Other government bonds, state government bonds, corporate bonds and commercial paper are valued using observable
market prices which are sourced from consensus pricing services, broker quotes or inter-dealer prices. These products are
classified as Level 2 instruments, with the exception of government securities where there are no observable secondary
markets which are classified as Level 3 instruments.
Equity products
equity warrants.
Commodity products
This category includes cash equities and equity indices, exchange traded equity options, OTC equity options and OTC
Cash equities and equity indices are traded on major global exchanges in liquid markets. No modelling or assumptions are
used in valuation. These are categorised as Level 1 instruments.
Exchange traded equity options, OTC equity options and equity warrants are valued using industry standard models. The
models calculate fair value based on input parameters such as stock prices, dividends, volatilities and interest rates. In
general, input parameters are deemed observable. These are classified as Level 2 instruments.
These products are exchange traded and OTC derivatives based on underlying commodities such as energy, carbon,
agriculture, metals, crude oil and refined products, power and natural gas.
Commodity spot and futures, energy spot and futures together with carbon futures are traded on major global exchanges
in liquid markets. No modelling or assumptions are used in the valuation of these instruments. These are classified as
Level 1 instruments.
The valuation of commodity, carbon and energy derivatives are determined using industry standard models incorporating
discounting of cash flows and other industry standard modelling techniques. Valuation inputs include forward curves,
volatilities implied from market observable inputs, discount curves and underlying spot and futures prices. The significant
inputs are market observable or available through a consensus data service. Where unobservable, inputs will be set with
reference to an observable proxy.
In general, commodity, carbon and energy derivatives are classified as Level 2 instruments.
Certificates of deposit
Debt issues at fair value
Where a quoted price is not available the fair value of debt issues is determined using a discounted cash flow approach,
using a discount rate which reflects the terms of the instrument and the timing of cash flows adjusted for market
observable changes in the applicable credit rating of Westpac. These instruments are classified as Level 2 instruments.
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Life insurance assets
These assets represent investments which back life insurance policy liabilities. This includes listed equities, exchange
traded and over the counter derivatives, investment grade corporate bonds and units in unlisted unit trusts.
Listed equities and exchange traded derivatives are traded in liquid, active markets where prices are readily observable.
No modelling or assumptions are used in the valuation. They are classified as Level 1 instruments.
Investment grade corporate bonds, over the counter derivatives, units in unlisted unit trusts and certain listed equities
subject to transfer restrictions are valued utilising observable market prices or other widely used and accepted valuation
techniques utilising observable market inputs. They are classified as Level 2 instruments.
Life insurance liabilities
Life insurance liabilities consist of life insurance contract liabilities, life investment contract liabilities and external liabilities
of managed investment schemes controlled by statutory life funds. These are valued utilising observable market prices or
other widely used and accepted valuation techniques utilising observable market inputs.
Short sales of listed equities within controlled managed investment schemes are traded in liquid, active markets where
prices are readily observable. No modelling or assumptions are used in the valuation. They are classified as Level 1
instruments. All other instruments are classified as Level 2.
Loans at fair value
Where a quoted price is not available the fair value of fixed rate bills is determined using a discounted cash flow approach,
using a discount rate which reflects the terms of the instrument and the timing of cash flows, adjusted for creditworthiness
based on market observable inputs. These are classified as Level 2 instruments.
The table below summarises the attribution of financial instruments carried at fair value to the fair value hierarchy:
Consolidated
2015
2014
$m
Financial assets measured at fair
value on a recurring basis
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans
Life insurance assets
Total assets carried at fair value
Financial liabilities measured at
fair value on a recurring basis
Deposits and other borrowings at fair value
Other financial liabilities at fair
value through income statement
Derivative financial instruments
Debt issues at fair value
Life insurance liabilities
Quoted
Market
Prices
(Level 1)
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Quoted
Market
Prices
(Level 1)
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
Total
2,446
39
2,071
-
4,560
9,116
24,001
48,090
51,811
7,076
8,565
1,007
44
918
-
-
27,454
48,173
54,800
7,076
13,125
5,258
51
1,765
-
4,472
39,663
41,348
33,421
9,330
6,535
988
45,909
5
41,404
822
36,008
-
-
9,330
11,007
139,543
1,969
150,628
11,546
130,297
1,815 143,658
-
46,239
414
35
-
775
8,812
48,230
9,300
10,784
-
-
39
18
-
46,239
-
49,636
9,226
48,304
9,318
11,559
1,134
37
-
-
18,102
39,472
9,524
9,637
-
-
30
18
-
49,636
19,236
39,539
9,542
9,637
The fair value of certificates of deposit is determined using a discounted cash flow analysis using markets rates offered for
deposits of similar remaining maturities. Certificates of deposit are classified as Level 2 instruments.
Total liabilities carried at fair value
1,224
123,365
57
124,646
1,171
126,371
48 127,590
204
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
205
3
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 23. Fair values of financial assets and financial liabilities (continued)
Parent Entity
2015
2014
Consolidated 2014
Quoted
Market
Prices
(Level 1)
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Quoted
Market
Prices
(Level 1)
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
Total
$m
Financial assets measured at fair
value on a recurring basis
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans
2,446
39
598
-
21,729
47,457
49,654
7,076
721
44
79
-
24,896
47,540
50,331
7,076
5,260
51
-
-
38,285
41,251
31,823
9,330
Total assets carried at fair value
3,083
125,916
844
129,843
5,311
120,689
Financial liabilities measured at
fair value on a recurring basis
Deposits and other borrowings at fair value
Other financial liabilities at fair
value through income statement
Derivative financial instruments
Debt issues at fair value
Total liabilities carried at fair value
-
45,331
414
35
-
449
8,812
47,978
6,415
108,536
-
-
37
-
45,331
-
48,661
9,226
48,050
6,415
1,134
37
-
18,021
39,074
6,315
37
109,022
1,171
112,071
779
44,324
5
41,307
170
31,993
-
9,330
954 126,954
-
-
48,661
19,155
30
39,141
-
6,315
30 113,272
Analysis of movements between Fair Value Hierarchy Levels
During the period there were no material transfers between levels of the fair value hierarchy. Transfers into or out of Level 3 are
discussed in the following table.
Significant unobservable inputs
Sensitivities to reasonably possible changes in non-market observable valuation assumptions would not have a material impact
on the Group’s reported results.
Day one profit or loss
The closing balance of unrecognised day one profit for both the Group and the Parent Entity for the period was $6 million
(30 September 2014: $6 million profit).
Reconciliation of non-market observables
The table below summarises the changes in financial instruments carried at fair value derived from non-market observable
valuation techniques (Level 3):
Consolidated 2015
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisitions and issues
Disposals and settlements
Transfers into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in
the income statements for financial
instruments held as at 30 September 2015
Trading Securities
and Financial
Assets Designated at
Fair Value Derivatives
5
988
Available-
for-Sale
Securities
822
Total
Assets Derivatives
30
1,815
Debt
Issues
at Fair
Value
18
Total
Liabilities
48
8
-
403
(512)
13
107
1,007
11
1
-
23
(7)
22
-
44
23
5
(1)
14
(1)
2,303
2,729
(2,299)
(2,818)
-
88
35
195
918
1,969
-
34
28
-
5
(41)
17
-
39
20
-
-
-
-
-
-
18
-
28
-
5
(41)
17
-
57
20
206
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisitions and issues
Disposals and settlements
Transfers into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in
the income statements for financial
instruments held as at 30 September 2014
Parent Entity 2015
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisitions and issues
Disposals and settlements
Transfers into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in
the income statements for financial
instruments held as at 30 September 2015
Parent Entity 2014
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisitions and issues
Disposals and settlements
Transfers into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in
the income statements for financial
instruments held as at 30 September 2014
Notes to the financial statements
Trading Securities
and Financial
Assets Designated at
Available-
for-Sale
Total
Debt
Issues
at Fair
Total
Fair Value Derivatives
Securities
Assets Derivatives
Value
Liabilities
790
1,332
24
13
37
538
(7)
-
634
(204)
24
3
988
14
779
(5)
-
319
(484)
13
99
721
1
292
5
-
628
(174)
24
4
779
5
4
-
-
2
-
-
5
1
5
1
-
23
(7)
22
-
44
23
4
-
-
2
-
-
5
1
1,524
2,160
(1)
(1,583)
(1,788)
822
1,815
-
15
Available-
for-Sale
Total
170
954
-
18
-
73
-
(1)
68
-
26
79
(7)
18
24
76
(4)
(1)
410
(675)
35
125
844
(1)
(108)
-
(2)
72
170
-
8
-
5
(2)
702
(283)
24
12
954
6
Trading Securities
and Financial
Assets Designated at
Fair Value Derivatives
Securities
Assets Derivatives
Total
Liabilities
(184)
(41)
Trading Securities
and Financial
Assets Designated at
-
24
Available-
for-Sale
Total
Fair Value Derivatives
Securities
Assets Derivatives
200
496
24
Total
Liabilities
24
6
-
-
-
-
6
(1)
18
(16)
24
(2)
-
-
-
30
(8)
30
26
-
5
17
-
37
18
(16)
24
(2)
-
-
-
30
(8)
(10)
24
(3)
-
-
-
48
(2)
30
26
-
5
17
-
37
(41)
18
(16)
24
(2)
-
-
-
30
(8)
207
Note 23. Fair values of financial assets and financial liabilities (continued)
Parent Entity
2015
Valuation
Valuation
Quoted
Techniques
Techniques
Market
(Market
(Non-Market
Prices
Observable)
Observable)
2014
Valuation
Valuation
Quoted
Techniques
Techniques
Market
(Market
(Non-Market
Prices
Observable)
Observable)
$m
(Level 1)
(Level 2)
(Level 3)
Total
(Level 1)
(Level 2)
(Level 3)
Total
Total assets carried at fair value
3,083
125,916
844
129,843
5,311
120,689
954 126,954
2,446
39
598
-
-
414
35
-
449
21,729
47,457
49,654
7,076
45,331
8,812
47,978
6,415
108,536
721
44
79
-
24,896
47,540
50,331
7,076
5,260
51
-
-
-
45,331
9,226
1,134
37
48,050
6,415
37
-
-
-
-
38,285
41,251
31,823
9,330
48,661
18,021
39,074
6,315
779
44,324
5
41,307
170
31,993
9,330
-
-
-
-
48,661
19,155
30
39,141
6,315
Total liabilities carried at fair value
37
109,022
1,171
112,071
30 113,272
Analysis of movements between Fair Value Hierarchy Levels
During the period there were no material transfers between levels of the fair value hierarchy. Transfers into or out of Level 3 are
Sensitivities to reasonably possible changes in non-market observable valuation assumptions would not have a material impact
The closing balance of unrecognised day one profit for both the Group and the Parent Entity for the period was $6 million
The table below summarises the changes in financial instruments carried at fair value derived from non-market observable
Financial assets measured at fair
value on a recurring basis
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans
Financial liabilities measured at
fair value on a recurring basis
Deposits and other borrowings at fair value
Other financial liabilities at fair
value through income statement
Derivative financial instruments
Debt issues at fair value
discussed in the following table.
Significant unobservable inputs
on the Group’s reported results.
Day one profit or loss
(30 September 2014: $6 million profit).
Reconciliation of non-market observables
valuation techniques (Level 3):
Consolidated 2015
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisitions and issues
Disposals and settlements
Transfers into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in
the income statements for financial
instruments held as at 30 September 2015
Trading Securities
and Financial
Assets Designated at
Available-
for-Sale
Total
Debt
Issues
at Fair
Fair Value Derivatives
Securities
Assets Derivatives
Value
Liabilities
822
1,815
30
18
988
8
-
403
(512)
13
107
1,007
11
5
1
-
23
(7)
22
-
44
23
2,303
2,729
(2,299)
(2,818)
(41)
5
(1)
-
88
14
(1)
35
195
-
34
28
-
5
17
-
39
20
-
-
-
-
-
-
-
918
1,969
18
Total
48
28
-
5
17
-
57
(41)
20
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Consolidated 2014
Trading Securities
and Financial
Assets Designated at
Fair Value Derivatives
4
538
Available-
for-Sale
Securities
790
Total
Assets Derivatives
24
1,332
Debt
Issues
at Fair
Value
13
Total
Liabilities
37
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisitions and issues
Disposals and settlements
Transfers into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in
the income statements for financial
instruments held as at 30 September 2014
Parent Entity 2015
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisitions and issues
Disposals and settlements
Transfers into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in
the income statements for financial
instruments held as at 30 September 2015
Parent Entity 2014
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisitions and issues
Disposals and settlements
Transfers into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in
the income statements for financial
instruments held as at 30 September 2014
(7)
-
634
(204)
24
3
988
14
-
-
2
-
18
(7)
18
1,524
2,160
(1)
(1,583)
(1,788)
-
-
5
1
-
73
24
76
822
1,815
-
15
(16)
-
24
(2)
-
-
30
(8)
6
-
-
(1)
-
-
18
6
(10)
-
24
(3)
-
-
48
(2)
Trading Securities
and Financial
Assets Designated at
Fair Value Derivatives
5
779
Available-
for-Sale
Securities
170
Total
Assets Derivatives
30
954
Total
Liabilities
30
(5)
-
319
(484)
13
99
721
1
1
-
23
(7)
22
-
44
23
-
(1)
68
(184)
-
26
79
(4)
(1)
410
(675)
35
125
844
-
24
26
-
5
(41)
17
-
37
18
26
-
5
(41)
17
-
37
18
Trading Securities
and Financial
Assets Designated at
Fair Value Derivatives
4
292
Available-
for-Sale
Securities
200
Total
Assets Derivatives
24
496
Total
Liabilities
24
5
-
628
(174)
24
4
779
5
-
-
2
(1)
-
-
5
1
-
(2)
72
(108)
-
8
170
5
(2)
702
(283)
24
12
954
-
6
(16)
-
24
(2)
-
-
30
(8)
(16)
-
24
(2)
-
-
30
(8)
207
206
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
3
Note 23. Fair values of financial assets and financial liabilities (continued)
Transfers into and out of Level 3 have occurred due to changes in observability in the significant inputs into the valuation
models used to determine the fair value of the related financial instruments. Transfers in and transfers out are reported using
the end of period fair values.
Financial instruments not measured at fair value
For financial instruments not measured at fair value on a recurring basis in the balance sheet, fair value has been derived
as follows:
Loans
The carrying value of loans is net of individually and collectively assessed provisions for impairment charges. The fair value of
loans is based on observable market transactions, where available. In the absence of observable market transactions, fair
value is estimated using discounted cash flow models. For variable rate loans, the discount rate used is the current effective
interest rate. The discount rate applied for fixed rate loans reflects the market rate for the maturity of the loan and the credit
worthiness of the borrower.
Deposits and other borrowings
Deposits by customers’ accounts are grouped by maturity. Fair values of deposit liabilities payable on demand (interest free,
interest bearing and savings deposits) approximate their carrying value. Fair values for term deposits are estimated using
discounted cash flows, applying market rates offered for deposits of similar remaining maturities.
Debt issues and loan capital
Fair values are calculated using a discounted cash flow model. The discount rates applied reflect the terms of the instruments,
the timing of the estimated cash flows and are adjusted for any changes in Westpac’s credit spreads.
Other financial assets and liabilities
For all other financial assets and liabilities, the carrying value approximates to the fair value. These items are either short-term
in nature, re-price frequently or are of a high credit rating.
The following table summarises the estimated fair value and fair value hierarchy of financial instruments not measured at
fair value:
Consolidated
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
Available-for-sale securities
Loans
Regulatory deposits with central banks overseas
Other financial assets
Total financial assets
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues
Loan capital
Other financial liabilities
Total financial liabilities
Quoted
Market
Prices
(Level 1)
14,770
7,602
-
-
-
-
Carrying
Amount
14,770
9,583
33
616,240
1,309
3,077
645,012
22,372
18,731
429,089
161,736
13,840
6,861
630,257
4,037
-
-
-
-
4,037
2015
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
14,770
9,583
33
-
823
33
617,250
617,250
-
-
1,309
3,077
618,106
646,022
-
3,303
-
-
-
3,303
18,731
430,029
162,107
13,495
6,861
631,223
-
1,158
-
-
1,309
3,077
5,544
14,694
426,726
162,107
13,495
6,861
623,883
Note 23. Fair values of financial assets and financial liabilities (continued)
Consolidated
571,273
571,273
610,834
29,590
572,706
611,094
Notes to the financial statements
2014
Fair Value
Valuation
Valuation
Techniques
Techniques
(Market
(Non-Market
Observable)
Observable)
(Level 2)
(Level 3)
Total
Quoted
Market
Prices
(Level 1)
25,760
3,830
3,876
Quoted
Market
Prices
(Level 1)
13,372
7,586
20,958
3,445
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,876
3,434
2015
Fair Value
Valuation
Valuation
Techniques
Techniques
(Market
(Non-Market
Observable)
Observable)
(Level 2)
(Level 3)
Total
-
-
-
2,177
1,528
5,093
8,798
14,760
408,398
144,337
10,858
6,852
585,205
1,155
1,152
2,458
4,765
-
-
-
-
-
14,688
379,681
138,628
13,495
6,105
552,597
1,417
16
3,434
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13
539,451
145,560
685,024
1,349
143,885
25,760
7,424
16
1,528
5,093
18,636
411,832
144,337
10,858
6,852
592,515
13,372
8,741
13
539,451
1,152
145,560
2,458
710,747
18,133
381,030
138,628
143,885
13,495
6,105
701,276
3,445
145,234
Carrying
Amount
25,760
7,424
16
571,013
1,528
5,093
18,636
411,186
142,709
10,858
6,852
590,241
Carrying
Amount
13,372
8,741
13
538,999
1,152
145,560
2,458
710,295
18,133
380,178
138,300
143,885
13,840
6,105
700,441
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
Available-for-sale securities
Loans
Other financial assets
Total financial assets
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues
Loan capital
Other financial liabilities
Total financial liabilities
Parent Entity
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
Available-for-sale securities
Loans
Due from subsidiaries
Other financial assets
Total financial assets
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues
Due to subsidiaries
Loan capital
Other financial liabilities
Total financial liabilities
208
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
209
Note 23. Fair values of financial assets and financial liabilities (continued)
Transfers into and out of Level 3 have occurred due to changes in observability in the significant inputs into the valuation
models used to determine the fair value of the related financial instruments. Transfers in and transfers out are reported using
Note 23. Fair values of financial assets and financial liabilities (continued)
Consolidated
2014
Fair Value
Notes to the financial statements
the end of period fair values.
Financial instruments not measured at fair value
as follows:
Loans
For financial instruments not measured at fair value on a recurring basis in the balance sheet, fair value has been derived
The carrying value of loans is net of individually and collectively assessed provisions for impairment charges. The fair value of
loans is based on observable market transactions, where available. In the absence of observable market transactions, fair
value is estimated using discounted cash flow models. For variable rate loans, the discount rate used is the current effective
interest rate. The discount rate applied for fixed rate loans reflects the market rate for the maturity of the loan and the credit
worthiness of the borrower.
Deposits and other borrowings
Deposits by customers’ accounts are grouped by maturity. Fair values of deposit liabilities payable on demand (interest free,
interest bearing and savings deposits) approximate their carrying value. Fair values for term deposits are estimated using
discounted cash flows, applying market rates offered for deposits of similar remaining maturities.
Debt issues and loan capital
Fair values are calculated using a discounted cash flow model. The discount rates applied reflect the terms of the instruments,
the timing of the estimated cash flows and are adjusted for any changes in Westpac’s credit spreads.
Other financial assets and liabilities
For all other financial assets and liabilities, the carrying value approximates to the fair value. These items are either short-term
in nature, re-price frequently or are of a high credit rating.
The following table summarises the estimated fair value and fair value hierarchy of financial instruments not measured at
fair value:
Consolidated
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
Available-for-sale securities
Loans
Other financial assets
Total financial assets
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues
Loan capital
Other financial liabilities
Total financial liabilities
2015
Fair Value
Valuation
Valuation
Techniques
Techniques
(Market
(Non-Market
Observable)
Observable)
(Level 2)
(Level 3)
Total
-
-
-
1,158
1,309
3,077
5,544
14,694
426,726
162,107
13,495
6,861
623,883
617,250
617,250
823
33
-
-
-
-
-
-
-
3,303
14,770
9,583
33
1,309
3,077
18,731
430,029
162,107
13,495
6,861
631,223
Quoted
Market
Prices
(Level 1)
14,770
7,602
-
-
-
-
-
-
-
-
4,037
4,037
3,303
Carrying
Amount
14,770
9,583
33
616,240
1,309
3,077
18,731
429,089
161,736
13,840
6,861
630,257
645,012
22,372
618,106
646,022
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
Available-for-sale securities
Loans
Regulatory deposits with central banks overseas
Other financial assets
Total financial assets
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues
Loan capital
Other financial liabilities
Total financial liabilities
Parent Entity
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
Available-for-sale securities
Loans
Regulatory deposits with central banks overseas
Due from subsidiaries
Other financial assets
Total financial assets
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues
Due to subsidiaries
Loan capital
Other financial liabilities
Total financial liabilities
Quoted
Market
Prices
(Level 1)
25,760
3,830
-
-
-
-
Carrying
Amount
25,760
7,424
16
571,013
1,528
5,093
610,834
29,590
18,636
411,186
142,709
10,858
6,852
590,241
Carrying
Amount
13,372
8,741
13
538,999
1,152
145,560
2,458
710,295
18,133
380,178
138,300
143,885
13,840
6,105
700,441
3,876
-
-
-
-
3,876
Quoted
Market
Prices
(Level 1)
13,372
7,586
-
-
-
-
-
20,958
3,445
-
-
-
-
-
3,445
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
-
2,177
-
-
1,528
5,093
8,798
14,760
408,398
144,337
10,858
6,852
585,205
-
1,417
16
-
3,434
-
-
-
3,434
2015
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
-
1,155
-
-
1,152
-
2,458
4,765
14,688
379,681
138,628
-
-
13
539,451
-
145,560
-
685,024
-
1,349
-
-
143,885
13,495
6,105
552,597
-
-
145,234
Total
25,760
7,424
16
18,636
411,832
144,337
10,858
6,852
592,515
Total
13,372
8,741
13
539,451
1,152
145,560
2,458
710,747
18,133
381,030
138,628
143,885
13,495
6,105
701,276
571,273
571,273
-
-
1,528
5,093
572,706
611,094
208
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
209
3
Note 23. Fair values of financial assets and financial liabilities (continued)
Parent Entity
2014
Fair Value
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
Available-for-sale securities
Loans
Regulatory deposits with central banks overseas
Due from subsidiaries
Other financial assets
Total financial assets
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues
Due to subsidiaries
Loan capital
Other financial liabilities
Total financial liabilities
Quoted
Market
Prices
(Level 1)
23,400
3,686
-
-
-
-
-
27,086
3,842
-
-
-
-
-
3,842
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
-
1,797
-
-
1,389
-
4,527
7,713
14,569
364,946
123,024
-
-
16
496,485
-
140,098
-
636,599
-
1,183
-
-
135,066
10,858
5,948
519,345
-
-
136,249
Carrying
Amount
23,400
5,483
16
496,274
1,389
140,098
4,527
671,187
18,411
365,522
121,531
135,066
10,858
5,948
657,336
Total
23,400
5,483
16
496,485
1,389
140,098
4,527
671,398
18,411
366,129
123,024
135,066
10,858
5,948
659,436
Derivative financial instruments
57,678
(9,505)
(33,696)
(4,046)
10,309
Notes to the financial statements
Note 24. Offsetting financial assets and financial liabilities and collateral arrangements
Accounting policy
liability simultaneously.
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable
right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the
The following tables provide information on the impact of offsetting, as well as amounts subject to enforceable master netting
agreements or similar arrangements that do not qualify for offsetting in the balance sheets. The tables exclude amounts not
subject to offsetting or enforceable netting arrangements and therefore may not tie back to the balance sheet. The amounts
presented in this note do not represent the credit risk exposure of the Group or Parent Entity. Refer to Note 22.2 for information
on credit risk management. The offsetting and collateral arrangements and other credit risk mitigation strategies used by the
Group are further explained in the ‘Management of risk mitigation’ section of Note 22.2.4.
Effects of Offsetting
on Balance Sheet
Amounts Subject to Enforecable
Netting Arrangments But Not Offset
Gross
Amounts
Amounts
Offset
Net Amounts
Reported on
the Balance
Other
Recognised
Financial
Financial
Cash
Instrument
Net
Sheet
Instruments
Collateral
Collateral
Amount
Consolidated
$m
2015
Assets
Receivables due from other
financial institutions1
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Securities sold under agreement
to repurchase5
Deposits and other borrowings3
Other liabilities4
Total liabilities
2014
Assets
Receivables due from other
financial institutions1
Derivative financial instruments
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Derivative financial instruments
Securities sold under agreement
to repurchase5
Deposits and other borrowings3
Total liabilities
Derivative financial instruments
58,671
(10,367)
48,304
(33,696)
(7,973)
(1,854)
4,781
52,788
(33,696)
(4,057)
(4,123)
10,912
97,053
(26,221)
70,832
(33,696)
(7,979)
(15,756)
13,401
(15,757)
(959)
(26,221)
(15,757)
(97)
-
-
-
-
-
-
-
-
-
31
3,982
15,949
1,369
79,009
13,908
24,369
105
28
41,404
6,275
90
39,539
23,520
18,031
81,090
11,898
(11,801)
31
48,173
3,982
192
410
13,908
8,612
8
28
41,404
6,275
97
90
23,520
6,230
69,289
-
-
-
-
-
-
-
-
-
-
-
-
-
(30)
(122)
(11)
(3,971)
(6)
(13,902)
-
-
-
-
-
-
-
-
-
192
410
1
-
-
8
8,612
-
97
90
-
6,230
13,029
-
-
-
-
-
-
-
(27,241)
(3,866)
(26)
(92)
2
10,205
(22)
(6,253)
59,695
(11,801)
47,894
(27,241)
(3,888)
(6,371)
10,394
39,539
(27,241)
(3,861)
(1,638)
6,799
(11,801)
(11,801)
(33)
(23,487)
(27,241)
(3,894)
(25,125)
1 Consists of stock borrowing arrangements, reported as part of Cash collateral in Note 10 Receivables due from other financial institutions.
2 Securities purchased under agreement to resell forms part of Note 11 Trading securities and financial assets designated at fair value.
3 Consists of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of Business
loans in Note 13 Loans, and part of Deposits and other borrowings at amortised costs in Note 17 Deposits and other borrowings.
4 Gross amounts consists of initial and variation margin held directly with Central Clearing Counterparties, reported as part of Other in Note 27 Other
assets. Where variation margin is payable it is reported as part of Other in Note 29 Other liabilities (2014: nil). Amounts offset relate to
variation margin.
5 Securities sold under agreement to repurchase forms part of Note 16 Payables due to other financial institutions, recognised at amortised cost, and
part of Note 18 Other financial liabilities at fair value through income statement.
210
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
211
Note 23. Fair values of financial assets and financial liabilities (continued)
Parent Entity
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
Available-for-sale securities
Loans
Due from subsidiaries
Other financial assets
Total financial assets
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues
Due to subsidiaries
Loan capital
Other financial liabilities
Total financial liabilities
2014
Fair Value
Valuation
Valuation
Techniques
Techniques
(Market
(Non-Market
Observable)
Observable)
(Level 2)
(Level 3)
Total
1,797
1,389
4,527
7,713
-
-
-
-
-
14,569
364,946
123,024
10,858
5,948
519,345
16
496,485
140,098
636,599
1,183
135,066
-
-
-
-
-
-
-
-
23,400
5,483
16
496,485
1,389
140,098
4,527
671,398
18,411
366,129
123,024
135,066
10,858
5,948
659,436
Quoted
Market
Prices
(Level 1)
23,400
3,686
27,086
3,842
-
-
-
-
-
-
-
-
-
-
3,842
136,249
Carrying
Amount
23,400
5,483
16
496,274
1,389
140,098
4,527
671,187
18,411
365,522
121,531
135,066
10,858
5,948
657,336
Notes to the financial statements
Note 24. Offsetting financial assets and financial liabilities and collateral arrangements
Accounting policy
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable
right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the
liability simultaneously.
The following tables provide information on the impact of offsetting, as well as amounts subject to enforceable master netting
agreements or similar arrangements that do not qualify for offsetting in the balance sheets. The tables exclude amounts not
subject to offsetting or enforceable netting arrangements and therefore may not tie back to the balance sheet. The amounts
presented in this note do not represent the credit risk exposure of the Group or Parent Entity. Refer to Note 22.2 for information
on credit risk management. The offsetting and collateral arrangements and other credit risk mitigation strategies used by the
Group are further explained in the ‘Management of risk mitigation’ section of Note 22.2.4.
Consolidated
$m
2015
Assets
Receivables due from other
financial institutions1
Derivative financial instruments
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Derivative financial instruments
Securities sold under agreement
to repurchase5
Deposits and other borrowings3
Other liabilities4
Total liabilities
2014
Assets
Receivables due from other
financial institutions1
Derivative financial instruments
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Derivative financial instruments
Securities sold under agreement
to repurchase5
Deposits and other borrowings3
Total liabilities
Effects of Offsetting
on Balance Sheet
Amounts Subject to Enforecable
Netting Arrangments But Not Offset
Gross
Amounts
Amounts
Offset
Net Amounts
Reported on
the Balance
Sheet
Other
Recognised
Financial
Instruments
Cash
Collateral
Financial
Instrument
Collateral
Net
Amount
31
-
57,678
(9,505)
3,982
15,949
1,369
79,009
-
(15,757)
(959)
(26,221)
31
48,173
3,982
192
410
-
-
(33,696)
(4,046)
(30)
(122)
1
10,309
-
-
-
(11)
(3,971)
-
-
-
-
-
192
410
52,788
(33,696)
(4,057)
(4,123)
10,912
58,671
(10,367)
48,304
(33,696)
(7,973)
(1,854)
4,781
13,908
24,369
105
-
(15,757)
(97)
13,908
8,612
8
-
-
-
(6)
-
-
(13,902)
-
-
-
8,612
8
97,053
(26,221)
70,832
(33,696)
(7,979)
(15,756)
13,401
28
41,404
6,275
-
-
-
11,898
(11,801)
90
-
28
41,404
6,275
97
90
-
(27,241)
-
(3,866)
(26)
(92)
2
10,205
-
-
-
(22)
(6,253)
-
-
-
-
-
97
90
59,695
(11,801)
47,894
(27,241)
(3,888)
(6,371)
10,394
39,539
23,520
18,031
81,090
-
-
(11,801)
(11,801)
39,539
(27,241)
(3,861)
(1,638)
6,799
23,520
6,230
69,289
-
-
(33)
-
(23,487)
-
(27,241)
(3,894)
(25,125)
-
6,230
13,029
1 Consists of stock borrowing arrangements, reported as part of Cash collateral in Note 10 Receivables due from other financial institutions.
2 Securities purchased under agreement to resell forms part of Note 11 Trading securities and financial assets designated at fair value.
3 Consists of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of Business
loans in Note 13 Loans, and part of Deposits and other borrowings at amortised costs in Note 17 Deposits and other borrowings.
4 Gross amounts consists of initial and variation margin held directly with Central Clearing Counterparties, reported as part of Other in Note 27 Other
assets. Where variation margin is payable it is reported as part of Other in Note 29 Other liabilities (2014: nil). Amounts offset relate to
variation margin.
5 Securities sold under agreement to repurchase forms part of Note 16 Payables due to other financial institutions, recognised at amortised cost, and
part of Note 18 Other financial liabilities at fair value through income statement.
210
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3
Note 24. Offsetting financial assets and financial liabilities and collateral arrangements (continued)
Note 24. Offsetting financial assets and financial liabilities and collateral arrangements (continued)
Parent Entity
$m
2015
Assets
Receivables due from other
financial institutions1
Derivative financial instruments
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Derivative financial instruments
Securities sold under agreement
to repurchase5
Deposits and other borrowings3
Other liabilities4
Total liabilities
2014
Assets
Receivables due from other
financial institutions1
Derivative financial instruments
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Derivative financial instruments
Securities sold under agreement
to repurchase5
Deposits and other borrowings3
Total liabilities
Effects of Offsetting
on Balance Sheet
Amounts Subject to Enforecable
Netting Arrangments But Not Offset
Gross
Amounts
Amounts
Offset
Net Amounts
Reported on
the Balance
Sheet
Other
Recognised
Financial
Instruments
Cash
Collateral
Financial
Instrument
Collateral
Net
Amount
31
-
57,045
(9,505)
3,982
15,949
1,369
78,376
-
(15,757)
(959)
(26,221)
31
47,540
3,982
192
410
-
-
(33,510)
(3,454)
(30)
(122)
1
10,454
predetermined events occur.
-
-
-
(11)
(3,971)
-
-
-
-
-
192
410
52,155
(33,510)
(3,465)
(4,123)
11,057
58,417
(10,367)
48,050
(33,510)
(7,958)
(1,854)
4,728
13,908
24,369
105
-
(15,757)
(97)
13,908
8,612
8
-
-
-
(6)
-
-
(13,902)
-
-
-
8,612
8
96,799
(26,221)
70,578
(33,510)
(7,964)
(15,756)
13,348
28
41,307
6,275
-
-
-
11,898
(11,801)
90
-
28
41,307
6,275
97
90
-
-
(27,086)
(3,831)
(26)
(92)
2
10,298
-
-
-
(22)
(6,253)
-
-
-
-
-
97
90
59,598
(11,801)
47,797
(27,086)
(3,853)
(6,371)
10,487
39,141
23,439
18,031
80,611
-
-
(11,801)
(11,801)
39,141
(27,086)
(3,717)
(1,638)
6,700
23,439
6,230
68,810
-
-
(33)
-
(23,406)
-
(27,086)
(3,750)
(25,044)
-
6,230
12,930
1 Consists of stock borrowing arrangements, reported as part of Cash collateral in Note 10 Receivables due from other financial institutions.
2 Securities purchased under agreement to resell forms part of Note 11 Trading securities and financial assets designated at fair value.
3 Consists of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of Business
loans in Note 13 Loans, and part of Deposits and other borrowings at amortised costs in Note 17 Deposits and other borrowings.
4 Gross amounts consists of initial and variation margin held directly with Central Clearing Counterparties, reported as part of Other in Note 27 Other
assets. Where variation margin is payable it is reported as part of Other in Note 29 Other liabilities (2014: nil). Amounts offset relate to
variation margin.
5 Securities sold under agreement to repurchase forms part of Note 16 Payables due to other financial institutions, recognised at amortised cost, and
part of Note 18 Other financial liabilities at fair value through income statement.
Effects of offsetting on balance sheet
Amounts offset are in accordance with the criteria described in the accounting policy and are limited to the gross carrying
values of the financial instrument.
Notes to the financial statements
Amounts subject to enforceable netting arrangements but not offset
Other recognised financial instruments
Other recognised financial instruments discloses financial assets and liabilities recognised on balance sheet that are not offset
but are subject to enforceable master netting agreements whereby the rights of set-off and close-out netting can be applied in
the event of default, or if other predetermined events occur.
Cash collateral and financial instrument collateral
Cash collateral and financial instrument collateral discloses amounts received or pledged in relation to the gross amount of
assets and liabilities. Financial instrument collateral typically comprises highly liquid securities which are legally transferred and
can be liquidated in the event of counterparty default; they are reflected at fair value. These forms of collateral are also subject
to enforceable netting arrangements but are not offset due to the collateral being realised only in the event of default or if other
For the purpose of disclosure, the amounts subject to enforceable netting arrangements but not offset has been limited to the
net amounts of financial assets/(liabilities) presented on the balance sheet so to not include over-collateralisation. As a result,
the amounts for cash collateral and financial instrument collateral may not equal the table disclosed below.
Assets pledged
In addition to assets supporting securitisation and covered bond programs disclosed in Note 25, the Group and Parent Entity
have provided collateral to secure liabilities as part of standard terms of transaction with other financial institutions. The carrying
value of financial assets pledged as collateral to secure liabilities is:
$m
Cash
Cash deposit on stock borrowed
Securities (including certificates of deposit)
Securities pledged under repurchase agreements
Total amount pledged to secure liabilities
Collateral received
Consolidated
Parent Entity
2015
8,079
31
1,854
15,651
25,615
2014
3,894
28
1,638
25,978
31,538
2015
8,064
31
1,854
15,651
25,600
2014
3,750
28
1,638
25,897
31,313
Cash held as collateral, recognised on the Group’s balance sheet as at 30 September 2015 was $4,057 million in 2015 (2014:
$3,888 million) and for the Parent Entity’s was $3,465 million in 2015 (2014: $3,853 million). Securities received as collateral
under reverse repurchase agreements as at 30 September 2015 was $3,983 million (2014: $6,463 million).
A further $152 million (2014: $118 million) of securities were received as collateral under derivatives and stock borrowing.
Securities received as collateral are not recognised on the Group’s balance sheet.
Note 25. Securitisation and covered bonds
Westpac derives rewards and has exposure to risks from various forms of securitisation structures:
own asset securitisation; and
customer funding conduits.
Own assets securitised
Securitisation is a funding, liquidity and capital management tool. Securitisation provides Westpac the option to liquify a pool of
assets and increase the Group’s wholesale funding capacity. Westpac may provide arm’s length facilities to the securitisation
vehicles. The facilities entered into typically include the provision of liquidity, funding and derivative contracts.
Where the Parent Entity and the Group have continuing involvement with the securitisation vehicle, through ongoing exposure
to the risks and rewards associated with the assets, the provision of derivatives, liquidity facilities, trust management and
operational services, the originated assets remain recognised on the balance sheet for accounting purposes. These
securitisation vehicles are consolidated as Westpac is exposed or has the right to variable returns and has the ability to effect
its returns through its power over these securitisation vehicles.
Customer funding conduits
The Group arranges funding for certain customer transactions through a securitisation conduit (Waratah Receivables
Corporation Limited and other related structured entities) that provides customers with access to funding from commercial
paper markets. Given that Westpac provides liquidity, credit enhancements, foreign exchange facilities, management and
operational services, it is deemed to have exposure to the associated risks and rewards. The conduits are consolidated as the
Group is exposed or has the right to variable returns and has the ability to effect its returns through its power over the conduits.
212
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213
Note 24. Offsetting financial assets and financial liabilities and collateral arrangements (continued)
Effects of Offsetting
on Balance Sheet
Amounts Subject to Enforecable
Netting Arrangments But Not Offset
Gross
Amounts
Amounts
Offset
Net Amounts
Reported on
the Balance
Other
Recognised
Financial
Financial
Cash
Instrument
Net
Sheet
Instruments
Collateral
Collateral
Amount
Parent Entity
$m
2015
Assets
Receivables due from other
financial institutions1
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Derivative financial instruments
Securities sold under agreement
to repurchase5
Deposits and other borrowings3
Other liabilities4
Total liabilities
2014
Assets
Receivables due from other
financial institutions1
Derivative financial instruments
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Derivative financial instruments
Securities sold under agreement
to repurchase5
Deposits and other borrowings3
Total liabilities
Derivative financial instruments
57,045
(9,505)
(33,510)
(3,454)
10,454
(30)
(122)
(11)
(3,971)
52,155
(33,510)
(3,465)
(4,123)
11,057
58,417
(10,367)
48,050
(33,510)
(7,958)
(1,854)
4,728
(15,757)
(959)
(26,221)
(15,757)
(97)
-
-
-
-
-
-
-
-
-
31
3,982
15,949
1,369
78,376
13,908
24,369
105
28
41,307
6,275
90
39,141
23,439
18,031
80,611
11,898
(11,801)
31
47,540
3,982
192
410
13,908
8,612
8
28
41,307
6,275
97
90
23,439
6,230
68,810
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
192
410
1
-
-
8
2
-
97
90
-
-
-
-
-
-
-
(27,086)
(3,831)
10,298
(26)
(92)
(22)
(6,253)
59,598
(11,801)
47,797
(27,086)
(3,853)
(6,371)
10,487
39,141
(27,086)
(3,717)
(1,638)
6,700
(11,801)
(11,801)
(33)
(23,406)
-
6,230
12,930
(27,086)
(3,750)
(25,044)
1 Consists of stock borrowing arrangements, reported as part of Cash collateral in Note 10 Receivables due from other financial institutions.
2 Securities purchased under agreement to resell forms part of Note 11 Trading securities and financial assets designated at fair value.
3 Consists of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of Business
loans in Note 13 Loans, and part of Deposits and other borrowings at amortised costs in Note 17 Deposits and other borrowings.
4 Gross amounts consists of initial and variation margin held directly with Central Clearing Counterparties, reported as part of Other in Note 27 Other
assets. Where variation margin is payable it is reported as part of Other in Note 29 Other liabilities (2014: nil). Amounts offset relate to
variation margin.
5 Securities sold under agreement to repurchase forms part of Note 16 Payables due to other financial institutions, recognised at amortised cost, and
part of Note 18 Other financial liabilities at fair value through income statement.
Effects of offsetting on balance sheet
values of the financial instrument.
Amounts offset are in accordance with the criteria described in the accounting policy and are limited to the gross carrying
Notes to the financial statements
Note 24. Offsetting financial assets and financial liabilities and collateral arrangements (continued)
Amounts subject to enforceable netting arrangements but not offset
Other recognised financial instruments
Other recognised financial instruments discloses financial assets and liabilities recognised on balance sheet that are not offset
but are subject to enforceable master netting agreements whereby the rights of set-off and close-out netting can be applied in
the event of default, or if other predetermined events occur.
Cash collateral and financial instrument collateral
Cash collateral and financial instrument collateral discloses amounts received or pledged in relation to the gross amount of
assets and liabilities. Financial instrument collateral typically comprises highly liquid securities which are legally transferred and
can be liquidated in the event of counterparty default; they are reflected at fair value. These forms of collateral are also subject
to enforceable netting arrangements but are not offset due to the collateral being realised only in the event of default or if other
predetermined events occur.
For the purpose of disclosure, the amounts subject to enforceable netting arrangements but not offset has been limited to the
net amounts of financial assets/(liabilities) presented on the balance sheet so to not include over-collateralisation. As a result,
the amounts for cash collateral and financial instrument collateral may not equal the table disclosed below.
Assets pledged
In addition to assets supporting securitisation and covered bond programs disclosed in Note 25, the Group and Parent Entity
have provided collateral to secure liabilities as part of standard terms of transaction with other financial institutions. The carrying
value of financial assets pledged as collateral to secure liabilities is:
96,799
(26,221)
70,578
(33,510)
(7,964)
(15,756)
13,348
(6)
(13,902)
8,612
$m
Cash
Cash deposit on stock borrowed
Securities (including certificates of deposit)
Securities pledged under repurchase agreements
Total amount pledged to secure liabilities
Consolidated
Parent Entity
2015
8,079
31
1,854
15,651
25,615
2014
3,894
28
1,638
25,978
31,538
2015
8,064
31
1,854
15,651
25,600
2014
3,750
28
1,638
25,897
31,313
Collateral received
Cash held as collateral, recognised on the Group’s balance sheet as at 30 September 2015 was $4,057 million in 2015 (2014:
$3,888 million) and for the Parent Entity’s was $3,465 million in 2015 (2014: $3,853 million). Securities received as collateral
under reverse repurchase agreements as at 30 September 2015 was $3,983 million (2014: $6,463 million).
A further $152 million (2014: $118 million) of securities were received as collateral under derivatives and stock borrowing.
Securities received as collateral are not recognised on the Group’s balance sheet.
Note 25. Securitisation and covered bonds
Westpac derives rewards and has exposure to risks from various forms of securitisation structures:
own asset securitisation; and
customer funding conduits.
Own assets securitised
Securitisation is a funding, liquidity and capital management tool. Securitisation provides Westpac the option to liquify a pool of
assets and increase the Group’s wholesale funding capacity. Westpac may provide arm’s length facilities to the securitisation
vehicles. The facilities entered into typically include the provision of liquidity, funding and derivative contracts.
Where the Parent Entity and the Group have continuing involvement with the securitisation vehicle, through ongoing exposure
to the risks and rewards associated with the assets, the provision of derivatives, liquidity facilities, trust management and
operational services, the originated assets remain recognised on the balance sheet for accounting purposes. These
securitisation vehicles are consolidated as Westpac is exposed or has the right to variable returns and has the ability to effect
its returns through its power over these securitisation vehicles.
Customer funding conduits
The Group arranges funding for certain customer transactions through a securitisation conduit (Waratah Receivables
Corporation Limited and other related structured entities) that provides customers with access to funding from commercial
paper markets. Given that Westpac provides liquidity, credit enhancements, foreign exchange facilities, management and
operational services, it is deemed to have exposure to the associated risks and rewards. The conduits are consolidated as the
Group is exposed or has the right to variable returns and has the ability to effect its returns through its power over the conduits.
212
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
213
3
Note 25. Securitisation and covered bonds (continued)
Revenue from securitisation structures
Fee income
Westpac receives a market-based fee or margin in return for its services as trust manager, servicer, foreign exchange
counterparty and facilities provider.
Securitisation risk management
Credit exposure
Where relevant, counterparty exposure arising from funding, liquidity, credit support and funding facilities, foreign exchange and
swap arrangements for both own asset securitisation and customer funding conduits are approved within the Group’s normal
credit process and are captured and monitored in key source systems along with other facilities and derivatives entered into
by Westpac.
Market risk
Exposures arising from transactions with securitisation conduits and other counterparties are captured as part of Westpac’s
traded and non-traded market risk reporting and limit management framework.
The interest rate and basis risk generated by Westpac’s provision of hedge arrangements to securitisation vehicles are
captured and managed in Westpac’s ALM framework. The risk generated by Westpac’s provision of liquidity and redraw
facilities to own asset vehicles is captured and managed within Treasury’s liquidity risk policies along with all other contingent
liquidity facilities.
Funding and liquidity management
Exposure to and the impact of securitisation transactions are managed under the Market and Liquidity Risk Management
Framework and are integrated into routine reporting for capital and liquidity positions, net interest margin analysis, balance
sheet forecasting and funding scenario testing. The Group’s funding plan incorporates consideration of overall liquidity risk
limits and the level of securitisation of Westpac originated assets. Westpac provided undrawn liquidity facilities to the customer
funding conduit of $823 million at 30 September 2015 (30 September 2014: $1,416 million). Similarly undrawn funding and
liquidity facilities of $492 million were provided by Westpac (30 September 2014: $371 million) for the securitisation of its
own assets.
The following table presents assets securitised by the Group:
Consolidated
$m
Residential mortgage
Own Assets
10,209
Auto and equipment finance
Other1
Total
1 This reflects cash held by the own asset securitisation vehicles.
1,358
487
12,054
2015
Customer
Conduits
823
-
-
Total Own Assets
9,572
11,032
1,358
487
823
12,877
1,348
665
11,585
2014
Customer
Conduits
1,417
-
-
1,417
Total
10,989
1,348
665
13,002
The following table presents assets securitised by the Parent Entity:
Parent Entity
$m
Residential mortgage
Other2
Total
1 Own assets securitised by the Parent Entity include internal mortgage backed securitisation of $86,300 million (2014: $79,500 million) which are
Total Own Assets
83,090
90,416
98,201
98,201
92,661
5,540
5,540
7,326
-
-
-
-
-
-
Total
83,090
7,326
90,416
Own Assets1
92,661
2015
Customer
Conduits
2014
Customer
Conduits
Notes to the financial statements
Note 25. Securitisation and covered bonds (continued)
The following table presents the underlying liabilities of the Parent Entity as a result of the securitisation of assets:
Parent Entity
$m
Due to subsidiaries
Own Assets
96,797
Total Own Assets
-
96,797
89,135
Total
89,135
2014
Customer
Conduits
-
2015
Customer
Conduits
Certain own asset securitisation and customer funding conduit notes have been issued in foreign currencies and have been
translated to Australian dollars using the spot foreign exchange rate on the balance sheet date. These foreign exchange
exposures are fully hedged with foreign exchange derivatives. Associated derivatives are not presented in the tables above and
explain the mismatch between assets securitised and notes issued.
The following table presents the fair value of own assets securitised and underlying liabilities as a result of the securitisation of
assets for the Group and Parent Entity:
Residential mortgage
Auto and equipment finance
$m
Other
Fair value of assets securitised
Notes issued
Net fair value
Fair value of underlying liabilities
Covered bonds
Consolidated
Parent Entity
2015
10,217
1,394
487
12,098
12,016
12,016
82
2014
9,580
1,374
665
11,619
11,295
11,295
324
2015
92,726
-
5,540
98,266
96,708
96,708
1,558
2014
83,143
-
7,326
90,469
90,232
90,232
237
The Group has two covered bond programs: one utilises Australian residential mortgages (Australian Program) and one utilises
New Zealand residential mortgages (New Zealand Program). Pursuant to these programs, selected pools of residential
mortgages are assigned to bankruptcy remote structured entities. These provide unconditional and irrevocable guarantees of
the related covered bonds that are issued by members of the Group. As such, the covered bondholders have recourse to the
issuer of the covered bond and, in the event that the issuer fails to make a payment when due, to the covered bond
structured entities.
The Group has continuing involvement with the covered bond structured entities as it is exposed to the risks and rewards
associated with the pools of residential mortgages (including by way of the derivatives it has entered into with the structured
entities). Accordingly, for accounting purposes, the structured entities are consolidated entities of the Group.
As at 30 September 2015, the carrying value of covered bonds on issue was $35,062 million (2014: $26,168 million) for the
Group and $31,401 million (2014: $23,167 million) for the Parent Entity. The carrying value of assets pledged for the covered
bond programs was $40,263 million (2014: $39,314 million) for the Group and $36,225 million (2014: $35,276 million) for the
Parent Entity. The difference between the carrying value of covered bonds on issue and the carrying value of assets pledged
for the covered bond programs includes the amount of over-collateralisation required to maintain the ratings of the covered
bonds on issue and additional assets primarily to allow for future issuance of covered bonds without delay. The additional
assets that allow for future issuance can be repurchased by Westpac at its discretion, subject to the conditions set out in the
transaction documents.
available for external issuance and $80,276 million (2014: $73,950 million) qualifies for repurchase with the RBA.
2 This reflects cash held by the own asset securitisation vehicles.
The following table presents the underlying liabilities of the Group as a result of the securitisation of assets:
Consolidated
$m
Notes Issued
2015
Customer
Conduits
823
Own Assets
12,034
Total Own Assets
11,276
12,857
2014
Customer
Conduits
1,418
Total
12,694
214
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2015 Westpac Group Annual Report
215
Note 25. Securitisation and covered bonds (continued)
Westpac receives a market-based fee or margin in return for its services as trust manager, servicer, foreign exchange
Revenue from securitisation structures
Fee income
counterparty and facilities provider.
Securitisation risk management
Credit exposure
by Westpac.
Market risk
Where relevant, counterparty exposure arising from funding, liquidity, credit support and funding facilities, foreign exchange and
swap arrangements for both own asset securitisation and customer funding conduits are approved within the Group’s normal
credit process and are captured and monitored in key source systems along with other facilities and derivatives entered into
Exposures arising from transactions with securitisation conduits and other counterparties are captured as part of Westpac’s
traded and non-traded market risk reporting and limit management framework.
The interest rate and basis risk generated by Westpac’s provision of hedge arrangements to securitisation vehicles are
captured and managed in Westpac’s ALM framework. The risk generated by Westpac’s provision of liquidity and redraw
facilities to own asset vehicles is captured and managed within Treasury’s liquidity risk policies along with all other contingent
liquidity facilities.
Funding and liquidity management
Exposure to and the impact of securitisation transactions are managed under the Market and Liquidity Risk Management
Framework and are integrated into routine reporting for capital and liquidity positions, net interest margin analysis, balance
sheet forecasting and funding scenario testing. The Group’s funding plan incorporates consideration of overall liquidity risk
limits and the level of securitisation of Westpac originated assets. Westpac provided undrawn liquidity facilities to the customer
funding conduit of $823 million at 30 September 2015 (30 September 2014: $1,416 million). Similarly undrawn funding and
liquidity facilities of $492 million were provided by Westpac (30 September 2014: $371 million) for the securitisation of its
The following table presents assets securitised by the Group:
own assets.
Consolidated
Residential mortgage
Auto and equipment finance
$m
Other1
Total
$m
Other2
Total
Parent Entity
Residential mortgage
Consolidated
$m
Notes Issued
Own Assets
Total Own Assets
10,209
1,358
487
12,054
11,032
1,358
487
9,572
1,348
665
823
12,877
11,585
1,417
1 This reflects cash held by the own asset securitisation vehicles.
The following table presents assets securitised by the Parent Entity:
Own Assets1
92,661
5,540
98,201
Total Own Assets
92,661
5,540
98,201
83,090
7,326
90,416
1 Own assets securitised by the Parent Entity include internal mortgage backed securitisation of $86,300 million (2014: $79,500 million) which are
available for external issuance and $80,276 million (2014: $73,950 million) qualifies for repurchase with the RBA.
2 This reflects cash held by the own asset securitisation vehicles.
The following table presents the underlying liabilities of the Group as a result of the securitisation of assets:
Total
10,989
1,348
665
13,002
Total
83,090
7,326
90,416
2014
Customer
Conduits
1,417
2014
Customer
Conduits
-
-
-
-
-
2014
Customer
Conduits
2015
Customer
Conduits
823
2015
Customer
Conduits
-
-
-
-
-
2015
Customer
Conduits
Own Assets
Total Own Assets
12,034
823
12,857
11,276
1,418
Total
12,694
Notes to the financial statements
Note 25. Securitisation and covered bonds (continued)
The following table presents the underlying liabilities of the Parent Entity as a result of the securitisation of assets:
Parent Entity
$m
Due to subsidiaries
2015
Customer
Conduits
-
Own Assets
96,797
Total Own Assets
89,135
96,797
2014
Customer
Conduits
-
Total
89,135
Certain own asset securitisation and customer funding conduit notes have been issued in foreign currencies and have been
translated to Australian dollars using the spot foreign exchange rate on the balance sheet date. These foreign exchange
exposures are fully hedged with foreign exchange derivatives. Associated derivatives are not presented in the tables above and
explain the mismatch between assets securitised and notes issued.
The following table presents the fair value of own assets securitised and underlying liabilities as a result of the securitisation of
assets for the Group and Parent Entity:
$m
Residential mortgage
Auto and equipment finance
Other
Fair value of assets securitised
Notes issued
Fair value of underlying liabilities
Net fair value
Consolidated
Parent Entity
2015
10,217
1,394
487
12,098
12,016
12,016
82
2014
9,580
1,374
665
11,619
11,295
11,295
324
2015
92,726
-
5,540
98,266
96,708
96,708
1,558
2014
83,143
-
7,326
90,469
90,232
90,232
237
Covered bonds
The Group has two covered bond programs: one utilises Australian residential mortgages (Australian Program) and one utilises
New Zealand residential mortgages (New Zealand Program). Pursuant to these programs, selected pools of residential
mortgages are assigned to bankruptcy remote structured entities. These provide unconditional and irrevocable guarantees of
the related covered bonds that are issued by members of the Group. As such, the covered bondholders have recourse to the
issuer of the covered bond and, in the event that the issuer fails to make a payment when due, to the covered bond
structured entities.
The Group has continuing involvement with the covered bond structured entities as it is exposed to the risks and rewards
associated with the pools of residential mortgages (including by way of the derivatives it has entered into with the structured
entities). Accordingly, for accounting purposes, the structured entities are consolidated entities of the Group.
As at 30 September 2015, the carrying value of covered bonds on issue was $35,062 million (2014: $26,168 million) for the
Group and $31,401 million (2014: $23,167 million) for the Parent Entity. The carrying value of assets pledged for the covered
bond programs was $40,263 million (2014: $39,314 million) for the Group and $36,225 million (2014: $35,276 million) for the
Parent Entity. The difference between the carrying value of covered bonds on issue and the carrying value of assets pledged
for the covered bond programs includes the amount of over-collateralisation required to maintain the ratings of the covered
bonds on issue and additional assets primarily to allow for future issuance of covered bonds without delay. The additional
assets that allow for future issuance can be repurchased by Westpac at its discretion, subject to the conditions set out in the
transaction documents.
214
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215
3
Note 26. Goodwill and other intangible assets (continued)
OTHER ASSETS, OTHER LIABILITIES, COMMITMENTS AND
CONTINGENCIES
Note 26. Goodwill and other intangible assets
Accounting policy
Goodwill
Goodwill arises on the acquisition of businesses and represents the excess of the purchase consideration, the amount of any
non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree, over
the fair value of the net identifiable assets acquired.
All goodwill is considered to have an indefinite life. Goodwill is allocated to CGUs for the purpose of impairment testing based
on management’s analysis of where the synergies resulting from an acquisition are expected to arise. It is tested for impairment
annually and whenever there is an indication of impairment, and is carried at cost or deemed cost less accumulated
impairment. An impairment charge is recognised whenever the carrying amount of a CGU to which goodwill is allocated
exceeds its recoverable amount, which is determined on a value-in-use basis.
Gains or losses on the disposal of a business include the carrying amount of goodwill relating to the business sold.
The determination of goodwill and any impairment is one of the Group’s critical accounting assumptions and estimates as
detailed in Note 1d(iii).
Other Intangible Assets
Intangible assets are identifiable non-monetary assets without physical substance. Intangible assets are recognised when they
are separable or arise from contractual or other legal rights, when their cost can be measured reliably and where it is probable
that future economic benefits attributable to the assets will flow from their use.
Other intangible assets include computer software, brands, core deposit intangibles, financial planner distribution relationships,
credit card customer relationships, dealer networks, value in force business and service contracts.
Computer software includes purchased and internally generated software. The capitalised cost of internally generated software
comprises only costs that are directly attributable to development of the software. Costs incurred in the research phase or in
ongoing maintenance of the software are expensed as incurred. Computer software is capitalised at cost and classified as
property and equipment where it is integral to the operation of the associated hardware.
Brands are recognised on the acquisition of businesses and represent the value attributed to brand names associated with
those businesses. Brand intangibles are indefinite life intangible assets as there is no foreseeable limit to the period over which
they are expected to generate net cash flows.
Core deposits were recognised as part of the merger with St.George and represent the value, or avoided cost, of the deposit
base acquired that provides a valuable source of funding.
Financial planner distribution relationships, credit card customer relationships and dealer networks were recognised as part of
business acquisitions and represent the value attributable to future revenue from these relationships.
All intangibles are measured at cost less any accumulated amortisation and any impairment losses.
Finite life intangible assets are amortised over their estimated useful lives using the method set out in Note 5.
All finite life intangibles are tested for impairment if there is indication that the carrying amount may be greater than the
recoverable amount. An assessment is made at each reporting date to determine if any such indicators exist.
Brands are not amortised but tested for impairment annually or more frequently when indicators of impairment are identified.
An impairment charge is recognised whenever the carrying amount of the intangible exceeds its recoverable amount, which is
determined on a value-in-use basis.
$m
Goodwill
Balance as at beginning of the year
Additions through business combination
Disposals of controlled entities1
Exchange rate and other adjustments
Balance as at end of the year
Computer software
Balance as at beginning of the year
Additions
Impairment
Amortisation
Cost
Carrying amount
Brand Names
Exchange rate and other adjustments
Balance as at end of the year
Accumulated amortisation and impairment
Balance as at beginning of the year
Balance as at end of the year
Carrying amount
Core deposit intangibles
Balance as at beginning of the year
Amortisation
Balance as at end of the year
Cost
Accumulated amortisation
Carrying amount
Other intangible assets
Balance as at beginning of the year
Additions through business combination
Disposals of controlled entities1
Impairment
Amortisation
Exchange rate and other adjustments
Balance as at end of the year
Cost
Accumulated amortisation and impairment
Carrying amount
Total goodwill and other intangible assets
disclosed in Note 41.
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
8,868
6,653
6,653
9,112
6,653
6,653
9,112
-
(343)
40
8,809
2,070
630
(131)
(920)
5
1,654
3,944
(2,290)
1,654
670
670
670
519
(167)
352
1,494
(1,142)
352
235
-
-
(107)
(51)
12
89
394
(305)
89
11,574
225
-
19
1,897
664
(28)
(465)
2
2,070
3,671
(1,601)
2,070
670
670
670
685
(166)
519
1,494
(975)
519
221
56
-
(2)
(49)
9
235
622
(387)
235
12,606
-
-
-
-
-
-
-
1,856
582
(110)
(817)
1
1,512
3,283
(1,771)
1,512
636
636
636
519
(167)
352
1,279
(927)
352
27
160
(133)
27
9,180
-
-
-
-
-
-
-
-
1,675
594
(28)
(385)
1,856
2,733
(877)
1,856
636
636
636
685
(166)
519
1,279
(760)
519
51
226
(175)
51
9,715
51
76
(24)
(25)
1 Current year is attributable to the partial sale of BTIM and the sale of banking operations in three Pacific Island nations. Further information is
216
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2015 Westpac Group Annual Report
217
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
8,868
6,653
6,653
225
-
19
-
-
-
-
-
-
9,112
6,653
6,653
OTHER ASSETS, OTHER LIABILITIES, COMMITMENTS AND
Note 26. Goodwill and other intangible assets (continued)
$m
Goodwill
Balance as at beginning of the year
Additions through business combination
Disposals of controlled entities1
Exchange rate and other adjustments
Balance as at end of the year
Computer software
Balance as at beginning of the year
Additions
Impairment
Amortisation
Exchange rate and other adjustments
Balance as at end of the year
Cost
Accumulated amortisation and impairment
Carrying amount
Brand Names
Balance as at beginning of the year
Balance as at end of the year
Other intangible assets include computer software, brands, core deposit intangibles, financial planner distribution relationships,
Carrying amount
Core deposit intangibles
Balance as at beginning of the year
Amortisation
Balance as at end of the year
Cost
Accumulated amortisation
Carrying amount
Other intangible assets
Balance as at beginning of the year
Additions through business combination
Disposals of controlled entities1
Impairment
Amortisation
Exchange rate and other adjustments
Balance as at end of the year
Cost
Accumulated amortisation and impairment
Carrying amount
CONTINGENCIES
Note 26. Goodwill and other intangible assets
Accounting policy
Goodwill
Goodwill arises on the acquisition of businesses and represents the excess of the purchase consideration, the amount of any
non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree, over
the fair value of the net identifiable assets acquired.
All goodwill is considered to have an indefinite life. Goodwill is allocated to CGUs for the purpose of impairment testing based
on management’s analysis of where the synergies resulting from an acquisition are expected to arise. It is tested for impairment
annually and whenever there is an indication of impairment, and is carried at cost or deemed cost less accumulated
impairment. An impairment charge is recognised whenever the carrying amount of a CGU to which goodwill is allocated
exceeds its recoverable amount, which is determined on a value-in-use basis.
Gains or losses on the disposal of a business include the carrying amount of goodwill relating to the business sold.
The determination of goodwill and any impairment is one of the Group’s critical accounting assumptions and estimates as
detailed in Note 1d(iii).
Other Intangible Assets
Intangible assets are identifiable non-monetary assets without physical substance. Intangible assets are recognised when they
are separable or arise from contractual or other legal rights, when their cost can be measured reliably and where it is probable
that future economic benefits attributable to the assets will flow from their use.
credit card customer relationships, dealer networks, value in force business and service contracts.
Computer software includes purchased and internally generated software. The capitalised cost of internally generated software
comprises only costs that are directly attributable to development of the software. Costs incurred in the research phase or in
ongoing maintenance of the software are expensed as incurred. Computer software is capitalised at cost and classified as
property and equipment where it is integral to the operation of the associated hardware.
Brands are recognised on the acquisition of businesses and represent the value attributed to brand names associated with
those businesses. Brand intangibles are indefinite life intangible assets as there is no foreseeable limit to the period over which
they are expected to generate net cash flows.
Core deposits were recognised as part of the merger with St.George and represent the value, or avoided cost, of the deposit
base acquired that provides a valuable source of funding.
Financial planner distribution relationships, credit card customer relationships and dealer networks were recognised as part of
business acquisitions and represent the value attributable to future revenue from these relationships.
All intangibles are measured at cost less any accumulated amortisation and any impairment losses.
Finite life intangible assets are amortised over their estimated useful lives using the method set out in Note 5.
All finite life intangibles are tested for impairment if there is indication that the carrying amount may be greater than the
recoverable amount. An assessment is made at each reporting date to determine if any such indicators exist.
Brands are not amortised but tested for impairment annually or more frequently when indicators of impairment are identified.
An impairment charge is recognised whenever the carrying amount of the intangible exceeds its recoverable amount, which is
determined on a value-in-use basis.
9,112
-
(343)
40
8,809
2,070
630
(131)
(920)
5
1,654
3,944
(2,290)
1,654
670
670
670
519
(167)
352
1,494
(1,142)
352
235
-
(107)
-
(51)
12
89
394
(305)
89
1,897
664
(28)
(465)
2
2,070
3,671
(1,601)
2,070
670
670
670
685
(166)
519
1,494
(975)
519
221
56
-
(2)
(49)
9
235
622
(387)
235
1,856
582
(110)
(817)
1
1,512
3,283
(1,771)
1,512
636
636
636
519
(167)
352
1,279
(927)
352
51
-
-
-
(24)
-
27
160
(133)
27
1,675
594
(28)
(385)
-
1,856
2,733
(877)
1,856
636
636
636
685
(166)
519
1,279
(760)
519
76
-
-
-
(25)
-
51
226
(175)
51
9,715
Total goodwill and other intangible assets
1 Current year is attributable to the partial sale of BTIM and the sale of banking operations in three Pacific Island nations. Further information is
12,606
11,574
9,180
disclosed in Note 41.
216
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2015 Westpac Group Annual Report
217
3
Note 26. Goodwill and other intangible assets (continued)
Goodwill has been allocated to the following Cash Generating Units (CGUs):
$m
Westpac Retail & Business Banking
St.George Banking Group
Westpac Institutional Bank
BT Financial Group (Australia)
Hambro
New Zealand Retail Banking
BT New Zealand
Hastings
Bank of Tonga
Total goodwill
Consolidated
Parent Entity
2015
980
4,691
487
2,048
-
471
12
120
-
2014
980
4,689
487
2,103
249
459
12
120
13
2015
980
4,351
487
835
-
-
-
-
-
2014
980
4,351
487
835
-
-
-
-
-
8,809
9,112
6,653
6,653
Key assumptions used in recoverable amount calculations
The recoverable amount of a CGU is determined based on value-in-use calculations which require the use of assumptions. The
recoverable amount of each significant CGU is determined based on the Group’s projections of future pre-tax cash flows
discounted by the Group’s after tax return on equity rate of 11.0% (2014: 11.0%), adjusted to a pre-tax rate of 15.7% for
Australia and 15.3% for New Zealand (2014: 15.7% for Australia, 15.3% for New Zealand and 13.8% for the United Kingdom).
All future cash flows are based on management approved two year forecasts (2014: two years). For each significant CGU, cash
flows beyond the two year forecast period have an assumed growth rate of zero for the purpose of goodwill impairment testing.
The strategic business plan assumes certain economic conditions and business performance in determining the forecast, which
are considered appropriate as they are consistent with observable historical information and current market expectations of the
future. The forecasts applied by management are not reliant on any one particular assumption.
Sensitivity to changes in assumptions
There are no reasonably possible changes in assumptions for any significant CGU that would result in an indication of
impairment or have a material impact on the Group’s reported results.
Note 27. Other assets
$m
Accrued interest receivable
Securities sold not delivered
Deferred acquisition costs
Trade debtors
Prepayments
Accrued fees and commissions
Other
Total other assets
Consolidated
Parent Entity
2015
1,143
740
119
902
199
229
962
2014
1,258
2,768
129
716
177
210
730
2015
957
725
2
505
149
96
860
2014
1,065
2,765
-
363
146
95
583
4,294
5,988
3,294
5,017
218
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
Notes to the financial statements
Note 28. Provisions
Accounting policy
Employee benefits
Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a
transfer of economic benefit will be necessary to settle the obligation, which can be reliably estimated.
Provisions for wages and salaries, including non-monetary benefits, annual leave, accumulating sick leave and any associated
on-costs (i.e. payroll tax) expected to be settled within 12 months of the balance date are recognised in respect of employees’
services up to the balance date and are measured at the amounts expected to be paid when the liabilities are settled.
Provisions for long service leave expected to be settled within 12 months of the balance date are measured at the amounts
expected to be paid when the liabilities are settled. Provisions for long service leave expected to be settled more than
12 months from the balance date are measured at the present value of future payments expected to be made in respect of
services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels,
experience of employee departure and periods of service. Expected future payments are discounted to their net present value
using market yields at the balance date on high quality corporate bonds with terms that match as closely as possible the
estimated timing of future cash flows. The discount rate used was changed in the current year from a blended interest rate of
government bonds to the yield on high quality corporate bonds that have terms to maturity approximating the terms of
the liabilities.
Provision for litigation and non-lending losses
A provision for litigation is recognised where it is probable that there will be an outflow of economic resources. Non-lending
losses are any losses that have not arisen as a consequence of an impaired credit decision. Those provisions include litigation
and associated costs, frauds and the correction of operational issues.
Provision for impairment on credit commitments
A provision for impairment is recognised on undrawn contractually committed facilities and guarantees provided if it is probable
that the facility will be drawn and result in the recognition of an asset at an amount less than the amount advanced. The amount
is calculated using the same methodology as the provision for impairment charges on loans (refer to Note 14).
Provision for leasehold premises
The provision for leasehold premises covers unavoidable costs in relation to making good property to the same or similar state
as when the lease was entered into at the end of the lease period or net outgoings on certain unoccupied leased premises or
sub-let premises where projected rental income falls short of rental expense. The liability is determined on the basis of the
present value of net future cash flows.
Provision for restructuring
A provision for restructuring (including termination benefits) is recognised where there is a demonstrable commitment and a
detailed plan such that there is little or no discretion to avoid payments to other parties and the amount can be reliably
estimated. The majority of restructuring provisions are expected to be settled within 12 months and are measured at amounts
expected to be paid when they are settled. Amounts expected to be settled more than 12 months from the balance date are
measured at the present value of the estimated cash outflows, where the effect of discounting is material.
Financial guarantees
Financial guarantee contracts are recognised as financial liabilities and recorded in provisions at the time the guarantee is
issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance
with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative
amortisation, where appropriate.
The fair value of a financial guarantee contract is determined as the present value of the difference in net cash flows between
the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the
estimated amount that would be payable to a third party for assuming the obligation.
The measurement of provisions is one of the Group’s critical accounting assumptions and estimates as detailed in Note 1d(v).
$m
Long service leave
Annual leave and other employee benefits
Litigation and non-lending losses
Leasehold premises
Restructuring provisions
Total provisions
Provision for impairment on credit commitments (refer to Note 14)
Consolidated
Parent Entity
2015
2014
2015
2014
348
755
28
304
28
26
357
852
18
308
62
21
320
677
16
273
28
18
1,489
1,618
1,332
1,403
328
699
15
278
62
21
219
Note 26. Goodwill and other intangible assets (continued)
Goodwill has been allocated to the following Cash Generating Units (CGUs):
Key assumptions used in recoverable amount calculations
The recoverable amount of a CGU is determined based on value-in-use calculations which require the use of assumptions. The
recoverable amount of each significant CGU is determined based on the Group’s projections of future pre-tax cash flows
discounted by the Group’s after tax return on equity rate of 11.0% (2014: 11.0%), adjusted to a pre-tax rate of 15.7% for
Australia and 15.3% for New Zealand (2014: 15.7% for Australia, 15.3% for New Zealand and 13.8% for the United Kingdom).
All future cash flows are based on management approved two year forecasts (2014: two years). For each significant CGU, cash
flows beyond the two year forecast period have an assumed growth rate of zero for the purpose of goodwill impairment testing.
The strategic business plan assumes certain economic conditions and business performance in determining the forecast, which
are considered appropriate as they are consistent with observable historical information and current market expectations of the
future. The forecasts applied by management are not reliant on any one particular assumption.
Sensitivity to changes in assumptions
There are no reasonably possible changes in assumptions for any significant CGU that would result in an indication of
impairment or have a material impact on the Group’s reported results.
Consolidated
Parent Entity
2015
980
4,691
487
2,048
471
12
120
-
-
2014
980
4,689
487
2,103
249
459
12
120
13
2015
980
4,351
487
835
-
-
-
-
-
2014
980
4,351
487
835
-
-
-
-
-
8,809
9,112
6,653
6,653
Consolidated
Parent Entity
2015
1,143
740
119
902
199
229
962
2014
1,258
2,768
129
716
177
210
730
2015
957
725
2
505
149
96
860
2014
1,065
2,765
-
363
146
95
583
4,294
5,988
3,294
5,017
$m
Westpac Retail & Business Banking
St.George Banking Group
Westpac Institutional Bank
BT Financial Group (Australia)
Hambro
New Zealand Retail Banking
BT New Zealand
Hastings
Bank of Tonga
Total goodwill
Note 27. Other assets
$m
Accrued interest receivable
Securities sold not delivered
Deferred acquisition costs
Trade debtors
Prepayments
Accrued fees and commissions
Other
Total other assets
Notes to the financial statements
Note 28. Provisions
Accounting policy
Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a
transfer of economic benefit will be necessary to settle the obligation, which can be reliably estimated.
Employee benefits
Provisions for wages and salaries, including non-monetary benefits, annual leave, accumulating sick leave and any associated
on-costs (i.e. payroll tax) expected to be settled within 12 months of the balance date are recognised in respect of employees’
services up to the balance date and are measured at the amounts expected to be paid when the liabilities are settled.
Provisions for long service leave expected to be settled within 12 months of the balance date are measured at the amounts
expected to be paid when the liabilities are settled. Provisions for long service leave expected to be settled more than
12 months from the balance date are measured at the present value of future payments expected to be made in respect of
services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels,
experience of employee departure and periods of service. Expected future payments are discounted to their net present value
using market yields at the balance date on high quality corporate bonds with terms that match as closely as possible the
estimated timing of future cash flows. The discount rate used was changed in the current year from a blended interest rate of
government bonds to the yield on high quality corporate bonds that have terms to maturity approximating the terms of
the liabilities.
Provision for litigation and non-lending losses
A provision for litigation is recognised where it is probable that there will be an outflow of economic resources. Non-lending
losses are any losses that have not arisen as a consequence of an impaired credit decision. Those provisions include litigation
and associated costs, frauds and the correction of operational issues.
Provision for impairment on credit commitments
A provision for impairment is recognised on undrawn contractually committed facilities and guarantees provided if it is probable
that the facility will be drawn and result in the recognition of an asset at an amount less than the amount advanced. The amount
is calculated using the same methodology as the provision for impairment charges on loans (refer to Note 14).
Provision for leasehold premises
The provision for leasehold premises covers unavoidable costs in relation to making good property to the same or similar state
as when the lease was entered into at the end of the lease period or net outgoings on certain unoccupied leased premises or
sub-let premises where projected rental income falls short of rental expense. The liability is determined on the basis of the
present value of net future cash flows.
Provision for restructuring
A provision for restructuring (including termination benefits) is recognised where there is a demonstrable commitment and a
detailed plan such that there is little or no discretion to avoid payments to other parties and the amount can be reliably
estimated. The majority of restructuring provisions are expected to be settled within 12 months and are measured at amounts
expected to be paid when they are settled. Amounts expected to be settled more than 12 months from the balance date are
measured at the present value of the estimated cash outflows, where the effect of discounting is material.
Financial guarantees
Financial guarantee contracts are recognised as financial liabilities and recorded in provisions at the time the guarantee is
issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance
with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative
amortisation, where appropriate.
The fair value of a financial guarantee contract is determined as the present value of the difference in net cash flows between
the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the
estimated amount that would be payable to a third party for assuming the obligation.
The measurement of provisions is one of the Group’s critical accounting assumptions and estimates as detailed in Note 1d(v).
$m
Long service leave
Annual leave and other employee benefits
Litigation and non-lending losses
Provision for impairment on credit commitments (refer to Note 14)
Leasehold premises
Restructuring provisions
Total provisions
Consolidated
Parent Entity
2015
348
755
28
304
28
26
2014
357
852
18
308
62
21
2015
320
677
16
273
28
18
2014
328
699
15
278
62
21
1,489
1,618
1,332
1,403
218
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
219
3
Note 28. Provisions (continued)
$m
Consolidated
Balance as at beginning of the year
Disposals of controlled entities1
Additions
Utilised
Unutilised reversed
Increase on unwinding of discount
Other
Balance as at end of the year
Parent Entity
Balance as at beginning of the year
Additions
Utilised
Unutilised reversed
Increase on unwinding of discount
Other
Balance as at end of the year
1 Attributable to the partial sale of BTIM.
Note 29. Other liabilities
$m
Unearned general insurance premiums
Outstanding general insurance claims
Defined benefit deficit1
Accrued interest payable
Credit card loyalty program
Securities purchased not delivered
Trade creditors and other accrued expenses
Other
Total other liabilities
1 Refer to Note 38 for more details.
Annual
Leave
and Other
Employee
Benefits
Long
Service
Leave
Litigation
and Non-
Lending
Losses
Provision for
Impairment
on Credit
Commitments
Leasehold
Premises
Restructuring
Provisions
Total
1,618
(85)
1,188
21
-
44
357
(2)
77
(38)
(46)
-
-
348
328
74
(36)
(46)
-
-
852
(83)
1,010
(1,000)
(24)
-
-
755
699
900
(899)
(23)
-
-
320
677
18
-
39
(22)
(7)
-
-
28
15
26
(19)
(6)
-
-
16
308
-
-
-
-
12
(16)
304
278
-
-
-
11
(16)
273
62
-
18
(52)
-
-
-
28
62
18
(52)
-
-
-
28
(39)
(1,151)
Due after one year but not later than five years
-
-
-
26
21
36
(77)
12
(16)
1,489
1,403
1,054
(39)
(1,045)
-
-
-
18
(75)
11
(16)
1,332
Consolidated
Parent Entity
Accounting policy
2015
343
284
192
2,626
274
1,007
1,276
2,114
8,116
2014
341
225
315
2,917
299
1,164
1,030
1,900
8,191
2015
-
-
175
2,301
-
998
958
2,001
6,433
2014
-
-
306
2,602
-
1,057
761
1,683
6,409
Note 30. Operating lease commitments
Accounting policy
An operating lease is a lease where substantially all the risks and rewards of the leased asset remain with the lessor.
Where the Group provides operating leases, the assets are recognised in the balance sheet as property and equipment at cost,
and depreciated to their residual value on a straight-line basis over their estimated useful life. Operating lease rentals are
recognised in the income statement in non-interest income basis over the lease term.
In its capacity as a lessee, the Group mainly uses property and equipment under operating leases. Payments due to the lessor
under operating leases are charged to equipment and occupancy expense within operating expenses over the lease term.
220
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2015 Westpac Group Annual Report
221
Note 30. Operating leases commitments (continued)
Details of the lease commitments at 30 September are as follows:
$m
Lease commitments
Premises and sites
Furniture and equipment
Total lease commitments
Due within one year
Due after five years
Total lease commitments
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
3,356
24
3,380
553
1,391
1,436
3,380
3,480
26
3,506
528
1,534
1,444
3,506
2,857
19
2,876
480
1,189
1,207
2,876
3,112
20
3,132
452
1,323
1,357
3,132
Operating leases are entered into to meet the business needs of entities in the Group. Leases are primarily over commercial
and retail premises and plant and equipment. Lease rentals are determined in accordance with market conditions when leases
are entered into or on rental review dates.
Leased premises that have become excess to the Group’s business needs have been sublet where possible and any expected
rental shortfalls fully provided for. There are no restrictions imposed on the Group by lease arrangements other than in respect
of the specific premises being leased.
Leases are generally for a term of five years with an option to extend for another five years. In most instances, other than the
lease arrangement, the Group has no ongoing interests in the premises.
As at 30 September 2015, the total future minimum lease payments expected to be received by the Group and Parent Entity
from non-cancellable sub-leases was $10 million (2014: $14 million) and $10 million (2014: $14 million) respectively.
Note 31. Contingent liabilities, contingent assets and credit commitments
Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by
uncertain future events that are not wholly within the control of the Group; or are present obligations arising from past events
where the transfer of economic resources is uncertain or cannot be reliably measured. Contingent liabilities are not recognised
on the balance sheet but are disclosed unless the outflow of economic resources is remote.
The Group is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the
financing needs of its customers and in managing its own risk profile. These financial instruments include commitments to
extend credit, bill endorsements, financial guarantees, standby letters of credit and underwriting facilities.
The Group’s exposure to credit loss in the event of non-performance by the other party is represented by the contract or
notional amount of those financial instruments. However, some commitments to extend credit and provide underwriting facilities
can be cancelled or revoked at any time at the Group’s option. As a significant proportion of these financial instruments are
expected to expire without being drawn upon, the contract or notional amounts do not necessarily reflect future
liquidity requirements.
sheet instruments.
the counterparty.
The Group uses the same credit policies in making commitments and conditional obligations as it does for on-balance
The Group takes collateral where it is considered necessary to support both on and off-balance sheet financial instruments with
credit risk. The Group evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral taken, if
deemed necessary, on the provision of a financial facility is based on management’s evaluation of the credit risk of
Note 28. Provisions (continued)
Note 30. Operating leases commitments (continued)
Details of the lease commitments at 30 September are as follows:
$m
Lease commitments
Premises and sites
Furniture and equipment
Total lease commitments
Due within one year
Due after one year but not later than five years
Due after five years
Total lease commitments
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
3,356
24
3,380
553
1,391
1,436
3,380
3,480
26
3,506
528
1,534
1,444
3,506
2,857
19
2,876
480
1,189
1,207
2,876
3,112
20
3,132
452
1,323
1,357
3,132
Balance as at end of the year
1 Attributable to the partial sale of BTIM.
320
677
18
1,332
As at 30 September 2015, the total future minimum lease payments expected to be received by the Group and Parent Entity
from non-cancellable sub-leases was $10 million (2014: $14 million) and $10 million (2014: $14 million) respectively.
Operating leases are entered into to meet the business needs of entities in the Group. Leases are primarily over commercial
and retail premises and plant and equipment. Lease rentals are determined in accordance with market conditions when leases
are entered into or on rental review dates.
Leased premises that have become excess to the Group’s business needs have been sublet where possible and any expected
rental shortfalls fully provided for. There are no restrictions imposed on the Group by lease arrangements other than in respect
of the specific premises being leased.
Leases are generally for a term of five years with an option to extend for another five years. In most instances, other than the
lease arrangement, the Group has no ongoing interests in the premises.
Note 31. Contingent liabilities, contingent assets and credit commitments
Accounting policy
Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by
uncertain future events that are not wholly within the control of the Group; or are present obligations arising from past events
where the transfer of economic resources is uncertain or cannot be reliably measured. Contingent liabilities are not recognised
on the balance sheet but are disclosed unless the outflow of economic resources is remote.
The Group is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the
financing needs of its customers and in managing its own risk profile. These financial instruments include commitments to
extend credit, bill endorsements, financial guarantees, standby letters of credit and underwriting facilities.
The Group’s exposure to credit loss in the event of non-performance by the other party is represented by the contract or
notional amount of those financial instruments. However, some commitments to extend credit and provide underwriting facilities
can be cancelled or revoked at any time at the Group’s option. As a significant proportion of these financial instruments are
expected to expire without being drawn upon, the contract or notional amounts do not necessarily reflect future
liquidity requirements.
The Group uses the same credit policies in making commitments and conditional obligations as it does for on-balance
sheet instruments.
The Group takes collateral where it is considered necessary to support both on and off-balance sheet financial instruments with
credit risk. The Group evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral taken, if
deemed necessary, on the provision of a financial facility is based on management’s evaluation of the credit risk of
the counterparty.
$m
Consolidated
Balance as at beginning of the year
Disposals of controlled entities1
Unutilised reversed
Increase on unwinding of discount
Balance as at end of the year
Parent Entity
Balance as at beginning of the year
Additions
Utilised
Other
Additions
Utilised
Other
Unutilised reversed
Increase on unwinding of discount
Note 29. Other liabilities
$m
Unearned general insurance premiums
Outstanding general insurance claims
Defined benefit deficit1
Accrued interest payable
Credit card loyalty program
Securities purchased not delivered
Trade creditors and other accrued expenses
Other
Total other liabilities
1 Refer to Note 38 for more details.
Annual
Leave
Litigation
Provision for
Long
and Other
and Non-
Impairment
Service
Employee
Lending
on Credit
Leasehold
Restructuring
Leave
Benefits
Losses
Commitments
Premises
Provisions
Total
357
(2)
77
(38)
(46)
348
328
74
(36)
(46)
-
-
-
-
852
(83)
1,010
(1,000)
(24)
755
699
900
(899)
(23)
-
-
-
-
18
-
39
(22)
(7)
-
-
28
15
26
(19)
(6)
-
-
16
308
62
-
-
-
-
-
-
-
12
(16)
304
278
11
(16)
273
18
(52)
28
62
18
(52)
-
-
-
-
-
-
-
28
21
44
(39)
-
-
-
-
-
-
-
26
21
36
1,618
(85)
1,188
(1,151)
(77)
12
(16)
1,489
1,403
1,054
(75)
11
(16)
(39)
(1,045)
Consolidated
Parent Entity
2015
2014
2015
343
284
192
2,626
274
1,007
1,276
2,114
8,116
2014
341
225
315
2,917
299
1,164
1,030
1,900
8,191
-
-
-
175
2,301
998
958
2,001
6,433
-
-
-
306
2,602
1,057
761
1,683
6,409
Note 30. Operating lease commitments
Accounting policy
An operating lease is a lease where substantially all the risks and rewards of the leased asset remain with the lessor.
Where the Group provides operating leases, the assets are recognised in the balance sheet as property and equipment at cost,
and depreciated to their residual value on a straight-line basis over their estimated useful life. Operating lease rentals are
recognised in the income statement in non-interest income basis over the lease term.
In its capacity as a lessee, the Group mainly uses property and equipment under operating leases. Payments due to the lessor
under operating leases are charged to equipment and occupancy expense within operating expenses over the lease term.
220
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2015 Westpac Group Annual Report
221
3
184
184
763
763
8,948
2,893
9,205
4,549
4,092
2,961
9,431
2,945
4,642
8,699
2,914
4,005
154,375
159,131
174,391
140,909
170,949
191,593
176,152
Credit risk-related instruments
Standby letters of credit and financial guarantees1
Trade letters of credit2
Non-financial guarantees3
Commitments to extend credit4
Other commitments5
Total credit risk-related instruments
157,290
1 Standby letters of credit are undertakings to pay, against presentation documents, an obligation in the event of a default by a customer. Guarantees
are unconditional undertakings given to support the obligations of a customer to third parties. The Group may hold cash as collateral for certain
guarantees issued.
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Off-balance sheet credit risk-related financial instruments excluding derivatives at 30 September are as follows:
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Adequate provision has been made for these liabilities in the provision for annual leave and other employee benefits (refer
$m
Consolidated
Parent Entity
2015
2014
2015
2014
Notes to the financial statements
to Note 28).
Litigation
where appropriate.
Contingent liabilities exist in respect of actual and potential claims and proceedings. An assessment of the Group’s likely loss
has been made on a case-by-case basis for the purpose of the financial statements and specific provisions have been made
Since 2011, Westpac has been served with three class action proceedings brought on behalf of customers seeking to
recover exception fees paid by those customers. Similar class actions have been commenced against several other
Australian banks. Westpac has agreed with the plaintiffs to put the proceedings against Westpac on hold pending further
developments in the litigation against one of those other banks. In April 2015, the Full Court of the Federal Court
unanimously found all of the exception fees charged by that other bank to be lawful. The plaintiffs are currently appealing
certain aspects of that judgment to the High Court of Australia. The appeal is scheduled to be heard in February 2016; and
Westpac has been served with a class action proceeding brought on behalf of Westpac customers who borrowed money to
invest in Storm Financial-badged investments. Westpac intends to defend these proceedings. As the two named applicants
have not quantified the damages that they seek, and given the preliminary nature of these proceedings, it is not possible to
Globally, regulators continue to progress various reviews involving the financial services sector. The nature of these reviews
can be wide ranging and, for example, currently include investigations into potential manipulation in financial markets. During
the year, Westpac has received notices and requests for information from its regulators. The outcomes and total costs
estimate any potential liability at this stage.
Industry reviews by regulators
associated with such reviews are uncertain.
Settlement risk
The Group is subject to a credit risk exposure in the event that another financial institution fails to settle for its payments
clearing activities. We seek to minimise credit risk arising from settlement risk in the payments system by aligning our
processing method with the legal certainty of settlement in the relevant clearing system.
Financial Claims Scheme
Under the Financial Claims Scheme (FCS) the Australian Government provides depositors a free guarantee of deposits in
eligible ADIs up to and including $250,000. The FCS applies to an eligible ADI if APRA has applied for the winding up of the
ADI and the responsible Australian Government minister has declared that the FCS applies to the ADI.
The Financial Claims Scheme (ADIs) Levy Act 2008 provides for the imposition of a levy to fund the excess of certain APRA
FCS costs connected to an ADI. The levy would be imposed on liabilities of eligible ADIs to their depositors and cannot be
more than 0.5% of the amount of those liabilities.
Service agreements
The maximum contingent liability for termination benefits in respect of service agreements with the CEO and other Group Key
Management Personnel at 30 September 2015 was $15 million (2014: $16 million).
Contingent tax risk
business activities.
The ATO is reviewing the taxation treatment of certain transactions undertaken by the Group in the course of normal
Risk reviews and audits are also being undertaken by revenue authorities in other jurisdictions, as part of normal revenue
authority activity in those countries.
The Group has assessed these and other taxation claims arising in Australia and elsewhere, including seeking independent
advice where appropriate, and considers it holds appropriate provisions.
Parent Entity guarantees and undertakings
In addition to the above, the following guarantees and undertakings are extended to entities in the Group by the Parent Entity:
issue of letters of comfort in respect of certain subsidiaries in the normal course of business. The letters recognise that
Westpac has a responsibility that those subsidiaries continue to meet their obligations;
guarantees to certain wholly owned subsidiaries that are Australian financial services or credit licensees to comply with
legislative requirements. Each guarantee provided does not exceed $40 million per annum. The guarantees will only give
rise to a liability where the entity concerned becomes legally obliged to pay on account of a claim under the relevant
licence. The Parent Entity has a right of indemnity to recover funds payable under the guarantees.
2 Trade letters of credit are undertakings by the Group to pay or accept drafts drawn by an overseas supplier of goods against presentation of
documents in the event of default by a customer.
3 Non-financial guarantees include undertakings that oblige the Group to pay third parties should a customer fail to fulfil a contractual
non-monetary obligation.
4 Commitments to extend credit include all obligations on the part of the Group to provide credit facilities. As facilities may expire without being drawn
upon, the notional amounts do not necessarily reflect future cash requirements. In addition to the commitments disclosed above at
30 September 2015, the Group offered $9.3 billion (2014: $8.0 billion) of facilities to customers, which had not yet been accepted.
5 Other commitments include underwriting facilities.
Consolidated 2015
$m
Standby letters of credit and financial guarantees
Trade letters of credit
Non-financial guarantees
Commitments to extend credit
Other commitments
Total commercial commitments
Up to
1 Year
1,705
2,642
5,081
67,700
164
77,292
Over 1
to 3 Years
Over 3
to 5 Years
1,627
303
1,903
33,861
-
37,694
429
-
361
20,622
20
21,432
Over
5 Years
881
-
2,086
52,208
-
55,175
Total
4,642
2,945
9,431
174,391
184
191,593
Contingent assets
The credit commitments shown in the table above also constitute contingent assets. These commitments would be classified as
loans in the balance sheet on the contingent event occurring.
Additional liabilities and commitments
Legislative liabilities
The Group had the following assessed liabilities as at 30 September 2015:
$16 million (2014: $19 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act
1987 and the Workplace Injury Management and Workers’ Compensation Act 1998 (New South Wales);
$13 million (2014: $13 million) based on actuarial assessment as a self-insurer under the Accident Compensation Act
1985 (Victoria);
$4 million (2014: $7 million) based on actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1986 (South Australia);
$1 million (2014: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Rehabilitation Act 2003 (Queensland);
$1 million (2014: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act
1951 (Australian Capital Territory);
$1 million (2014: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Injury Management Act 1981 (Western Australia); and
$1 million (2014: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1988 (Tasmania).
222
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223
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Off-balance sheet credit risk-related financial instruments excluding derivatives at 30 September are as follows:
1 Standby letters of credit are undertakings to pay, against presentation documents, an obligation in the event of a default by a customer. Guarantees
are unconditional undertakings given to support the obligations of a customer to third parties. The Group may hold cash as collateral for certain
2 Trade letters of credit are undertakings by the Group to pay or accept drafts drawn by an overseas supplier of goods against presentation of
documents in the event of default by a customer.
3 Non-financial guarantees include undertakings that oblige the Group to pay third parties should a customer fail to fulfil a contractual
guarantees issued.
non-monetary obligation.
4 Commitments to extend credit include all obligations on the part of the Group to provide credit facilities. As facilities may expire without being drawn
upon, the notional amounts do not necessarily reflect future cash requirements. In addition to the commitments disclosed above at
30 September 2015, the Group offered $9.3 billion (2014: $8.0 billion) of facilities to customers, which had not yet been accepted.
$m
Credit risk-related instruments
Standby letters of credit and financial guarantees1
Trade letters of credit2
Non-financial guarantees3
Commitments to extend credit4
Other commitments5
Total credit risk-related instruments
5 Other commitments include underwriting facilities.
Consolidated 2015
$m
Standby letters of credit and financial guarantees
Trade letters of credit
Non-financial guarantees
Commitments to extend credit
Other commitments
Total commercial commitments
Contingent assets
Consolidated
Parent Entity
2015
2014
2015
2014
4,642
2,945
9,431
4,092
2,961
9,205
4,549
2,893
8,948
4,005
2,914
8,699
174,391
159,131
154,375
140,909
184
763
184
763
191,593
176,152
170,949
157,290
Up to
1 Year
1,705
2,642
5,081
67,700
164
77,292
Over 1
Over 3
to 3 Years
to 5 Years
1,627
303
1,903
33,861
-
37,694
429
-
361
20,622
20
21,432
Over
5 Years
881
-
-
2,086
52,208
55,175
Total
4,642
2,945
9,431
174,391
184
191,593
The credit commitments shown in the table above also constitute contingent assets. These commitments would be classified as
loans in the balance sheet on the contingent event occurring.
Additional liabilities and commitments
Legislative liabilities
The Group had the following assessed liabilities as at 30 September 2015:
$16 million (2014: $19 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act
1987 and the Workplace Injury Management and Workers’ Compensation Act 1998 (New South Wales);
$13 million (2014: $13 million) based on actuarial assessment as a self-insurer under the Accident Compensation Act
1985 (Victoria);
$4 million (2014: $7 million) based on actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1986 (South Australia);
$1 million (2014: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Rehabilitation Act 2003 (Queensland);
1951 (Australian Capital Territory);
$1 million (2014: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act
$1 million (2014: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Injury Management Act 1981 (Western Australia); and
$1 million (2014: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1988 (Tasmania).
Notes to the financial statements
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Adequate provision has been made for these liabilities in the provision for annual leave and other employee benefits (refer
to Note 28).
Litigation
Contingent liabilities exist in respect of actual and potential claims and proceedings. An assessment of the Group’s likely loss
has been made on a case-by-case basis for the purpose of the financial statements and specific provisions have been made
where appropriate.
Since 2011, Westpac has been served with three class action proceedings brought on behalf of customers seeking to
recover exception fees paid by those customers. Similar class actions have been commenced against several other
Australian banks. Westpac has agreed with the plaintiffs to put the proceedings against Westpac on hold pending further
developments in the litigation against one of those other banks. In April 2015, the Full Court of the Federal Court
unanimously found all of the exception fees charged by that other bank to be lawful. The plaintiffs are currently appealing
certain aspects of that judgment to the High Court of Australia. The appeal is scheduled to be heard in February 2016; and
Westpac has been served with a class action proceeding brought on behalf of Westpac customers who borrowed money to
invest in Storm Financial-badged investments. Westpac intends to defend these proceedings. As the two named applicants
have not quantified the damages that they seek, and given the preliminary nature of these proceedings, it is not possible to
estimate any potential liability at this stage.
Industry reviews by regulators
Globally, regulators continue to progress various reviews involving the financial services sector. The nature of these reviews
can be wide ranging and, for example, currently include investigations into potential manipulation in financial markets. During
the year, Westpac has received notices and requests for information from its regulators. The outcomes and total costs
associated with such reviews are uncertain.
Settlement risk
The Group is subject to a credit risk exposure in the event that another financial institution fails to settle for its payments
clearing activities. We seek to minimise credit risk arising from settlement risk in the payments system by aligning our
processing method with the legal certainty of settlement in the relevant clearing system.
Financial Claims Scheme
Under the Financial Claims Scheme (FCS) the Australian Government provides depositors a free guarantee of deposits in
eligible ADIs up to and including $250,000. The FCS applies to an eligible ADI if APRA has applied for the winding up of the
ADI and the responsible Australian Government minister has declared that the FCS applies to the ADI.
The Financial Claims Scheme (ADIs) Levy Act 2008 provides for the imposition of a levy to fund the excess of certain APRA
FCS costs connected to an ADI. The levy would be imposed on liabilities of eligible ADIs to their depositors and cannot be
more than 0.5% of the amount of those liabilities.
Service agreements
The maximum contingent liability for termination benefits in respect of service agreements with the CEO and other Group Key
Management Personnel at 30 September 2015 was $15 million (2014: $16 million).
Contingent tax risk
The ATO is reviewing the taxation treatment of certain transactions undertaken by the Group in the course of normal
business activities.
Risk reviews and audits are also being undertaken by revenue authorities in other jurisdictions, as part of normal revenue
authority activity in those countries.
The Group has assessed these and other taxation claims arising in Australia and elsewhere, including seeking independent
advice where appropriate, and considers it holds appropriate provisions.
Parent Entity guarantees and undertakings
In addition to the above, the following guarantees and undertakings are extended to entities in the Group by the Parent Entity:
issue of letters of comfort in respect of certain subsidiaries in the normal course of business. The letters recognise that
Westpac has a responsibility that those subsidiaries continue to meet their obligations;
guarantees to certain wholly owned subsidiaries that are Australian financial services or credit licensees to comply with
legislative requirements. Each guarantee provided does not exceed $40 million per annum. The guarantees will only give
rise to a liability where the entity concerned becomes legally obliged to pay on account of a claim under the relevant
licence. The Parent Entity has a right of indemnity to recover funds payable under the guarantees.
222
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
223
3
CAPITAL AND DIVIDENDS
Note 32. Shareholders’ equity (continued)
Note 32. Shareholders’ equity
Accounting policy
Share capital
Ordinary shares are recognised at the amount paid up per ordinary share net of directly attributable issue costs. Where the
Parent Entity or other members of the Group purchases shares in the Parent Entity, the consideration paid is deducted from
ordinary share capital and the shares are treated as treasury shares until they are subsequently sold, reissued or cancelled.
Where such shares are sold or reissued, any consideration received is included in shareholders’ equity.
Other equity instruments
Convertible debentures issued by the Parent Entity in respect of the 2006 Trust Preferred Securities (2006 TPS) are recognised
in the Parent Entity balance sheet at the amount of consideration received net of issue costs. Distributions on them are
recognised when entitlements are determined in accordance with the terms of the convertible debentures.
Non-controlling interests
Non-controlling interests represents the share in the net assets of subsidiaries attributable to equity interests that are not owned
directly or indirectly by the Parent Entity. The 2006 TPS are also classified as non-controlling interests in the Group
balance sheet.
Reserves
Foreign currency translation reserve
Exchange differences arising on translation of the Group’s foreign operations, any offsetting gains or losses on hedging the net
investment and any associated tax effect are reflected in the foreign currency translation reserve. A cumulative credit balance
in this reserve would not normally be regarded as being available for payment of dividends until such gains are realised on sale
or disposal of the foreign operation.
Available-for-sale securities reserve
This comprises the changes in the fair value of available-for-sale financial securities, net of tax. These changes are transferred
to non-interest income in the income statement when the asset is either derecognised or impaired.
Cash flow hedging reserve
This comprises the fair value gains and losses associated with the effective portion of designated cash flow hedging
instruments, net of tax.
Share-based payment reserve
This comprises the fair value of share-based payments recognised as an expense.
Other reserves
Other reserves for the Parent Entity relates to certain historic internal group restructurings performed at fair value. This reserve
is eliminated on consolidation. Other reserves for the Group consist of transactions relating to change in the Parent Entity’s
ownership of a subsidiary that do not result in a loss of control.
The amount recorded in other reserves reflects the difference between the amount by which non-controlling interests are
adjusted and the fair value of any consideration paid or received.
$m
Contributed equity
Ordinary shares 3,183,907,786 (2014: 3,109,048,309) each fully paid
Restricted Share Plan (RSP) treasury shares 4,478,150 (2014: 6,327,116)
Other treasury shares 5,423,555 (2014: 5,121,966)
Treasury and RSP treasury shares
Share capital
Other equity instruments
Convertible notes issued on 21 June 2006 A$762,737,500
(with net issue costs of A$8 million)
Non-controlling interests1
Trust preferred securities 7,627,375 2006 TPS of A$100 each
(with net issue costs of A$8 million)
Other
Total non-controlling interests
1 Total distributions to Non-controlling interests were $52 million (2014: $48 million).
Consolidated
Parent Entity
2015
2014
2015
2014
29,280
26,943
29,280
26,943
(304)
(81)
(385)
(235)
(69)
(304)
(304)
(4)
(308)
(235)
(4)
(239)
28,895
26,639
28,972
26,704
-
-
755
755
755
62
817
755
126
881
-
-
-
-
-
-
224
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Current movement due to changes in other comprehensive income:
Net gains/(losses) from changes in fair value
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
79
(104)
129
(148)
46
(73)
21
(25)
1,076
141
1,217
(59)
14
(131)
40
26
15
(175)
(1)
(16)
(17)
5
12
263
(79)
(94)
27
129
920
156
1,076
41
(12)
(197)
59
162
61
(190)
1
(2)
(1)
-
(152)
47
(21)
6
(41)
983
125
1,108
140
(42)
(167)
50
131
33
(299)
41
41
-
-
940
222
(69)
9
21
79
846
137
983
254
90
(27)
(239)
72
150
14
(332)
41
41
-
-
921
Reserves
$m
Available-for-sale securities reserve
Balance as at beginning of the year
Income tax effect
Transferred to income statements
Income tax effect
Balance as at end of the year
Share-based payment reserve
Balance as at beginning of the year
Balance as at end of the year
Cash flow hedging reserve
Balance as at beginning of the year
Income tax effect
Transferred to income statements
Income tax effect
Balance as at end of the year
Foreign currency translation reserve
Balance as at beginning of the year
net of associated hedges
Balance as at end of the year
Other reserves
Balance as at beginning of the year
Transactions with owners
Balance as at end of the year
Total reserves
Ordinary shares
no par value.
Number of shares on issue
Consolidated and Parent
(number)
Opening balance
Issue of shares
Dividend reinvestment plan1
Dividend reinvestment plan underwrite2
Issued shares for the year
Closing balance
was $32.08.
Current movement due to transactions with employees
Current movement due to changes in other comprehensive income:
Net gains/(losses) from changes in fair value
162
271
150
Current movement due to exchange differences on translation of foreign operations,
(190)
(251)
(332)
(346)
Share of other comprehensive income (expense) of associates
1,031
1,176
In accordance with the Corporations Act 2001, Westpac does not have authorised capital and all ordinary shares issued have
Ordinary shares entitle the holder to participate in dividends as declared and in the event of winding up of Westpac, to
participate in the proceeds in proportion to the number of and amounts paid on the shares held.
Ordinary shares entitle the holder to one vote per share, either in person or by proxy, at a meeting of Westpac shareholders.
Details of ordinary shares issued or purchased during the year ended 30 September 2015 are set out in the tables below:
1 The average price for the issuance of shares in relation to the dividend reinvestment plan for the 2014 final dividend and 2015 interim dividend
2 The average price for the issuance of shares in relation to the 2015 interim dividend reinvestment plan underwrite was $32.40.
2015
2014
3,109,048,309
3,109,048,309
43,999,852
30,859,625
74,859,477
3,183,907,786
3,109,048,309
-
-
-
225
CAPITAL AND DIVIDENDS
Note 32. Shareholders’ equity
Accounting policy
Share capital
Ordinary shares are recognised at the amount paid up per ordinary share net of directly attributable issue costs. Where the
Parent Entity or other members of the Group purchases shares in the Parent Entity, the consideration paid is deducted from
ordinary share capital and the shares are treated as treasury shares until they are subsequently sold, reissued or cancelled.
Where such shares are sold or reissued, any consideration received is included in shareholders’ equity.
Other equity instruments
Convertible debentures issued by the Parent Entity in respect of the 2006 Trust Preferred Securities (2006 TPS) are recognised
in the Parent Entity balance sheet at the amount of consideration received net of issue costs. Distributions on them are
recognised when entitlements are determined in accordance with the terms of the convertible debentures.
Non-controlling interests represents the share in the net assets of subsidiaries attributable to equity interests that are not owned
directly or indirectly by the Parent Entity. The 2006 TPS are also classified as non-controlling interests in the Group
Non-controlling interests
balance sheet.
Reserves
Foreign currency translation reserve
or disposal of the foreign operation.
Available-for-sale securities reserve
Cash flow hedging reserve
instruments, net of tax.
Share-based payment reserve
Other reserves
Exchange differences arising on translation of the Group’s foreign operations, any offsetting gains or losses on hedging the net
investment and any associated tax effect are reflected in the foreign currency translation reserve. A cumulative credit balance
in this reserve would not normally be regarded as being available for payment of dividends until such gains are realised on sale
This comprises the changes in the fair value of available-for-sale financial securities, net of tax. These changes are transferred
to non-interest income in the income statement when the asset is either derecognised or impaired.
This comprises the fair value gains and losses associated with the effective portion of designated cash flow hedging
This comprises the fair value of share-based payments recognised as an expense.
Other reserves for the Parent Entity relates to certain historic internal group restructurings performed at fair value. This reserve
is eliminated on consolidation. Other reserves for the Group consist of transactions relating to change in the Parent Entity’s
ownership of a subsidiary that do not result in a loss of control.
The amount recorded in other reserves reflects the difference between the amount by which non-controlling interests are
adjusted and the fair value of any consideration paid or received.
Ordinary shares 3,183,907,786 (2014: 3,109,048,309) each fully paid
29,280
26,943
29,280
26,943
$m
Contributed equity
Restricted Share Plan (RSP) treasury shares 4,478,150 (2014: 6,327,116)
Other treasury shares 5,423,555 (2014: 5,121,966)
Treasury and RSP treasury shares
Share capital
Other equity instruments
(with net issue costs of A$8 million)
Non-controlling interests1
Convertible notes issued on 21 June 2006 A$762,737,500
Trust preferred securities 7,627,375 2006 TPS of A$100 each
(with net issue costs of A$8 million)
Other
Total non-controlling interests
1 Total distributions to Non-controlling interests were $52 million (2014: $48 million).
Consolidated
Parent Entity
2015
2014
2015
2014
(304)
(81)
(385)
(235)
(69)
(304)
(304)
(4)
(308)
(235)
(4)
(239)
28,895
26,639
28,972
26,704
-
-
755
755
755
62
817
755
126
881
-
-
-
-
-
-
Note 32. Shareholders’ equity (continued)
Reserves
$m
Available-for-sale securities reserve
Balance as at beginning of the year
Current movement due to changes in other comprehensive income:
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Balance as at end of the year
Share-based payment reserve
Balance as at beginning of the year
Current movement due to transactions with employees
Balance as at end of the year
Cash flow hedging reserve
Balance as at beginning of the year
Current movement due to changes in other comprehensive income:
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Balance as at end of the year
Foreign currency translation reserve
Balance as at beginning of the year
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
79
(104)
129
(148)
46
(73)
21
(25)
1,076
141
1,217
12
263
(79)
(94)
27
129
920
156
1,076
(152)
47
(21)
6
(41)
983
125
1,108
162
271
150
(59)
14
(131)
40
26
41
(12)
(197)
59
162
140
(42)
(167)
50
131
222
(69)
9
21
79
846
137
983
254
90
(27)
(239)
72
150
(190)
(251)
(332)
(346)
Current movement due to exchange differences on translation of foreign operations,
net of associated hedges
Balance as at end of the year
Other reserves
Balance as at beginning of the year
Transactions with owners
Balance as at end of the year
Share of other comprehensive income (expense) of associates
15
(175)
(1)
(16)
(17)
5
61
(190)
1
(2)
(1)
-
Total reserves
1,031
1,176
33
(299)
41
-
41
-
940
14
(332)
41
-
41
-
921
Ordinary shares
In accordance with the Corporations Act 2001, Westpac does not have authorised capital and all ordinary shares issued have
no par value.
Ordinary shares entitle the holder to participate in dividends as declared and in the event of winding up of Westpac, to
participate in the proceeds in proportion to the number of and amounts paid on the shares held.
Ordinary shares entitle the holder to one vote per share, either in person or by proxy, at a meeting of Westpac shareholders.
Details of ordinary shares issued or purchased during the year ended 30 September 2015 are set out in the tables below:
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225
was $32.08.
2 The average price for the issuance of shares in relation to the 2015 interim dividend reinvestment plan underwrite was $32.40.
Closing balance
1 The average price for the issuance of shares in relation to the dividend reinvestment plan for the 2014 final dividend and 2015 interim dividend
3,183,907,786
Number of shares on issue
Consolidated and Parent
(number)
Opening balance
Issue of shares
Dividend reinvestment plan1
Dividend reinvestment plan underwrite2
Issued shares for the year
2015
2014
3,109,048,309
3,109,048,309
43,999,852
30,859,625
74,859,477
-
-
-
3,109,048,309
3
34.33
197,848
4,976,392
CEOPP - exercise of share rights
Total ordinary shares purchased on market2
1 The average exercise price received was $22.02 on the exercise of the WPP options (2014: $20.86) and $27.55 on the exercise of the WRP options
Note 32. Shareholders’ equity (continued)
Ordinary shares purchased on market
Consolidated and Parent
Employee share plan
Restricted share plan
WPP - exercise of options1
WPP - exercise of share rights and performance share rights
WRP - exercise of options1
WRP - exercise of share rights
2015
Number
823,869
2,067,941
202,255
436,407
402,814
845,258
2015
Average Price ($)
32.77
32.81
36.54
33.23
36.27
34.74
Notes to the financial statements
Note 32. Shareholders’ equity (continued)
Conversion, exchange and redemption
Westpac can redeem 2006 TPS for cash with APRA approval or convert into a variable number of Westpac ordinary shares
calculated in accordance with the Westpac TPS terms, on the step-up date or any distribution payment date after the step-up
date, for certain tax, regulatory or change of control reasons and in certain other circumstances. If Westpac elects to redeem
2006 TPS, holders will receive cash equal to their face value. If Westpac elects to convert 2006 TPS, for each 2006 TPS,
holders will receive a number of ordinary shares calculated using the formula described in the 2006 TPS terms subject to a
maximum conversion number which is 50 Westpac ordinary shares. The price at which Westpac ordinary shares will be issued
is based on the Westpac ordinary share price determined over the 20 business day period prior to the elected conversion date
and includes a 2.5% discount. If Westpac redeems or converts 2006 TPS, Westpac must also redeem or convert the notes in a
corresponding manner.
The 2006 TPS will automatically exchange into Westpac preference shares upon the occurrence of an automatic exchange
event, that is, if the 2006 TPS are still on issue on 30 September 2055 or in certain other limited circumstances, including the
occurrence of an event of default or an APRA event (unless APRA determines otherwise). On exchange, all 2006 TPS on issue
will exchange into preference shares directly issued by Westpac and the notes and the 2006 TPS will be redeemed
simultaneously. On exchange, 2006 TPS holders will receive one preference share for each 2006 TPS.
Note 33. Capital adequacy
APRA has responsibility for the prudential supervision of ADIs, life and general insurance companies and superannuation funds
in Australia. Westpac Banking Corporation is an ADI.
Australia’s risk-based capital adequacy guidelines are generally consistent but not completely aligned with the approach agreed
upon by the Basel Committee on Banking Supervision (BCBS). APRA has exercised its discretion in applying the Basel
framework to Australian ADIs, resulting in a more conservative approach than the minimum standards published by the BCBS.
APRA also introduced the new standards from 1 January 2013 with no phasing in of higher capital requirements as allowed by
BCBS. The application of these discretions act to reduce reported capital ratios relative to those reported in other jurisdictions.
Under APRA’s implementation of Basel III, Australian banks are required to maintain a minimum Common Equity Tier 1 capital
ratio of at least 4.5%, Tier 1 capital ratio of 6.0% and Total Regulatory Capital ratio of 8.0%. Subject to certain limitations,
Common Equity Tier 1 capital consists of paid-up share capital, retained profits and certain reserves, less the deduction of
certain intangible assets, capitalised expenses and software, and investments and retained earnings in insurance and funds
management subsidiaries that are not consolidated for capital adequacy purposes. Tier 1 Capital is the sum of Common Equity
Tier 1 capital and Additional Tier 1 capital. Additional Tier 1 capital comprises high quality components of capital that consists
of securities not included in Common Equity Tier 1 capital but which include loss absorbing characteristics. Total Regulatory
Capital is the sum of Tier 1 and Tier 2 capital. Tier 2 capital includes other components of capital that, to varying degrees, fall
short of the quality of Tier 1 capital, but nonetheless contribute to the overall strength of an ADI and its capacity to
absorb losses.
Westpac’s capital ratios are significantly above APRA minimum capital adequacy requirements. Westpac is required to inform
APRA immediately of any breach or potential breach of its minimum prudential capital adequacy requirements, including details
of remedial action taken or planned to be taken.
Capital management strategy
Westpac’s approach 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:
contingency plans;
the development of a capital management strategy, including preferred capital range, capital buffers and
consideration of both economic and regulatory capital requirements;
a process that challenges the capital measures, coverage and requirements which incorporates amongst other things, the
impact of adverse economic scenarios; and
consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors.
(2014: $27.35).
2 The purchase of existing ordinary shares in respect of employee share plans resulted in a tax benefit of $10.3 million being recognised as
contributed equity.
Restricted Share Plan treasury shares
Ordinary shares allocated to eligible employees under the RSP are classified as treasury shares until unconditional ownership
of the shares vest at the end of the restriction period.
Other treasury shares
Other treasury shares includes ordinary shares held by statutory life funds and managed investment schemes and ordinary
shares held by Westpac in respect of equity derivatives sold to customers.
During the year 928,162 treasury shares were purchased at an average price of $36.31 (2014: 99,342 shares at an average
price of $33.38) and 626,573 treasury shares were sold at an average price of $33.34 (2014: 399,882 shares at an average
price of $33.24).
Convertible notes and 2006 TPS
A Westpac controlled entity, Westpac TPS Trust, issued 7,627,375 2006 TPS in Australia at $100 each on 21 June 2006. The
2006 TPS are preferred units in the Westpac TPS Trust, with non-cumulative floating rate distributions which are expected to
be fully franked. Westpac TPS Trust also issued one ordinary unit with an issue price of $100 to Westpac. Westpac, as holder
of the ordinary unit, is entitled to any residual income or assets of the Westpac TPS Trust not distributed to holders of
2006 TPS. The principal assets of Westpac TPS Trust are 7,627,375 convertible notes (the notes) issued by Westpac in an
aggregate amount of $762,737,500. The notes qualify for transitional treatment as Additional Tier 1 capital of Westpac under
APRA’s Basel III capital adequacy framework.
The 2006 TPS are scheduled to pay quarterly distributions (30 September, 31 December, 31 March and 30 June) in arrears,
subject to certain conditions being satisfied. The distribution rate on 2006 TPS, until 30 June 2016 (the step-up date), is
calculated as the Australian 90 day bank bill rate plus 1% per annum (the initial margin), together multiplied by one minus the
Australian corporate tax rate (30% during the year ended 30 September 2015). After the step-up date, the initial margin will
increase by a one time step-up of 1% per annum.
Distributions on the 2006 TPS will only be made if Westpac pays interest on the notes and certain other conditions (which
broadly correspond to the interest payment conditions on the notes) are satisfied. Interest on the notes is subject to an interest
payment test and interest will not be paid if Westpac directors have not resolved to make the interest payment, the payment of
interest exceeds distributable profits (unless APRA gives its prior approval) and APRA does not otherwise object to the
payment. The interest payments on the notes may exceed the aggregate amount of the distributions to be made on 2006 TPS.
Any excess will be distributed to Westpac, as holder of the ordinary unit in the Westpac TPS Trust, on each distribution
payment date.
The notes are unsecured obligations of Westpac and rank subordinate and junior in right of payment of principal and interest to
Westpac’s obligations to depositors and creditors, other than subordinated creditors holding subordinated indebtedness that is
stated to rank equally with, or junior to the notes.
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Note 32. Shareholders’ equity (continued)
Ordinary shares purchased on market
Consolidated and Parent
Employee share plan
Restricted share plan
WPP - exercise of options1
WPP - exercise of share rights and performance share rights
WRP - exercise of options1
WRP - exercise of share rights
CEOPP - exercise of share rights
Total ordinary shares purchased on market2
2015
Number
823,869
2,067,941
202,255
436,407
402,814
845,258
197,848
4,976,392
Average Price ($)
2015
32.77
32.81
36.54
33.23
36.27
34.74
34.33
1 The average exercise price received was $22.02 on the exercise of the WPP options (2014: $20.86) and $27.55 on the exercise of the WRP options
2 The purchase of existing ordinary shares in respect of employee share plans resulted in a tax benefit of $10.3 million being recognised as
(2014: $27.35).
contributed equity.
Ordinary shares allocated to eligible employees under the RSP are classified as treasury shares until unconditional ownership
Restricted Share Plan treasury shares
of the shares vest at the end of the restriction period.
Other treasury shares
Other treasury shares includes ordinary shares held by statutory life funds and managed investment schemes and ordinary
shares held by Westpac in respect of equity derivatives sold to customers.
During the year 928,162 treasury shares were purchased at an average price of $36.31 (2014: 99,342 shares at an average
price of $33.38) and 626,573 treasury shares were sold at an average price of $33.34 (2014: 399,882 shares at an average
price of $33.24).
Convertible notes and 2006 TPS
A Westpac controlled entity, Westpac TPS Trust, issued 7,627,375 2006 TPS in Australia at $100 each on 21 June 2006. The
2006 TPS are preferred units in the Westpac TPS Trust, with non-cumulative floating rate distributions which are expected to
be fully franked. Westpac TPS Trust also issued one ordinary unit with an issue price of $100 to Westpac. Westpac, as holder
of the ordinary unit, is entitled to any residual income or assets of the Westpac TPS Trust not distributed to holders of
2006 TPS. The principal assets of Westpac TPS Trust are 7,627,375 convertible notes (the notes) issued by Westpac in an
aggregate amount of $762,737,500. The notes qualify for transitional treatment as Additional Tier 1 capital of Westpac under
APRA’s Basel III capital adequacy framework.
The 2006 TPS are scheduled to pay quarterly distributions (30 September, 31 December, 31 March and 30 June) in arrears,
subject to certain conditions being satisfied. The distribution rate on 2006 TPS, until 30 June 2016 (the step-up date), is
calculated as the Australian 90 day bank bill rate plus 1% per annum (the initial margin), together multiplied by one minus the
Australian corporate tax rate (30% during the year ended 30 September 2015). After the step-up date, the initial margin will
increase by a one time step-up of 1% per annum.
Distributions on the 2006 TPS will only be made if Westpac pays interest on the notes and certain other conditions (which
broadly correspond to the interest payment conditions on the notes) are satisfied. Interest on the notes is subject to an interest
payment test and interest will not be paid if Westpac directors have not resolved to make the interest payment, the payment of
interest exceeds distributable profits (unless APRA gives its prior approval) and APRA does not otherwise object to the
payment. The interest payments on the notes may exceed the aggregate amount of the distributions to be made on 2006 TPS.
Any excess will be distributed to Westpac, as holder of the ordinary unit in the Westpac TPS Trust, on each distribution
payment date.
The notes are unsecured obligations of Westpac and rank subordinate and junior in right of payment of principal and interest to
Westpac’s obligations to depositors and creditors, other than subordinated creditors holding subordinated indebtedness that is
stated to rank equally with, or junior to the notes.
Notes to the financial statements
Note 32. Shareholders’ equity (continued)
Conversion, exchange and redemption
Westpac can redeem 2006 TPS for cash with APRA approval or convert into a variable number of Westpac ordinary shares
calculated in accordance with the Westpac TPS terms, on the step-up date or any distribution payment date after the step-up
date, for certain tax, regulatory or change of control reasons and in certain other circumstances. If Westpac elects to redeem
2006 TPS, holders will receive cash equal to their face value. If Westpac elects to convert 2006 TPS, for each 2006 TPS,
holders will receive a number of ordinary shares calculated using the formula described in the 2006 TPS terms subject to a
maximum conversion number which is 50 Westpac ordinary shares. The price at which Westpac ordinary shares will be issued
is based on the Westpac ordinary share price determined over the 20 business day period prior to the elected conversion date
and includes a 2.5% discount. If Westpac redeems or converts 2006 TPS, Westpac must also redeem or convert the notes in a
corresponding manner.
The 2006 TPS will automatically exchange into Westpac preference shares upon the occurrence of an automatic exchange
event, that is, if the 2006 TPS are still on issue on 30 September 2055 or in certain other limited circumstances, including the
occurrence of an event of default or an APRA event (unless APRA determines otherwise). On exchange, all 2006 TPS on issue
will exchange into preference shares directly issued by Westpac and the notes and the 2006 TPS will be redeemed
simultaneously. On exchange, 2006 TPS holders will receive one preference share for each 2006 TPS.
Note 33. Capital adequacy
APRA has responsibility for the prudential supervision of ADIs, life and general insurance companies and superannuation funds
in Australia. Westpac Banking Corporation is an ADI.
Australia’s risk-based capital adequacy guidelines are generally consistent but not completely aligned with the approach agreed
upon by the Basel Committee on Banking Supervision (BCBS). APRA has exercised its discretion in applying the Basel
framework to Australian ADIs, resulting in a more conservative approach than the minimum standards published by the BCBS.
APRA also introduced the new standards from 1 January 2013 with no phasing in of higher capital requirements as allowed by
BCBS. The application of these discretions act to reduce reported capital ratios relative to those reported in other jurisdictions.
Under APRA’s implementation of Basel III, Australian banks are required to maintain a minimum Common Equity Tier 1 capital
ratio of at least 4.5%, Tier 1 capital ratio of 6.0% and Total Regulatory Capital ratio of 8.0%. Subject to certain limitations,
Common Equity Tier 1 capital consists of paid-up share capital, retained profits and certain reserves, less the deduction of
certain intangible assets, capitalised expenses and software, and investments and retained earnings in insurance and funds
management subsidiaries that are not consolidated for capital adequacy purposes. Tier 1 Capital is the sum of Common Equity
Tier 1 capital and Additional Tier 1 capital. Additional Tier 1 capital comprises high quality components of capital that consists
of securities not included in Common Equity Tier 1 capital but which include loss absorbing characteristics. Total Regulatory
Capital is the sum of Tier 1 and Tier 2 capital. Tier 2 capital includes other components of capital that, to varying degrees, fall
short of the quality of Tier 1 capital, but nonetheless contribute to the overall strength of an ADI and its capacity to
absorb losses.
Westpac’s capital ratios are significantly above APRA minimum capital adequacy requirements. Westpac is required to inform
APRA immediately of any breach or potential breach of its minimum prudential capital adequacy requirements, including details
of remedial action taken or planned to be taken.
Capital management strategy
Westpac’s approach 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:
the development of a capital management strategy, including preferred capital range, capital buffers and
contingency plans;
consideration of both economic and regulatory capital requirements;
a process that challenges the capital measures, coverage and requirements which incorporates amongst other things, the
impact of adverse economic scenarios; and
consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors.
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3
Note 34. Dividends
Accounting policy
A provision for dividends is recognised when dividends are declared, determined or publicly recommended by the Directors but
not distributed as at the balance date.
$m
Dividends not recognised at year end
Since year end the Directors have recommended the payment of the following dividends
on ordinary shares:
Ordinary shares 94 cents per share (2014: 92 cents per share, 2013: 88 cents per share)
all fully franked at 30%
Consolidated
Parent Entity
2015
2014
2013
2015
2014
2,988
2,856
2,733
2,993
2,860
Special dividend nil cents per share (2014: nil, 2013: 10 cents per share) fully franked at 30%
-
-
310
-
-
Total dividends not recognised at year end
2,988
2,856
3,043
2,993
2,860
The Board has determined to satisfy the DRP for the 2015 final dividend by issuing Westpac ordinary shares. The DRP will not
include a discount.
Australian franking credits
Australian franking credits available to the Parent Entity for subsequent financial years after adjusting the franking account
balance as at the end of the financial year for franking credits that will arise from the payment of income tax payable on
Australian profits for the 2015 year, and franking debits that will arise from the payment of the proposed 2015 final dividends is
$793 million (2014: $565 million, 2013: $585 million).
New Zealand imputation credits
The Parent Entity is able to attach available New Zealand imputation credits to dividends paid. As a result, New Zealand
imputation credits of NZ$0.06 (2014: NZ$0.06, 2013: NZ$0.074) per share will be attached to the final 2015 ordinary dividend
payable by the Company. New Zealand imputation credits available for subsequent financial years after adjusting the franking
account balance as at the end of the financial year for franking credits that will arise from the payment of income tax on New
Zealand profits for the year, and franking debits that will arise from the payment of the proposed 2015 final dividend is
NZ$522 million (2014: NZ$562 million, 2013: NZ$605 million).
GROUP STRUCTURE
Note 35. Investments in subsidiaries and associates
Accounting policy
Subsidiaries
Westpac controls and accordingly consolidates an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity, and has the ability to affect those returns through its power over the entity.
The Group reassesses whether it controls an entity if facts and circumstances indicate that there have been changes to its
power, its rights to variable returns or its ability to use its power to affect the amount of its returns.
Changes in the Group’s ownership interest in a subsidiary after control is obtained which do not result in a loss of control are
accounted for as transactions with equity holders in their capacity as equity holders.
When the Group ceases to control a subsidiary any retained interest in the entity is remeasured to its fair value, with any
resulting gain or loss recognised in the income statement.
In the Parent Entity’s financial statements, investments in subsidiaries are initially recorded at cost and are subsequently held
at the lower of cost and recoverable amount.
Associates
Associates are entities in which the Group has significant influence, but not control, over the operating and financial policies.
The Group recognises investments in associates using the equity method. They are initially recognised at cost (except where
recognised at fair value due to a loss of control of a subsidiary), and increased (or decreased) each year by the Group’s share
of post acquisition profit (or loss) of the associate. Dividends received from the associate reduce the carrying amount of the
investment in associate.
The Group as at 30 September 2015 includes the material controlled entities in the following table.
Notes to the financial statements
Note 35. Investments in subsidiaries and associates (continued)
Overseas companies predominantly carry on business in the country of incorporation. For unincorporated entities, ‘Country of
Incorporation’ refers to the country where business is carried on. The financial years of all controlled entities are the same as
that of Westpac unless otherwise stated. From time to time, the Group consolidates a number of unit trusts where the group is
exposed to, or has rights to, variable returns from its involvement with the trusts, and has the ability to affect those returns
through its power over the trusts. These investment vehicles are excluded from the table.
Name
Advance Asset Management Limited
Asgard Capital Management Limited
Asgard Wealth Solutions Limited
BT Financial Group Pty Limited
BT Funds Management Limited
BT Portfolio Services Limited
Capital Finance Australia Limited
Hastings Funds Management Limited
Hastings Management Pty Limited
RAMS Financial Group Pty Limited
St.George Finance Limited
St.George Life Limited
Westpac Equity Holdings Pty Limited
Country of
Incorporation Name
Australia Westpac Financial Services Limited
Australia Westpac General Insurance Limited
Australia Westpac General Insurance Services Limited
Australia Westpac Lenders Mortgage Insurance Limited
Australia Westpac Overseas Holdings Pty Limited
Australia Westpac Securities Limited
Australia Westpac Securitisation Holdings Pty Limited
Australia BT Funds Management (NZ) Limited
Australia Westpac Financial Services Group-NZ-Limited
Australia Westpac Life-NZ-Limited
Australia Westpac New Zealand Limited
Australia Westpac NZ Operations Limited
Australia Westpac Bank-PNG-Limited
Country of
Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Papua New Guinea
USA
Westpac Financial Services Group Limited
Australia Hastings Funds Management (USA) Inc.
In addition to the above controlled entities, the following entities have been granted relief from compliance with the balance
date synchronisation provisions in the Corporations Act 2001:
Sixty Martin Place (Holdings) Pty Limited
Australia Westpac New Zealand Group Limited
The following material controlled entities are not wholly owned:
Westpac Cash PIE Fund
Westpac Notice Saver PIE Fund
Westpac Term PIE Fund
Percentage Owned
Hastings Management Pty Limited1
Westpac Bank-PNG-Limited
of this change was not material.
Non-controlling interests
Details of non-controlling interests are set out in Note 32.
Significant restrictions
1 The change in ownership did not result in a loss of control. The effect on equity attributable to owners of the Westpac Banking Corporation as a result
2015
95.9%
89.9%
2014
97.2%
89.9%
There were no significant restrictions on the ability to transfer cash or other assets, pay dividends or other capital distributions,
provide or repay loans and advances between the entities within the Group. There were also no significant restrictions on
Westpac’s ability to access or use the assets and settle the liabilities of the Group resulting from protective rights of non-
controlling interests.
Associates
in BTIM.
On 23 June 2015, the Group lost control of BT Investment Management Limited (BTIM), a company incorporated in Australia.
As at 30 September 2014 the Group held 60.8% of issued shares and consolidated the investment. The Group now holds
31.0% and the investment is equity accounted. The following table summarises the financial information of BTIM as presented
in its financial statements and reconciles the summarised financial information to the carrying amount of the Group’s investment
228
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229
Note 34. Dividends
Accounting policy
not distributed as at the balance date.
A provision for dividends is recognised when dividends are declared, determined or publicly recommended by the Directors but
$m
Dividends not recognised at year end
on ordinary shares:
all fully franked at 30%
Since year end the Directors have recommended the payment of the following dividends
Ordinary shares 94 cents per share (2014: 92 cents per share, 2013: 88 cents per share)
Special dividend nil cents per share (2014: nil, 2013: 10 cents per share) fully franked at 30%
-
-
310
-
-
Total dividends not recognised at year end
2,988
2,856
3,043
2,993
2,860
2,988
2,856
2,733
2,993
2,860
The Board has determined to satisfy the DRP for the 2015 final dividend by issuing Westpac ordinary shares. The DRP will not
Consolidated
Parent Entity
2015
2014
2013
2015
2014
include a discount.
Australian franking credits
Australian franking credits available to the Parent Entity for subsequent financial years after adjusting the franking account
balance as at the end of the financial year for franking credits that will arise from the payment of income tax payable on
Australian profits for the 2015 year, and franking debits that will arise from the payment of the proposed 2015 final dividends is
$793 million (2014: $565 million, 2013: $585 million).
New Zealand imputation credits
The Parent Entity is able to attach available New Zealand imputation credits to dividends paid. As a result, New Zealand
imputation credits of NZ$0.06 (2014: NZ$0.06, 2013: NZ$0.074) per share will be attached to the final 2015 ordinary dividend
payable by the Company. New Zealand imputation credits available for subsequent financial years after adjusting the franking
account balance as at the end of the financial year for franking credits that will arise from the payment of income tax on New
Zealand profits for the year, and franking debits that will arise from the payment of the proposed 2015 final dividend is
NZ$522 million (2014: NZ$562 million, 2013: NZ$605 million).
GROUP STRUCTURE
Note 35. Investments in subsidiaries and associates
Accounting policy
Subsidiaries
Westpac controls and accordingly consolidates an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity, and has the ability to affect those returns through its power over the entity.
The Group reassesses whether it controls an entity if facts and circumstances indicate that there have been changes to its
power, its rights to variable returns or its ability to use its power to affect the amount of its returns.
Changes in the Group’s ownership interest in a subsidiary after control is obtained which do not result in a loss of control are
accounted for as transactions with equity holders in their capacity as equity holders.
When the Group ceases to control a subsidiary any retained interest in the entity is remeasured to its fair value, with any
resulting gain or loss recognised in the income statement.
In the Parent Entity’s financial statements, investments in subsidiaries are initially recorded at cost and are subsequently held
at the lower of cost and recoverable amount.
Associates
Associates are entities in which the Group has significant influence, but not control, over the operating and financial policies.
The Group recognises investments in associates using the equity method. They are initially recognised at cost (except where
recognised at fair value due to a loss of control of a subsidiary), and increased (or decreased) each year by the Group’s share
of post acquisition profit (or loss) of the associate. Dividends received from the associate reduce the carrying amount of the
investment in associate.
The Group as at 30 September 2015 includes the material controlled entities in the following table.
Notes to the financial statements
Note 35. Investments in subsidiaries and associates (continued)
Overseas companies predominantly carry on business in the country of incorporation. For unincorporated entities, ‘Country of
Incorporation’ refers to the country where business is carried on. The financial years of all controlled entities are the same as
that of Westpac unless otherwise stated. From time to time, the Group consolidates a number of unit trusts where the group is
exposed to, or has rights to, variable returns from its involvement with the trusts, and has the ability to affect those returns
through its power over the trusts. These investment vehicles are excluded from the table.
Name
Advance Asset Management Limited
Asgard Capital Management Limited
Asgard Wealth Solutions Limited
BT Financial Group Pty Limited
BT Funds Management Limited
BT Portfolio Services Limited
Capital Finance Australia Limited
Hastings Funds Management Limited
Hastings Management Pty Limited
RAMS Financial Group Pty Limited
Sixty Martin Place (Holdings) Pty Limited
St.George Finance Limited
St.George Life Limited
Westpac Equity Holdings Pty Limited
Westpac Financial Services Group Limited
Country of
Incorporation Name
Australia Westpac Financial Services Limited
Australia Westpac General Insurance Limited
Australia Westpac General Insurance Services Limited
Australia Westpac Lenders Mortgage Insurance Limited
Australia Westpac Overseas Holdings Pty Limited
Australia Westpac Securities Limited
Australia Westpac Securitisation Holdings Pty Limited
Australia BT Funds Management (NZ) Limited
Australia Westpac Financial Services Group-NZ-Limited
Australia Westpac Life-NZ-Limited
Australia Westpac New Zealand Group Limited
Australia Westpac New Zealand Limited
Australia Westpac NZ Operations Limited
Australia Westpac Bank-PNG-Limited
Australia Hastings Funds Management (USA) Inc.
Country of
Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Papua New Guinea
USA
In addition to the above controlled entities, the following entities have been granted relief from compliance with the balance
date synchronisation provisions in the Corporations Act 2001:
Westpac Cash PIE Fund
Westpac Notice Saver PIE Fund
Westpac Term PIE Fund
The following material controlled entities are not wholly owned:
Percentage Owned
Hastings Management Pty Limited1
97.2%
Westpac Bank-PNG-Limited
89.9%
1 The change in ownership did not result in a loss of control. The effect on equity attributable to owners of the Westpac Banking Corporation as a result
89.9%
95.9%
2014
2015
of this change was not material.
Non-controlling interests
Details of non-controlling interests are set out in Note 32.
Significant restrictions
There were no significant restrictions on the ability to transfer cash or other assets, pay dividends or other capital distributions,
provide or repay loans and advances between the entities within the Group. There were also no significant restrictions on
Westpac’s ability to access or use the assets and settle the liabilities of the Group resulting from protective rights of non-
controlling interests.
Associates
On 23 June 2015, the Group lost control of BT Investment Management Limited (BTIM), a company incorporated in Australia.
As at 30 September 2014 the Group held 60.8% of issued shares and consolidated the investment. The Group now holds
31.0% and the investment is equity accounted. The following table summarises the financial information of BTIM as presented
in its financial statements and reconciles the summarised financial information to the carrying amount of the Group’s investment
in BTIM.
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229
3
Note 35. Investments in subsidiaries and associates (continued)
Consolidated
$m
Summarised results
Revenue for the period
Net profit for the period
Other comprehensive income for the period
Total comprehensive income (100%)
Group's share of net profit (31%)
Equity accounting adjustments
Group's share in net profit recognised in the income statement
Group's share of other comprehensive income (31%)
Tax effect on Group's share of other comprehensive income
Share of total comprehensive income recognised by the Group
Dividends received from associates during the period
Summarised balance sheet
Total assets
Total liabilities
Total net assets (100%)
Group's share of total net assets (31%)
Other equity accounting adjustments
Fair value adjustments (including notional goodwill) on acquisition (net of amortisation)
Carrying amount of interest in BTIM
Fair value of investment
3 months ended
30 September 2015
Note 36. Structured entities (continued)
Group managed funds
120
33
19
52
10
(5)
5
6
(1)
10
-
990
(228)
762
236
(6)
526
756
868
Note 36. Structured entities
Accounting policy
A structured entity is one which has been designed such that voting or similar rights are not the dominant factor in determining
who controls the entity (for example, when voting rights relate to administrative tasks only and the relevant activities are
directed by means of contractual arrangements). Structured entities are generally created to achieve a specific and well defined
objective with restrictions over their ongoing activities. Where structured entities are used to facilitate the purchase of specific
assets, they are commonly financed by issuing debt or equity securities that are collateralised by and/or indexed to those
underlying assets. The debt and equity securities issued by structured entities may include tranches with varying levels
of subordination.
The Group engages in various transactions with both consolidated and unconsolidated structured entities that are mainly
involved in securitisations, asset-backed and other financing structures and managed investment funds.
Structured entities are assessed for consolidation in accordance with the accounting policy set out in Note 35. As voting rights
are often not the decisive factor in decisions over the relevant activities, the assessment of control may involve assessing the
purpose and design of the entity, and consideration as to whether the Group, or another involved party with power over the
relevant activities, is acting as a principal in its own right or as an agent on behalf of others. The Group may have an interest in
or sponsor a structured entity but not consolidate it.
The details below provide information on both consolidated and unconsolidated structured entities.
Consolidated structured entities
Securitisation and asset-backed conduit vehicles
The Group uses structured entities as conduits for the purposes of providing its customers with access to funding from
commercial paper markets and to undertake securitisation of its own pool of financial assets. For further details, including
contractual arrangements to provide financial support, refer to Note 25.
Covered bonds
The Group has two covered bond programs whereby selected pools of residential mortgages it originates are assigned to
bankruptcy remote structured entities. For further details, including contractual arrangements to provide financial support, refer
to Note 25.
Notes to the financial statements
The Group has established a number of investment management funds for which it acts as the responsible entity and/or fund
manager. The Group consolidates those funds where it is deemed to be acting as a principal rather than agent in its role of
investment manager. The principal vs. agent decision requires judgment to be exercised in concluding whether the Group has
sufficient exposure to variable returns. The Group does not have any contractual arrangements to provide financial support to
these entities.
Non-contractual financial support
does not anticipate providing such support in the future.
Unconsolidated structured entities
The Group has not provided any non-contractual financial support during the period to consolidated structured entities and
The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate
customer transactions, for liquidity management purposes and for specific investment opportunities.
Its interests in structured entities comprise any form of contractual or non-contractual involvement which creates variability in
returns arising from the performance of the entity for the Group. These include holdings of debt or equity instruments,
guarantees, liquidity and other credit support arrangements, lending, loan commitments, derivatives that transfer financial risks
from the entity to the Group and investment management agreements.
Interests do not include derivatives that are not complex (e.g. interest rate swaps and currency swaps), instruments that are
deemed to create rather than absorb variability in the unconsolidated structured entity (e.g. purchase of credit protection under
a credit default swap), and lending arrangements to a structured entity where recourse on default is to a wider operating entity
rather than secured only on the underlying assets of the entity.
The main types of interests held by the Group in unconsolidated structured entities generally comprise the following:
trading securities: the Group buys and sells interests in structured entities as part of its normal trading activities and
includes mortgage or other asset-backed securities. These securities are typically held as part of a larger trading portfolio
and the Group would normally have no other involvement with the structured entity. The Group derives interest income on
these securities, and also recognises realised and unrealised gains or losses arising from a change in fair value through
trading income;
available-for-sale securities: the Group holds mortgage-backed securities as part of its liquidity portfolio which provides a
buffer against unforseen funding requirements. These assets are highly rated investment grade paper and are 100%
eligible for repurchase agreements with the Reserve Bank of Australia or another central bank. As with its securities held in
trading portfolios, the Group would normally have no other involvement with the issuing structured entity. The Group
recognises interest income on these securities and net gains or losses arising from the sale of these assets (recorded as
part of non-interest income);
loans and other credit commitments: the Group provides lending facilities to unconsolidated structured entities in the
normal course of its lending business to earn income in the form of interest and lending fees. The structured entities mainly
comprise property trusts, and those associated with project and property financing transactions where the primary source
of debt service, security and repayment is derived from the underlying assets of the entity. Other structured entities include
those unconsolidated securitisation trusts established as part of the Group’s customer securitisation program. All loans and
credit commitments are subject to the Group’s credit approval process with collateral specific to the circumstances of
each loan;
investment management agreements: as part of its normal funds management activities, the Group establishes and
manages a number of funds that provide customers with investment opportunities. The Group also manages
superannuation funds established for its employees. As the fund manager, the Group is entitled to receive on-going
management and performance fee income based on the value and performance of the assets under management; and
the Group may also retain units in these funds, which are primarily held by its consolidated life insurance entities. The
Group derives fund distribution income from these holdings and recognises fair value movements (through non-interest
income) where the instruments are held at fair value through the income statement.
The following table shows the Group’s interests in unconsolidated structured entities and its maximum exposure to loss in
relation to those interests. The maximum exposure to loss represents the maximum loss that the Group could incur as a result
of its involvement in the structured entities regardless of the probability of the loss being incurred. The amount does not take
into account the effects of any collateral or hedges undertaken to reduce the risk of loss. In this respect:
for debt and equity instruments in and loans to unconsolidated structured entities, the maximum exposure to loss is the
carrying value of these interests at reporting date; and
for off-balance sheet instruments including liquidity facilities, loan and other credit commitments and guarantees, the
maximum exposure to loss is reflected by the notional amounts.
230
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231
Note 35. Investments in subsidiaries and associates (continued)
Consolidated
$m
Summarised results
Revenue for the period
Net profit for the period
Other comprehensive income for the period
Total comprehensive income (100%)
Group's share of net profit (31%)
Equity accounting adjustments
Group's share in net profit recognised in the income statement
Group's share of other comprehensive income (31%)
Tax effect on Group's share of other comprehensive income
Share of total comprehensive income recognised by the Group
Dividends received from associates during the period
Summarised balance sheet
Total assets
Total liabilities
Total net assets (100%)
Group's share of total net assets (31%)
Other equity accounting adjustments
Carrying amount of interest in BTIM
Fair value of investment
Note 36. Structured entities
Accounting policy
Fair value adjustments (including notional goodwill) on acquisition (net of amortisation)
3 months ended
30 September 2015
120
33
19
52
10
(5)
5
6
(1)
10
-
990
(228)
762
236
(6)
526
756
868
A structured entity is one which has been designed such that voting or similar rights are not the dominant factor in determining
who controls the entity (for example, when voting rights relate to administrative tasks only and the relevant activities are
directed by means of contractual arrangements). Structured entities are generally created to achieve a specific and well defined
objective with restrictions over their ongoing activities. Where structured entities are used to facilitate the purchase of specific
assets, they are commonly financed by issuing debt or equity securities that are collateralised by and/or indexed to those
underlying assets. The debt and equity securities issued by structured entities may include tranches with varying levels
of subordination.
The Group engages in various transactions with both consolidated and unconsolidated structured entities that are mainly
involved in securitisations, asset-backed and other financing structures and managed investment funds.
Structured entities are assessed for consolidation in accordance with the accounting policy set out in Note 35. As voting rights
are often not the decisive factor in decisions over the relevant activities, the assessment of control may involve assessing the
purpose and design of the entity, and consideration as to whether the Group, or another involved party with power over the
relevant activities, is acting as a principal in its own right or as an agent on behalf of others. The Group may have an interest in
or sponsor a structured entity but not consolidate it.
The details below provide information on both consolidated and unconsolidated structured entities.
Consolidated structured entities
Securitisation and asset-backed conduit vehicles
The Group uses structured entities as conduits for the purposes of providing its customers with access to funding from
commercial paper markets and to undertake securitisation of its own pool of financial assets. For further details, including
contractual arrangements to provide financial support, refer to Note 25.
Covered bonds
to Note 25.
The Group has two covered bond programs whereby selected pools of residential mortgages it originates are assigned to
bankruptcy remote structured entities. For further details, including contractual arrangements to provide financial support, refer
Notes to the financial statements
Note 36. Structured entities (continued)
Group managed funds
The Group has established a number of investment management funds for which it acts as the responsible entity and/or fund
manager. The Group consolidates those funds where it is deemed to be acting as a principal rather than agent in its role of
investment manager. The principal vs. agent decision requires judgment to be exercised in concluding whether the Group has
sufficient exposure to variable returns. The Group does not have any contractual arrangements to provide financial support to
these entities.
Non-contractual financial support
The Group has not provided any non-contractual financial support during the period to consolidated structured entities and
does not anticipate providing such support in the future.
Unconsolidated structured entities
The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate
customer transactions, for liquidity management purposes and for specific investment opportunities.
Its interests in structured entities comprise any form of contractual or non-contractual involvement which creates variability in
returns arising from the performance of the entity for the Group. These include holdings of debt or equity instruments,
guarantees, liquidity and other credit support arrangements, lending, loan commitments, derivatives that transfer financial risks
from the entity to the Group and investment management agreements.
Interests do not include derivatives that are not complex (e.g. interest rate swaps and currency swaps), instruments that are
deemed to create rather than absorb variability in the unconsolidated structured entity (e.g. purchase of credit protection under
a credit default swap), and lending arrangements to a structured entity where recourse on default is to a wider operating entity
rather than secured only on the underlying assets of the entity.
The main types of interests held by the Group in unconsolidated structured entities generally comprise the following:
trading securities: the Group buys and sells interests in structured entities as part of its normal trading activities and
includes mortgage or other asset-backed securities. These securities are typically held as part of a larger trading portfolio
and the Group would normally have no other involvement with the structured entity. The Group derives interest income on
these securities, and also recognises realised and unrealised gains or losses arising from a change in fair value through
trading income;
available-for-sale securities: the Group holds mortgage-backed securities as part of its liquidity portfolio which provides a
buffer against unforseen funding requirements. These assets are highly rated investment grade paper and are 100%
eligible for repurchase agreements with the Reserve Bank of Australia or another central bank. As with its securities held in
trading portfolios, the Group would normally have no other involvement with the issuing structured entity. The Group
recognises interest income on these securities and net gains or losses arising from the sale of these assets (recorded as
part of non-interest income);
loans and other credit commitments: the Group provides lending facilities to unconsolidated structured entities in the
normal course of its lending business to earn income in the form of interest and lending fees. The structured entities mainly
comprise property trusts, and those associated with project and property financing transactions where the primary source
of debt service, security and repayment is derived from the underlying assets of the entity. Other structured entities include
those unconsolidated securitisation trusts established as part of the Group’s customer securitisation program. All loans and
credit commitments are subject to the Group’s credit approval process with collateral specific to the circumstances of
each loan;
investment management agreements: as part of its normal funds management activities, the Group establishes and
manages a number of funds that provide customers with investment opportunities. The Group also manages
superannuation funds established for its employees. As the fund manager, the Group is entitled to receive on-going
management and performance fee income based on the value and performance of the assets under management; and
the Group may also retain units in these funds, which are primarily held by its consolidated life insurance entities. The
Group derives fund distribution income from these holdings and recognises fair value movements (through non-interest
income) where the instruments are held at fair value through the income statement.
The following table shows the Group’s interests in unconsolidated structured entities and its maximum exposure to loss in
relation to those interests. The maximum exposure to loss represents the maximum loss that the Group could incur as a result
of its involvement in the structured entities regardless of the probability of the loss being incurred. The amount does not take
into account the effects of any collateral or hedges undertaken to reduce the risk of loss. In this respect:
for debt and equity instruments in and loans to unconsolidated structured entities, the maximum exposure to loss is the
carrying value of these interests at reporting date; and
for off-balance sheet instruments including liquidity facilities, loan and other credit commitments and guarantees, the
maximum exposure to loss is reflected by the notional amounts.
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3
Note 36. Structured entities (continued)
Consolidated 2015
$m
Assets
Receivables due from other financial institutions
Trading securities and financial assets designated
at fair value
Available-for-sale securities
Loans
Life insurance assets
Other assets
Total on-balance sheet exposures
Total notional amounts of off-balance sheet exposures
Investment in
Third Party
Mortgage and
Other
Asset-Backed
Securities1
Financing to
Securitisation
Vehicles
Group
Managed
Funds
Interests
in Other
Structured
Entities
Total
-
823
2,902
5,173
-
132
10
8,217
-
-
-
16,091
-
-
16,914
4,256
-
20
-
9
282
54
365
59
-
823
2,973
-
23,203
2,165
-
28,341
7,789
5,895
5,173
39,303
2,579
64
53,837
12,104
Maximum exposure to loss
Size of structured entities2
1 Of the Group’s total interests held in third party mortgage and other asset-backed securities, $8,217 million represents the senior tranche of notes
65,941
294,142
148,085
67,148
36,130
57,739
21,170
21,170
8,217
424
and are investment grade rated.
2 Represented either by the total assets or market capitalisation of the entity, or if not available the Group’s total committed exposure (for lending
arrangements and external debt and equity holdings), funds under management (for Group managed funds) or the total value of notes on issue (for
investments in third-party asset-backed securities).
Consolidated 2014
$m
Assets
Receivables due from other financial institutions
Trading securities and financial assets designated
at fair value
Available-for-sale securities
Loans
Life insurance assets
Other assets
Total on-balance sheet exposures
Total notional amounts of off-balance sheet exposures
Investment in
Third Party
Mortgage and
Other
Asset-Backed
Securities1
Financing to
Securitisation
Vehicles
Group
Managed
Funds
Interests
in Other
Structured
Entities
Total
shares and deducted from shareholders’ equity.
-
1,417
3,262
4,428
127
-
11
7,828
-
-
-
13,478
-
-
14,895
4,543
-
123
104
57
2,209
39
2,532
78
-
1,417
2,974
-
23,638
1,544
4
28,160
7,377
6,359
4,532
37,300
3,753
54
53,415
11,998
Maximum exposure to loss
Size of structured entities2
1 Of the Group’s total interests held in third party mortgage and other asset-backed securities, $7,809 million represents the senior tranche of notes
65,413
362,745
111,350
144,873
87,084
35,537
19,438
19,438
7,828
2,610
issued and $19 million represents the subordinated tranche of notes issued. All notes are investment grade rated.
2 Represented either by the total assets or market capitalisation of the entity, or if not available the Group’s total committed exposure (for lending
arrangements and external debt and equity holdings), funds under management (for Group managed funds) or the total value of notes on issue (for
investments in third-party asset-backed securities).
Non-contractual financial support
The Group has not provided any non-contractual financial support during the period to unconsolidated structured entities and
does not anticipate providing such support in the future.
Sponsored entities
The Group would be deemed to sponsor an entity where it is involved in its creation or establishment and promotion (including
use of the Group’s name in the name of the entity or on the products issued by the entity), and facilitates its on-going success
through the transfer of assets (if any), or the provision of explicit or implicit financial, operational or other support.
In addition to the sponsored entities in which the Group has an interest, the Group also sponsors entities in which it has no
interest. These primarily comprise the Group’s charitable trusts. No income is earned from these entities nor does the Group
transfer any assets to them.
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233
Notes to the financial statements
EMPLOYEE BENEFITS
Note 37. Share-based payments
Accounting policy
by employees.
Options and share rights
increase in equity.
The Group enters into various share-based payment arrangements with its employees as compensation for services provided
Options and share rights are equity-settled share-based payment arrangements. The fair value of the options and share rights
is measured at grant date and is recognised as an expense over the period the services are received, which is the expected
vesting period during which the employees would become entitled to exercise the option or share right, with a corresponding
The fair value of options and share rights is estimated at grant date using a Binomial/Monte Carlo simulation pricing model
incorporating the vesting and market-related hurdle features of the grants. The fair value of the options and share rights
excludes the impact of any non-market vesting conditions such as participants’ continued employment by the Group. The non-
market vesting conditions are included in assumptions used when determining the number of options and share rights expected
to become exercisable for which an expense is recognised. At each reporting date these assumptions are revised and the
expense recognised each year takes into account the most recent estimates.
Restricted share plan (RSP)
Under the RSP, Westpac shares may be allocated to eligible employees at no cost with vesting subject to remaining employed
with Westpac for a period determined by the Board. The RSP is a share-based payment transaction in which the terms of the
arrangement provide Westpac with the choice of whether to settle in cash (by buying shares on market) or by issuing new
shares to employees. As Westpac does not have a present obligation to settle in cash, the RSP is accounted for as an equity-
settled share-based payment transaction.
The fair value of shares allocated to employees for nil consideration under the Restricted Share Plan (RSP) is recognised as an
expense over the vesting period with a corresponding increase in equity. The fair value of ordinary shares issued to satisfy the
obligation to employees is measured at grant date and is recognised as a separate component of equity.
Westpac has formed a trust to hold any shares forfeited by employees until they are reallocated to employees in subsequent
grants in the Group’s RSP. Shares allocated to employees under the RSP, which have not yet vested, are treated as treasury
Employee share plan (ESP)
Under the Employee Share Plan (ESP), Westpac ordinary shares may be allocated at no cost to employees subject to the
Board’s discretion. The value of shares expected to be issued to employees for nil consideration under the ESP is recognised
as an expense over the financial year and provided for as other employee benefits. The fair value of any ordinary shares issued
to satisfy the obligation to employees is recognised within equity, or if purchased on market, the obligation to employees is
satisfied by delivering shares that have been purchased on market.
Options and/or share rights are granted to the CEO, selected executives and key senior employees under the
Executive and Senior Officer equity plans
following schemes.
(i) Westpac Long Term Incentive Plan
The Westpac Long Term Incentive Plan (LTI) provides a mechanism for rewarding the most senior management in Australia
and overseas on the basis of superior long-term Group performance.
Under the LTI senior managers may be invited to receive an award of performance options or performance share rights. An
option or share right under the LTI is the right to acquire a share in the future provided all conditions are met, with an exercise
price for options set at the commencement of the performance period. The exercise price for options is based on the prevailing
market price of Westpac ordinary shares at the commencement of the performance period. The exercise price for share rights
is nil. No performance options have been awarded since October 2009.
Awards made from October 2014 are subject to two performance measures each applying to 50% of the value of the award.
The two hurdles are Westpac’s relative Total Shareholder Return (TSR)1 and Compound Annual Growth Rate in Cash EPS
(Cash EPS CAGR).
The TSR hurdle is a weighted, composite TSR index (the composite TSR index) for a peer group (the peer group) comprising
the ten top financial services companies other than Westpac.
Within the peer group, each of the other three major banks has been allocated a 16.67% weighting, with the other seven
companies each weighted to 7.14%.
1 TSR measures a company’s share price movement and assumes that dividends over the period have been reinvested (i.e. the change in value of an
investment in that company’s shares) and excluding tax effects.
1 Of the Group’s total interests held in third party mortgage and other asset-backed securities, $8,217 million represents the senior tranche of notes
57,739
148,085
294,142
2 Represented either by the total assets or market capitalisation of the entity, or if not available the Group’s total committed exposure (for lending
arrangements and external debt and equity holdings), funds under management (for Group managed funds) or the total value of notes on issue (for
investments in third-party asset-backed securities).
Note 36. Structured entities (continued)
Consolidated 2015
$m
Assets
Receivables due from other financial institutions
Trading securities and financial assets designated
at fair value
Available-for-sale securities
Loans
Life insurance assets
Other assets
Total on-balance sheet exposures
Total notional amounts of off-balance sheet exposures
Maximum exposure to loss
Size of structured entities2
and are investment grade rated.
Consolidated 2014
$m
Assets
Receivables due from other financial institutions
Trading securities and financial assets designated
at fair value
Available-for-sale securities
Loans
Life insurance assets
Other assets
Total on-balance sheet exposures
Total notional amounts of off-balance sheet exposures
Maximum exposure to loss
Size of structured entities2
Investment in
Third Party
Mortgage and
Other
Asset-Backed
Securities1
-
-
-
2,902
5,173
132
10
8,217
8,217
67,148
Investment in
Third Party
Mortgage and
Other
Asset-Backed
Securities1
-
-
-
3,262
4,428
127
11
7,828
7,828
111,350
-
-
-
-
-
-
-
-
823
16,091
16,914
4,256
21,170
21,170
1,417
13,478
14,895
4,543
19,438
19,438
Financing to
Securitisation
Group
Interests
in Other
Managed
Structured
Vehicles
Funds
Entities
Total
-
20
-
9
282
54
365
59
424
-
-
-
2,973
23,203
2,165
28,341
7,789
36,130
823
5,895
5,173
39,303
2,579
64
53,837
12,104
65,941
Financing to
Securitisation
Group
Interests
in Other
Managed
Structured
Vehicles
Funds
Entities
Total
-
123
104
57
2,209
2,532
39
78
2,610
87,084
-
-
4
2,974
23,638
1,544
28,160
7,377
35,537
144,873
1,417
6,359
4,532
37,300
3,753
54
53,415
11,998
65,413
362,745
1 Of the Group’s total interests held in third party mortgage and other asset-backed securities, $7,809 million represents the senior tranche of notes
issued and $19 million represents the subordinated tranche of notes issued. All notes are investment grade rated.
2 Represented either by the total assets or market capitalisation of the entity, or if not available the Group’s total committed exposure (for lending
arrangements and external debt and equity holdings), funds under management (for Group managed funds) or the total value of notes on issue (for
investments in third-party asset-backed securities).
Non-contractual financial support
does not anticipate providing such support in the future.
Sponsored entities
The Group has not provided any non-contractual financial support during the period to unconsolidated structured entities and
The Group would be deemed to sponsor an entity where it is involved in its creation or establishment and promotion (including
use of the Group’s name in the name of the entity or on the products issued by the entity), and facilitates its on-going success
through the transfer of assets (if any), or the provision of explicit or implicit financial, operational or other support.
In addition to the sponsored entities in which the Group has an interest, the Group also sponsors entities in which it has no
interest. These primarily comprise the Group’s charitable trusts. No income is earned from these entities nor does the Group
transfer any assets to them.
Notes to the financial statements
EMPLOYEE BENEFITS
Note 37. Share-based payments
Accounting policy
The Group enters into various share-based payment arrangements with its employees as compensation for services provided
by employees.
Options and share rights
Options and share rights are equity-settled share-based payment arrangements. The fair value of the options and share rights
is measured at grant date and is recognised as an expense over the period the services are received, which is the expected
vesting period during which the employees would become entitled to exercise the option or share right, with a corresponding
increase in equity.
The fair value of options and share rights is estimated at grant date using a Binomial/Monte Carlo simulation pricing model
incorporating the vesting and market-related hurdle features of the grants. The fair value of the options and share rights
excludes the impact of any non-market vesting conditions such as participants’ continued employment by the Group. The non-
market vesting conditions are included in assumptions used when determining the number of options and share rights expected
to become exercisable for which an expense is recognised. At each reporting date these assumptions are revised and the
expense recognised each year takes into account the most recent estimates.
Restricted share plan (RSP)
Under the RSP, Westpac shares may be allocated to eligible employees at no cost with vesting subject to remaining employed
with Westpac for a period determined by the Board. The RSP is a share-based payment transaction in which the terms of the
arrangement provide Westpac with the choice of whether to settle in cash (by buying shares on market) or by issuing new
shares to employees. As Westpac does not have a present obligation to settle in cash, the RSP is accounted for as an equity-
settled share-based payment transaction.
The fair value of shares allocated to employees for nil consideration under the Restricted Share Plan (RSP) is recognised as an
expense over the vesting period with a corresponding increase in equity. The fair value of ordinary shares issued to satisfy the
obligation to employees is measured at grant date and is recognised as a separate component of equity.
Westpac has formed a trust to hold any shares forfeited by employees until they are reallocated to employees in subsequent
grants in the Group’s RSP. Shares allocated to employees under the RSP, which have not yet vested, are treated as treasury
shares and deducted from shareholders’ equity.
Employee share plan (ESP)
Under the Employee Share Plan (ESP), Westpac ordinary shares may be allocated at no cost to employees subject to the
Board’s discretion. The value of shares expected to be issued to employees for nil consideration under the ESP is recognised
as an expense over the financial year and provided for as other employee benefits. The fair value of any ordinary shares issued
to satisfy the obligation to employees is recognised within equity, or if purchased on market, the obligation to employees is
satisfied by delivering shares that have been purchased on market.
Executive and Senior Officer equity plans
Options and/or share rights are granted to the CEO, selected executives and key senior employees under the
following schemes.
(i) Westpac Long Term Incentive Plan
The Westpac Long Term Incentive Plan (LTI) provides a mechanism for rewarding the most senior management in Australia
and overseas on the basis of superior long-term Group performance.
Under the LTI senior managers may be invited to receive an award of performance options or performance share rights. An
option or share right under the LTI is the right to acquire a share in the future provided all conditions are met, with an exercise
price for options set at the commencement of the performance period. The exercise price for options is based on the prevailing
market price of Westpac ordinary shares at the commencement of the performance period. The exercise price for share rights
is nil. No performance options have been awarded since October 2009.
Awards made from October 2014 are subject to two performance measures each applying to 50% of the value of the award.
The two hurdles are Westpac’s relative Total Shareholder Return (TSR)1 and Compound Annual Growth Rate in Cash EPS
(Cash EPS CAGR).
The TSR hurdle is a weighted, composite TSR index (the composite TSR index) for a peer group (the peer group) comprising
the ten top financial services companies other than Westpac.
Within the peer group, each of the other three major banks has been allocated a 16.67% weighting, with the other seven
companies each weighted to 7.14%.
1 TSR measures a company’s share price movement and assumes that dividends over the period have been reinvested (i.e. the change in value of an
investment in that company’s shares) and excluding tax effects.
232
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233
3
Note 37. Share-based payments (continued)
The composite TSR index is calculated by multiplying each peer group member’s TSR for the four year performance period by
its weighting, and then adding together the results of those ten calculations.
Westpac’s TSR for the four year period is then compared to the composite TSR index.
For 50% of the TSR tranche to vest, Westpac’s TSR must at least equal the composite TSR index. For 100% to vest,
Westpac’s TSR must exceed the composite TSR index by an amount that, when added to the composite TSR index, simulates
historic 75th percentile performance within the peer group (ie: an additional 21.55, reflecting an extra 5% compound annual
growth in TSR over the four year period).
If Westpac’s TSR is between the composite TSR index and the composite TSR index plus 21.55, TSR Performance Securities
will vest from 50% up to a possible 100% on a straight line basis between the composite TSR index and the composite TSR
plus index 21.55. Any securities remaining unvested after the performance period lapse immediately.
100% of the Cash EPS CAGR hurdled share rights will quality for vesting when a maximum target Cash EPS CAGR is
achieved, scaling down to 50% vesting at a threshold Cash EPS CAGR target. Below the threshold target Cash EPS CAGR, no
vesting occurs. The Cash EPS CAGR hurdled share rights are subject to a single test at the end of the three year performance
period. At the end of the three year EPS performance period, the EPS Share Rights which qualify for vesting will be subject to a
one year restriction period, and will vest on the fourth anniversary of the commencement of the performance period. Any
securities remaining unvested after the performance period lapse immediately.
For awards made from October 2011 to October 2014 all awards are subject to two performance measures each applying to
50% of the value of the award. The two hurdles are Westpac’s relative Total Shareholder Return and the Cash EPS CAGR
hurdle. Both hurdles are tested at the third anniversary of the commencement of the performance period. Any securities
remaining unvested after the performance period lapse immediately.
For awards made prior to October 2011 all awards were subject to a TSR hurdle and the initial TSR performance is tested at
the third anniversary of the commencement of the performance period, with subsequent performance testing possible at the
fourth and fifth anniversaries of the commencement of the performance period. At subsequent performance test dates (where
they exist) further vesting may occur only if the TSR ranking has improved.
Upon exercising vested performance options and performance share rights, the Executive has the right to take up their
entitlement in whole or in part as fully paid ordinary shares. The exercise price is payable at that time. A performance option or
performance share right lapses if it is not exercised prior to the end of its term.
LTI – outstanding performance options and performance share rights
The following table sets out details of outstanding performance options and performance share rights under the LTI:
Outstanding at
1 October 2014
Granted
During
the Year
Exercised
During
the Year
Lapsed
During
the Year
Outstanding at
30 September 2015
Outstanding
and Exercisable at
30 September 2015
Performance options
Weighted average exercise price
991,690
$27.58
-
-
402,814
$27.55
-
-
Performance share rights
3,318,750 2,557,968
845,258
398,983
Total 2014
Performance options
Weighted average exercise price
Performance share rights
1,699,136
$27.49
-
-
707,446
$27.35
-
-
3,176,241 1,004,234
666,890
194,835
588,876
$27.61
4,632,477
991,690
$27.58
3,318,750
588,876
$27.61
2,584
991,690
$27.58
802
The weighted average remaining contractual life of outstanding performance options at 30 September 2015 was 2.5 years
(2014: 3.5 years). The weighted average remaining contractual life of outstanding performance share rights at
30 September 2015 was 8.3 years (2014: 7.8 years). The weighted average fair value at grant date of LTI performance share
rights issued during the year was $20.52 (2014: $19.82).
(ii) Westpac Performance Plan
The Westpac Performance Plan (WPP) was introduced in 2002 and was used to provide awards of performance options and/or
performance share rights to senior executives and other key employees. Currently the WPP is primarily used for employees
based in New Zealand as a mechanism for the mandatory deferral of a portion of their short-term incentives.
An option or share right under the WPP is the right to acquire a share in the future provided all conditions are met, with an
exercise price for options generally set at the time the invitation is made. The exercise price for options is equal to the average
market price of Westpac ordinary shares traded on the ASX over the five trading days up to the time the invitation is made. The
exercise price for share rights is nil.
Notes to the financial statements
Note 37. Share-based payments (continued)
Performance options and performance share rights
Performance options and performance share rights under the WPP have all vested. Upon exercising vested performance
options or performance share rights, the executive has the right to take up his or her entitlement in whole or in part as fully paid
ordinary shares. The exercise price is payable at that time. A performance option or performance share right lapses if it is not
exercised prior to the end of its term.
WPP – outstanding performance options and performance share rights
No performance options or performance share rights were granted under the WPP during the year. The following table sets out
details of outstanding performance options and performance share rights granted under the WPP in previous years:
Outstanding at
Granted
Exercised
1 October
During
During
Lapsed
During
Outstanding at
and Exercisable at
Outstanding
2014
the Year
the Year
the Year
30 September 2015
30 September 2015
Performance options
Weighted average exercise price
Performance share rights
Two-year initial testing period
Three-year initial testing period
Total performance share rights
Total 2014
Performance options
Weighted average exercise price
Performance share rights
336,468
$22.57
63,501
105,880
169,381
1,752,693
$21.15
308,665
-
-
-
-
-
-
-
191,560
$21.91
46,685
77,510
124,195
- 1,416,225
$20.82
139,284
-
-
-
-
-
-
-
-
144,908
$23.44
16,816
28,370
45,186
336,468
$22.57
169,381
144,908
$23.44
16,816
28,370
45,186
336,468
$22.57
169,381
The weighted average remaining contractual life of outstanding performance options at 30 September 2015 was 1.0 years
(2014: 1.7 years). The weighted average remaining contractual life of outstanding performance share rights at
30 September 2015 was 0.3 years (2014: 1.0 years).
Unhurdled options and unhurdled share rights
The WPP is also used for key employees based outside Australia, who received unhurdled share rights restricted for one to
three years. No unhurdled options were granted under the WPP during the year. After the restriction period applying to them
has passed, vested unhurdled options and unhurdled share rights can be exercised to receive the underlying fully paid
ordinary shares.
The following table sets out details of outstanding unhurdled options and unhurdled share rights granted under the WPP:
Options
Total 2015
Share rights
One-year vesting period
Two-year vesting period
Three-year vesting period
Total 2015
Total 2014
Options
Share rights
Exercise
Outstanding at
During
During
Outstanding at
Granted
Exercised
Lapsed
During
Outstanding and
Excercisable at
Price
1 October 2014
the Year
the Year
the Year
30 September 2015
30 September 2015
$23.98
nil
nil
nil
24,063
24,063
71,985
161,675
370,283
603,943
-
-
10,695
10,695
94,239
96,531
20,693
211,463
58,111
78,695
175,406
312,212
$23.98
nil
42,779
-
18,716
756,111
120,841
261,886
11,123
-
-
-
-
897
1,201
2,098
13,368
13,368
108,113
178,614
214,369
501,096
24,063
603,943
13,368
13,368
17,984
29,073
61,654
108,711
24,063
150,243
The weighted average fair value at grant date of unhurdled share rights issued during the year was $30.10 per right
(2014: $29.89 per right). The weighted average remaining contractual life of outstanding unhurdled options and unhurdled
share rights at 30 September 2015 was 7.5 years (2014: 7.1 years).
(iii) Chief Executive Officer Performance Plan
No performance share rights were allocated to Gail Kelly during the year. The former CEO continues to hold performance share
rights received under the Chief Executive Officer Performance Plan. As at 30 September 2015 there were 390,534
performance share rights outstanding (2014: 713,264).
As at 30 September 2015, no outstanding share rights issued to the former CEO were exercisable. The remaining weighted
average contractual life of outstanding performance share rights was 7.3 years (2014: 7.6 years).
234
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2015 Westpac Group Annual Report
235
Note 37. Share-based payments (continued)
The composite TSR index is calculated by multiplying each peer group member’s TSR for the four year performance period by
its weighting, and then adding together the results of those ten calculations.
Westpac’s TSR for the four year period is then compared to the composite TSR index.
For 50% of the TSR tranche to vest, Westpac’s TSR must at least equal the composite TSR index. For 100% to vest,
Westpac’s TSR must exceed the composite TSR index by an amount that, when added to the composite TSR index, simulates
historic 75th percentile performance within the peer group (ie: an additional 21.55, reflecting an extra 5% compound annual
growth in TSR over the four year period).
If Westpac’s TSR is between the composite TSR index and the composite TSR index plus 21.55, TSR Performance Securities
will vest from 50% up to a possible 100% on a straight line basis between the composite TSR index and the composite TSR
plus index 21.55. Any securities remaining unvested after the performance period lapse immediately.
100% of the Cash EPS CAGR hurdled share rights will quality for vesting when a maximum target Cash EPS CAGR is
achieved, scaling down to 50% vesting at a threshold Cash EPS CAGR target. Below the threshold target Cash EPS CAGR, no
vesting occurs. The Cash EPS CAGR hurdled share rights are subject to a single test at the end of the three year performance
period. At the end of the three year EPS performance period, the EPS Share Rights which qualify for vesting will be subject to a
one year restriction period, and will vest on the fourth anniversary of the commencement of the performance period. Any
securities remaining unvested after the performance period lapse immediately.
For awards made from October 2011 to October 2014 all awards are subject to two performance measures each applying to
50% of the value of the award. The two hurdles are Westpac’s relative Total Shareholder Return and the Cash EPS CAGR
hurdle. Both hurdles are tested at the third anniversary of the commencement of the performance period. Any securities
remaining unvested after the performance period lapse immediately.
For awards made prior to October 2011 all awards were subject to a TSR hurdle and the initial TSR performance is tested at
the third anniversary of the commencement of the performance period, with subsequent performance testing possible at the
fourth and fifth anniversaries of the commencement of the performance period. At subsequent performance test dates (where
they exist) further vesting may occur only if the TSR ranking has improved.
Upon exercising vested performance options and performance share rights, the Executive has the right to take up their
entitlement in whole or in part as fully paid ordinary shares. The exercise price is payable at that time. A performance option or
performance share right lapses if it is not exercised prior to the end of its term.
LTI – outstanding performance options and performance share rights
The following table sets out details of outstanding performance options and performance share rights under the LTI:
Performance share rights
3,318,750 2,557,968
845,258
398,983
Performance options
Weighted average exercise price
Total 2014
Performance options
Weighted average exercise price
Performance share rights
Outstanding at
During
During
During
Outstanding at
and Exercisable at
1 October 2014
the Year
the Year
the Year
30 September 2015
30 September 2015
991,690
$27.58
1,699,136
$27.49
-
-
-
-
402,814
$27.55
707,446
$27.35
-
-
-
-
3,176,241 1,004,234
666,890
194,835
588,876
$27.61
4,632,477
991,690
$27.58
3,318,750
588,876
$27.61
2,584
991,690
$27.58
802
The weighted average remaining contractual life of outstanding performance options at 30 September 2015 was 2.5 years
(2014: 3.5 years). The weighted average remaining contractual life of outstanding performance share rights at
30 September 2015 was 8.3 years (2014: 7.8 years). The weighted average fair value at grant date of LTI performance share
rights issued during the year was $20.52 (2014: $19.82).
(ii) Westpac Performance Plan
The Westpac Performance Plan (WPP) was introduced in 2002 and was used to provide awards of performance options and/or
performance share rights to senior executives and other key employees. Currently the WPP is primarily used for employees
based in New Zealand as a mechanism for the mandatory deferral of a portion of their short-term incentives.
An option or share right under the WPP is the right to acquire a share in the future provided all conditions are met, with an
exercise price for options generally set at the time the invitation is made. The exercise price for options is equal to the average
market price of Westpac ordinary shares traded on the ASX over the five trading days up to the time the invitation is made. The
exercise price for share rights is nil.
Notes to the financial statements
Note 37. Share-based payments (continued)
Performance options and performance share rights
Performance options and performance share rights under the WPP have all vested. Upon exercising vested performance
options or performance share rights, the executive has the right to take up his or her entitlement in whole or in part as fully paid
ordinary shares. The exercise price is payable at that time. A performance option or performance share right lapses if it is not
exercised prior to the end of its term.
WPP – outstanding performance options and performance share rights
No performance options or performance share rights were granted under the WPP during the year. The following table sets out
details of outstanding performance options and performance share rights granted under the WPP in previous years:
Outstanding at
1 October
2014
Granted
During
the Year
Exercised
During
the Year
Lapsed
During
the Year
Outstanding at
30 September 2015
Outstanding
and Exercisable at
30 September 2015
Performance options
Weighted average exercise price
Performance share rights
Two-year initial testing period
Three-year initial testing period
Total performance share rights
Total 2014
Performance options
Weighted average exercise price
Performance share rights
336,468
$22.57
63,501
105,880
169,381
1,752,693
$21.15
308,665
-
-
-
-
-
191,560
$21.91
46,685
77,510
124,195
- 1,416,225
-
-
$20.82
139,284
-
-
-
-
-
-
-
-
144,908
$23.44
16,816
28,370
45,186
336,468
$22.57
169,381
144,908
$23.44
16,816
28,370
45,186
336,468
$22.57
169,381
The weighted average remaining contractual life of outstanding performance options at 30 September 2015 was 1.0 years
(2014: 1.7 years). The weighted average remaining contractual life of outstanding performance share rights at
30 September 2015 was 0.3 years (2014: 1.0 years).
Unhurdled options and unhurdled share rights
The WPP is also used for key employees based outside Australia, who received unhurdled share rights restricted for one to
three years. No unhurdled options were granted under the WPP during the year. After the restriction period applying to them
has passed, vested unhurdled options and unhurdled share rights can be exercised to receive the underlying fully paid
ordinary shares.
Granted
Exercised
Lapsed
Outstanding
The following table sets out details of outstanding unhurdled options and unhurdled share rights granted under the WPP:
Exercise
Price
Outstanding at
1 October 2014
Granted
During
the Year
Exercised
During
the Year
Lapsed
During
the Year
Outstanding at
30 September 2015
Outstanding and
Excercisable at
30 September 2015
Options
Total 2015
Share rights
One-year vesting period
Two-year vesting period
Three-year vesting period
Total 2015
Total 2014
Options
Share rights
$23.98
nil
nil
nil
24,063
24,063
71,985
161,675
370,283
603,943
-
-
10,695
10,695
94,239
96,531
20,693
211,463
58,111
78,695
175,406
312,212
-
-
-
897
1,201
2,098
$23.98
nil
42,779
-
18,716
-
756,111
120,841
261,886
11,123
13,368
13,368
108,113
178,614
214,369
501,096
24,063
603,943
13,368
13,368
17,984
29,073
61,654
108,711
24,063
150,243
The weighted average fair value at grant date of unhurdled share rights issued during the year was $30.10 per right
(2014: $29.89 per right). The weighted average remaining contractual life of outstanding unhurdled options and unhurdled
share rights at 30 September 2015 was 7.5 years (2014: 7.1 years).
(iii) Chief Executive Officer Performance Plan
No performance share rights were allocated to Gail Kelly during the year. The former CEO continues to hold performance share
rights received under the Chief Executive Officer Performance Plan. As at 30 September 2015 there were 390,534
performance share rights outstanding (2014: 713,264).
As at 30 September 2015, no outstanding share rights issued to the former CEO were exercisable. The remaining weighted
average contractual life of outstanding performance share rights was 7.3 years (2014: 7.6 years).
234
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2015 Westpac Group Annual Report
235
3
Note 37. Share-based payments (continued)
(iv) CEO Long Term Incentive Plan (Brian Hartzer)
No performance share rights under the CEO Long Term Incentive Plan were allocated to Brian Hartzer during the year.
(v) Fair value assumptions
The fair values of share rights granted during the year included in the tables above have been independently calculated at their
respective grant dates based on the requirements of Australian Accounting Standard AASB 2 Share-based Payments.
The fair values of rights without TSR based hurdles, including rights with Cash EPS CAGR hurdles, have been assessed with
reference to the share price at grant date and a discount rate reflecting the expected dividend yield over their vesting periods.
The fair value of rights with hurdles based on TSR performance relative to a group of comparator companies also takes into
account the average TSR outcome determined using a Monte Carlo simulation pricing model.
Other key assumptions include:
the assumptions included in the valuation of the awards of share rights under the WRP and WPP include a risk free
interest rate of 2.5% on share rights with three-year vesting period, a risk free rate of 2.9% for share rights with four-year
vesting period, a dividend yield on Westpac ordinary shares of 5.5% and a volatility in the Westpac share price of 19.1%;
volatility has been assessed by considering the historic volatility of the market price of Westpac shares; and
other assumptions include volatilities of, and correlation factors between, share price movements of the comparator group
members and Westpac which are used to assess the impact of the TSR performance hurdles and have been derived from
the historic volatilities and correlations.
(vi) Restricted Share Plan
The Restricted Share Plan (RSP) provides Westpac with an instrument for attracting and rewarding key employees. Under the
RSP, Westpac shares may be allocated to eligible employees at no cost with vesting subject to remaining employed with
Westpac for a period determined by the Board. The fair value of the shares allocated is the share price on the date of the grant.
Shares in the RSP are held in the name of the employee and are restricted until satisfaction of the vesting conditions. Shares in
the RSP rank equally with Westpac ordinary shares for dividends and voting rights. For awards made prior to October 2009,
shares may be held in the RSP for up to 10 years from the date they are granted. For awards made from October 2009, shares
are released from the RSP on vesting.
Outstanding RSP awards
The following table details outstanding awards of shares issued under the RSP:
Allocation date
Granted prior to October 2009
Granted subsequent to October 2009
Total 2015
Total 2014
Outstanding at
1 October 2014
Granted
During
the Year
Released
1,487,642
6,190,519
7,678,161
9,438,791
-
272,115
2,143,382
3,877,414
2,143,382
2,070,312
4,149,529
3,647,664
Forfeited
During
the Year
-
104,596
104,596
183,278
Outstanding at
30 September 2015
1,215,527
4,351,891
5,567,418
7,678,161
In addition to the above restricted shares were also allocated to the former CEO Gail Kelly under the Chief Executive Officer
RSP (CEO RSP). There were 85,667 shares outstanding as at 30 September 2015 (112,491 as at 30 September 2014).
(vii) Employee Share Plan
Under the Employee Share Plan (ESP), Westpac ordinary shares may be allocated at no cost to employees to recognise their
contribution to Westpac’s financial performance over the previous financial year, subject to Board discretion. The maximum
annual award value under the ESP is $1,000 per employee per year. The number of shares employees receive (if any) is
calculated by dividing the award value by the prevailing market price of Westpac’s ordinary shares when the shares
are granted.
The shares must normally remain within the ESP for three years from granting unless the employee leaves Westpac.
Participants are entitled to full dividend and voting rights attaching to the shares. Westpac’s Australian permanent employees
(including part-time employees) who have been in six months continuous employment as at 30 September each year are
eligible to participate in the ESP. Executives and senior management who participate in any Westpac long-term incentive plan
or deferred short-term incentive plan are not eligible to participate in the ESP during the same year.
The 2014 ESP award was satisfied through the purchase of shares on market. The following table provides details of shares
issued under the ESP during the years ended 30 September:
Notes to the financial statements
Note 37. Share-based payments (continued)
Allocation
Number of
of Shares Allocated
Date
Participants
per Participant
2015
2014
4 December 2014
5 December 2013
27,657
26,877
30
30
of Shares
Allocated
829,710
806,310
Market
Price per Share
$32.68
$32.93
Total
Fair Value
$27,114,923
$26,551,788
Average Number
Total Number
The liability accrued in respect of the ESP at 30 September 2015 is $28 million (2014: $28 million) and is provided for as other
employee benefits.
(viii) Other Group share-based plans
Westpac also provides plans for small, specialised parts of the Group. The benefits under these plans are directly linked to
growth and performance of the relevant part of the business. The plans individually and in aggregate are not material to
the Group.
of allotment.
(ix) General information on share-based plans
Shares allotted to satisfy the exercise of options or share rights under the employee equity plans will rank equally with all other
issued Westpac ordinary shares and qualify for the payment of dividends and shareholder voting rights from the day
The employee equity plans are operated in compliance with ASIC Regulatory Guide 49 which provides relief from the
disclosure and licensing provisions of the Corporations Act. Included in the ASIC regulatory guide is a five percent limit on the
number of shares that can be issued under an employee equity plan without issuing a prospectus.
Under the regulatory guide, the number of shares (including shares that are the subject of options and share rights) to be
offered to employees at any particular time cannot, at the time the offer is made and when aggregated with the number of
shares the subject of previously issued unexercised options and share rights issued to employees under those plans and with
the number of shares issued during the previous five years under all employee share schemes, exceed 5% of the total number
of shares on issue at the time that offer is made.
The names of all persons who hold options and/or share rights currently on issue are entered in Westpac’s register of option
holders which may be inspected at Link Market Services, Level 12, 680 George Street, Sydney, New South Wales.
Note 38. Superannuation commitments
Accounting policy
The asset or liability recognised in the balance sheet in respect of the defined benefit superannuation plan is the present value
of the defined benefit obligation as at the reporting date less the fair value of the plan’s assets. The present value of the defined
benefit obligation is determined by discounting the estimated pre-tax future cash flows using interest rates of high quality long
dated corporate bonds.
The superannuation expense relating to the defined benefit superannuation plan comprises of service cost (including current
and past service cost and gains and losses on curtailments and settlements) and net interest expense (income).
Remeasurements (including actuarial gains and losses and the difference between the interest income and the return on plan
assets) are recognised in other comprehensive income.
The determination of the defined benefit obligation/surplus is one of the Group’s critical accounting assumptions and estimates
as described in Note 1d(iv).
Westpac had the following defined benefit plans at 30 September 2015:
Name of Plan
Westpac Group Plan (WGP)1
Type
Form of Benefit
Defined benefit and
Indexed pension and
30 June 2012
accumulation
lump sum
Date of Last Actuarial
Assessment of the
Funding Status
Westpac New Zealand Superannuation
Defined benefit and
Indexed pension and
30 June 2014
Scheme (WNZS)
accumulation
lump sum
Westpac Banking Corporation UK
Staff Superannuation Scheme (UKSS)1
Defined benefit
Indexed pension and
5 April 2012
lump sum
Westpac UK Medical Benefits Scheme
Defined benefit
Medical benefits
Not applicable
1 The triennial valuation reports of the funding status of the WGP and UKSS have not been completed for 2015.
All of the defined benefit sections of the schemes are closed to new members.
236
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
237
The fair values of share rights granted during the year included in the tables above have been independently calculated at their
respective grant dates based on the requirements of Australian Accounting Standard AASB 2 Share-based Payments.
2015
2014
4 December 2014
5 December 2013
27,657
26,877
30
30
829,710
806,310
$32.68
$32.93
Note 37. Share-based payments (continued)
Allocation
Date
Number of
Participants
Average Number
of Shares Allocated
per Participant
Total Number
of Shares
Allocated
Market
Price per Share
Total
Fair Value
$27,114,923
$26,551,788
Notes to the financial statements
The liability accrued in respect of the ESP at 30 September 2015 is $28 million (2014: $28 million) and is provided for as other
employee benefits.
(viii) Other Group share-based plans
Westpac also provides plans for small, specialised parts of the Group. The benefits under these plans are directly linked to
growth and performance of the relevant part of the business. The plans individually and in aggregate are not material to
the Group.
(ix) General information on share-based plans
Shares allotted to satisfy the exercise of options or share rights under the employee equity plans will rank equally with all other
issued Westpac ordinary shares and qualify for the payment of dividends and shareholder voting rights from the day
of allotment.
The employee equity plans are operated in compliance with ASIC Regulatory Guide 49 which provides relief from the
disclosure and licensing provisions of the Corporations Act. Included in the ASIC regulatory guide is a five percent limit on the
number of shares that can be issued under an employee equity plan without issuing a prospectus.
Under the regulatory guide, the number of shares (including shares that are the subject of options and share rights) to be
offered to employees at any particular time cannot, at the time the offer is made and when aggregated with the number of
shares the subject of previously issued unexercised options and share rights issued to employees under those plans and with
the number of shares issued during the previous five years under all employee share schemes, exceed 5% of the total number
of shares on issue at the time that offer is made.
The names of all persons who hold options and/or share rights currently on issue are entered in Westpac’s register of option
holders which may be inspected at Link Market Services, Level 12, 680 George Street, Sydney, New South Wales.
Note 38. Superannuation commitments
Accounting policy
The asset or liability recognised in the balance sheet in respect of the defined benefit superannuation plan is the present value
of the defined benefit obligation as at the reporting date less the fair value of the plan’s assets. The present value of the defined
benefit obligation is determined by discounting the estimated pre-tax future cash flows using interest rates of high quality long
dated corporate bonds.
The superannuation expense relating to the defined benefit superannuation plan comprises of service cost (including current
and past service cost and gains and losses on curtailments and settlements) and net interest expense (income).
Remeasurements (including actuarial gains and losses and the difference between the interest income and the return on plan
assets) are recognised in other comprehensive income.
The determination of the defined benefit obligation/surplus is one of the Group’s critical accounting assumptions and estimates
as described in Note 1d(iv).
Westpac had the following defined benefit plans at 30 September 2015:
Note 37. Share-based payments (continued)
(iv) CEO Long Term Incentive Plan (Brian Hartzer)
(v) Fair value assumptions
No performance share rights under the CEO Long Term Incentive Plan were allocated to Brian Hartzer during the year.
The fair values of rights without TSR based hurdles, including rights with Cash EPS CAGR hurdles, have been assessed with
reference to the share price at grant date and a discount rate reflecting the expected dividend yield over their vesting periods.
The fair value of rights with hurdles based on TSR performance relative to a group of comparator companies also takes into
account the average TSR outcome determined using a Monte Carlo simulation pricing model.
Other key assumptions include:
the assumptions included in the valuation of the awards of share rights under the WRP and WPP include a risk free
interest rate of 2.5% on share rights with three-year vesting period, a risk free rate of 2.9% for share rights with four-year
vesting period, a dividend yield on Westpac ordinary shares of 5.5% and a volatility in the Westpac share price of 19.1%;
volatility has been assessed by considering the historic volatility of the market price of Westpac shares; and
other assumptions include volatilities of, and correlation factors between, share price movements of the comparator group
members and Westpac which are used to assess the impact of the TSR performance hurdles and have been derived from
the historic volatilities and correlations.
(vi) Restricted Share Plan
The Restricted Share Plan (RSP) provides Westpac with an instrument for attracting and rewarding key employees. Under the
RSP, Westpac shares may be allocated to eligible employees at no cost with vesting subject to remaining employed with
Westpac for a period determined by the Board. The fair value of the shares allocated is the share price on the date of the grant.
Shares in the RSP are held in the name of the employee and are restricted until satisfaction of the vesting conditions. Shares in
the RSP rank equally with Westpac ordinary shares for dividends and voting rights. For awards made prior to October 2009,
shares may be held in the RSP for up to 10 years from the date they are granted. For awards made from October 2009, shares
are released from the RSP on vesting.
Outstanding RSP awards
The following table details outstanding awards of shares issued under the RSP:
Allocation date
Granted prior to October 2009
Granted subsequent to October 2009
Total 2015
Total 2014
Outstanding at
1 October 2014
Granted
During
the Year
Released
the Year
30 September 2015
Outstanding at
Forfeited
During
-
104,596
104,596
183,278
1,215,527
4,351,891
5,567,418
7,678,161
1,487,642
6,190,519
7,678,161
9,438,791
-
272,115
2,143,382
3,877,414
2,143,382
2,070,312
4,149,529
3,647,664
In addition to the above restricted shares were also allocated to the former CEO Gail Kelly under the Chief Executive Officer
RSP (CEO RSP). There were 85,667 shares outstanding as at 30 September 2015 (112,491 as at 30 September 2014).
(vii) Employee Share Plan
Under the Employee Share Plan (ESP), Westpac ordinary shares may be allocated at no cost to employees to recognise their
contribution to Westpac’s financial performance over the previous financial year, subject to Board discretion. The maximum
annual award value under the ESP is $1,000 per employee per year. The number of shares employees receive (if any) is
calculated by dividing the award value by the prevailing market price of Westpac’s ordinary shares when the shares
are granted.
The shares must normally remain within the ESP for three years from granting unless the employee leaves Westpac.
Participants are entitled to full dividend and voting rights attaching to the shares. Westpac’s Australian permanent employees
(including part-time employees) who have been in six months continuous employment as at 30 September each year are
eligible to participate in the ESP. Executives and senior management who participate in any Westpac long-term incentive plan
or deferred short-term incentive plan are not eligible to participate in the ESP during the same year.
The 2014 ESP award was satisfied through the purchase of shares on market. The following table provides details of shares
issued under the ESP during the years ended 30 September:
Name of Plan
Westpac Group Plan (WGP)1
Type
Form of Benefit
Defined benefit and
accumulation
Indexed pension and
lump sum
Westpac New Zealand Superannuation
Scheme (WNZS)
Defined benefit and
accumulation
Indexed pension and
lump sum
Westpac Banking Corporation UK
Staff Superannuation Scheme (UKSS)1
Defined benefit
Indexed pension and
lump sum
Date of Last Actuarial
Assessment of the
Funding Status
30 June 2012
30 June 2014
5 April 2012
Not applicable
Medical benefits
Westpac UK Medical Benefits Scheme
1 The triennial valuation reports of the funding status of the WGP and UKSS have not been completed for 2015.
Defined benefit
236
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
237
All of the defined benefit sections of the schemes are closed to new members.
3
Note 38. Superannuation commitments (continued)
WGP is the Group’s principal defined benefit plan. The WGP is an employer sub-plan within BT Super for Life, which is itself a
plan within retirement Wrap. The Trustee of WGP is BT Funds Management Limited.
Members of the WGP are either Accumulation Members or Defined Benefit Members depending on the nature of their
entitlements. Defined Benefit Members include pensioners. The defined benefit liabilities are primarily influenced by member
contribution rates, salary growth and length of membership in case of active members, and price inflation in the case
of pensioners.
The WGP is managed and administered in accordance with the terms of its trust deed and relevant legislation in Australia.
The level of supporting assets depends on a range of factors including the level of contribution and level of investment return.
In respect of defined benefit liabilities, the Group bears the investment risk. An investment strategy which is framed to take a
long-term view will often adopt relatively high levels of equity investment in order to:
secure attractive long term investment returns; and
provide an opportunity for capital appreciation and dividend growth, which gives some protection against inflation.
There are a number of risks that the WGP exposes the Group to. The more significant risks are:
investment risk – the risk that investment returns will be lower than assumed and the Group will need to increase
contributions to offset the shortfall;
mortality risk – the risk that members of the plan will live longer than assumed, increasing the number of pension payments
The change in the fair value of plan assets is as follows:
and thereby requiring additional contributions by the Group; and
legislative risk – the risk that legislative changes could be made which increase the cost of providing defined benefits.
The plan’s investment strategy is determined after taking into consideration the market risk inherent in the investments and its
consequential impact on potential future contributions. A benchmark is established for the allocation of the defined benefit plan
assets between asset classes.
Contributions
Funding recommendations are made based on actuarial triennial funding valuations using the Attained Age Method, which
impacts the timing of contribution requirements and assumes that the plans will not be discontinued. The assumptions used in
the funding valuation are based on the guidance in Australian Accounting Standard AAS 25 Financial Reporting by
Superannuation Plans. These assumptions differ from the AASB 119 Employee Benefits assumptions used for measurement,
recognition and disclosure of the defined benefit superannuation balances in the financial statements due to different valuation
dates, discount rates and assumptions linked to expected returns on assets.
The following table summarises the calculation of the surplus/(deficit) used to make funding recommendations, based on the
guidance in Australian Accounting Standard AAS 25 Financial Reporting by Superannuation Plans:
$m
Market value of assets
Present value of accrued benefits
Surplus/(deficit)
1 Calculated as at 30 June 2012 (WGP), 5 April 2012 (UKSS) and 30 June 2014 (WNZS).
2 Calculated as at 30 June 2012 (WGP) and 5 April 2012 (UKSS).
Consolidated
20151
1,795
1,764
31
20141
1,760
1,722
38
Parent Entity
20152
1,725
1,694
31
20142
1,692
1,654
38
The specific contributions for each of the plans are set out below:
WGP – contributions are made to the WGP at the rate of 11.8% of members’ salaries;
WNZS – contributions are made to the WNZS at the rate of 12% of members’ salaries; and
UKSS – contributions are made to the UKSS at the rate of £4.27 million per annum.
Defined benefit superannuation balances recognised
The balances disclosed in the remainder of this note are based on the measurement, recognition and disclosure requirements
of AASB 119.
The amount recognised in the income statement is as follows:
$m
Current service cost
Net interest cost on net benefit liability
Total defined benefit expense
Consolidated
Parent Entity
2015
49
12
61
2014
46
11
57
2013
53
17
70
2015
49
11
60
2014
46
10
56
Note 38. Superannuation commitments (continued)
Change in benefit obligation
The change in the present value of the defined benefit obligation is as follows:
Notes to the financial statements
Benefit obligation at beginning of the year
$m
Service cost
Interest cost
Member contributions
Actuarial losses/(gains) from changes in demographic assumptions
Actuarial losses/(gains) from changes in financial assumptions
Actuarial losses/(gains) from changes in experience
Benefits paid
Exchange rate and other items
Benefit obligation at end of the year
Change in plan assets
Fair value of plan assets at beginning of the year
Return on plan assets excluding interest income
$m
Interest income
Employer contributions
Member contributions
Benefits paid
Exchange rate and other items
Fair value of plan assets at end of the year
Net surplus/(deficit)
Defined benefit surplus (Note 27)
Defined benefit deficit (Note 29)
Consolidated
Parent Entity
2015
2,408
49
92
14
3
(62)
(15)
(155)
46
2,380
2015
2,093
80
79
51
14
44
2,206
(174)
18
(192)
(174)
2014
2,216
46
97
14
-
148
27
(158)
18
2,408
2014
1,971
86
115
49
14
16
2,093
(315)
-
(315)
(315)
2015
2,332
48
89
14
4
(68)
(14)
(149)
41
2,297
2015
2,026
78
79
50
14
42
2,140
(157)
18
(175)
(157)
2014
2,134
46
94
14
-
145
28
(149)
20
2,332
2014
1,901
84
112
48
14
16
2,026
(306)
-
(306)
(306)
(155)
(158)
(149)
(149)
Consolidated
Parent Entity
The asset ceiling has no impact on the net defined benefit surplus/(deficit).
The average duration of the defined benefit obligation is approximately 12 years.
Assumptions used in the AASB 119 accounting calculations
Consolidated and Parent Entity
Discount rate
Expected increase in average salary of plan members
Rate of increase for pensions
2015
2014
Australian
Overseas
Australian
Overseas
Funds
4.2%
3.3%
2.3%
Funds
3.3-3.4%
3.0-4.7%
2.2-3.1%
Funds
Funds
4.0%
3.4%
2.4%
4.2–4.6%
3.0–5.1%
2.3–3.6%
During the year, the discount rate applied to the WGP was changed from a blended interest rate of government bonds that
have terms to maturity approximating the terms of the superannuation liabilities, to the yield on high quality corporate bonds.
The impact of the change was a reduction in the defined benefit obligation of $267 million, which was recorded through other
comprehensive income.
The sensitivity of the Group’s defined benefit obligation to the significant assumptions as at 30 September 2015 is shown in the
following table. In the table a negative percentage change represents a reduction in the defined benefit obligation.
238
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
239
Note 38. Superannuation commitments (continued)
WGP is the Group’s principal defined benefit plan. The WGP is an employer sub-plan within BT Super for Life, which is itself a
plan within retirement Wrap. The Trustee of WGP is BT Funds Management Limited.
Members of the WGP are either Accumulation Members or Defined Benefit Members depending on the nature of their
entitlements. Defined Benefit Members include pensioners. The defined benefit liabilities are primarily influenced by member
contribution rates, salary growth and length of membership in case of active members, and price inflation in the case
of pensioners.
The WGP is managed and administered in accordance with the terms of its trust deed and relevant legislation in Australia.
The level of supporting assets depends on a range of factors including the level of contribution and level of investment return.
In respect of defined benefit liabilities, the Group bears the investment risk. An investment strategy which is framed to take a
long-term view will often adopt relatively high levels of equity investment in order to:
secure attractive long term investment returns; and
provide an opportunity for capital appreciation and dividend growth, which gives some protection against inflation.
There are a number of risks that the WGP exposes the Group to. The more significant risks are:
investment risk – the risk that investment returns will be lower than assumed and the Group will need to increase
contributions to offset the shortfall;
mortality risk – the risk that members of the plan will live longer than assumed, increasing the number of pension payments
and thereby requiring additional contributions by the Group; and
legislative risk – the risk that legislative changes could be made which increase the cost of providing defined benefits.
The plan’s investment strategy is determined after taking into consideration the market risk inherent in the investments and its
consequential impact on potential future contributions. A benchmark is established for the allocation of the defined benefit plan
assets between asset classes.
Contributions
Funding recommendations are made based on actuarial triennial funding valuations using the Attained Age Method, which
impacts the timing of contribution requirements and assumes that the plans will not be discontinued. The assumptions used in
the funding valuation are based on the guidance in Australian Accounting Standard AAS 25 Financial Reporting by
Superannuation Plans. These assumptions differ from the AASB 119 Employee Benefits assumptions used for measurement,
recognition and disclosure of the defined benefit superannuation balances in the financial statements due to different valuation
dates, discount rates and assumptions linked to expected returns on assets.
The following table summarises the calculation of the surplus/(deficit) used to make funding recommendations, based on the
guidance in Australian Accounting Standard AAS 25 Financial Reporting by Superannuation Plans:
$m
Market value of assets
Present value of accrued benefits
Surplus/(deficit)
Consolidated
Parent Entity
20151
1,795
1,764
31
20141
1,760
1,722
38
20152
1,725
1,694
31
20142
1,692
1,654
38
1 Calculated as at 30 June 2012 (WGP), 5 April 2012 (UKSS) and 30 June 2014 (WNZS).
2 Calculated as at 30 June 2012 (WGP) and 5 April 2012 (UKSS).
The specific contributions for each of the plans are set out below:
WGP – contributions are made to the WGP at the rate of 11.8% of members’ salaries;
WNZS – contributions are made to the WNZS at the rate of 12% of members’ salaries; and
UKSS – contributions are made to the UKSS at the rate of £4.27 million per annum.
Defined benefit superannuation balances recognised
The balances disclosed in the remainder of this note are based on the measurement, recognition and disclosure requirements
of AASB 119.
The amount recognised in the income statement is as follows:
$m
Current service cost
Net interest cost on net benefit liability
Total defined benefit expense
Consolidated
Parent Entity
2015
2014
2013
2015
2014
49
12
61
46
11
57
53
17
70
49
11
60
46
10
56
Note 38. Superannuation commitments (continued)
Change in benefit obligation
The change in the present value of the defined benefit obligation is as follows:
Notes to the financial statements
$m
Benefit obligation at beginning of the year
Service cost
Interest cost
Member contributions
Actuarial losses/(gains) from changes in demographic assumptions
Actuarial losses/(gains) from changes in financial assumptions
Actuarial losses/(gains) from changes in experience
Benefits paid
Exchange rate and other items
Benefit obligation at end of the year
Change in plan assets
The change in the fair value of plan assets is as follows:
$m
Fair value of plan assets at beginning of the year
Interest income
Return on plan assets excluding interest income
Employer contributions
Member contributions
Benefits paid
Exchange rate and other items
Fair value of plan assets at end of the year
Net surplus/(deficit)
Defined benefit surplus (Note 27)
Defined benefit deficit (Note 29)
Consolidated
Parent Entity
2015
2,408
49
92
14
3
(62)
(15)
(155)
46
2,380
2014
2,216
46
97
14
-
148
27
(158)
18
2,408
2015
2,332
48
89
14
4
(68)
(14)
(149)
41
2,297
Consolidated
Parent Entity
2015
2,093
80
79
51
14
(155)
44
2,206
(174)
18
(192)
(174)
2014
1,971
86
115
49
14
(158)
16
2,093
(315)
-
(315)
(315)
2015
2,026
78
79
50
14
(149)
42
2,140
(157)
18
(175)
(157)
2014
2,134
46
94
14
-
145
28
(149)
20
2,332
2014
1,901
84
112
48
14
(149)
16
2,026
(306)
-
(306)
(306)
The asset ceiling has no impact on the net defined benefit surplus/(deficit).
The average duration of the defined benefit obligation is approximately 12 years.
Assumptions used in the AASB 119 accounting calculations
Consolidated and Parent Entity
Discount rate
Expected increase in average salary of plan members
Rate of increase for pensions
2015
Australian
Funds
4.2%
3.3%
2.3%
Overseas
Funds
3.3-3.4%
3.0-4.7%
2.2-3.1%
2014
Australian
Funds
4.0%
3.4%
2.4%
Overseas
Funds
4.2–4.6%
3.0–5.1%
2.3–3.6%
During the year, the discount rate applied to the WGP was changed from a blended interest rate of government bonds that
have terms to maturity approximating the terms of the superannuation liabilities, to the yield on high quality corporate bonds.
The impact of the change was a reduction in the defined benefit obligation of $267 million, which was recorded through other
comprehensive income.
The sensitivity of the Group’s defined benefit obligation to the significant assumptions as at 30 September 2015 is shown in the
following table. In the table a negative percentage change represents a reduction in the defined benefit obligation.
238
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
239
3
Note 38. Superannuation commitments (continued)
Discount rate
Expected increase in average salary of plan members
Rate of increase for pensions
Change in assumption
0.5%
(0.5%)
Change in obligation
(6.0%)
1.1%
5.6%
6.8%
(1.0%)
(5.0%)
In addition to the financial assumptions presented above, the mortality assumptions for our principal fund the WGP for 2015 are
that a 60-year-old male pensioner is assumed to have a remaining life expectancy of 30.9 years and a 60-year-old female
pensioner is assumed to have a remaining life expectancy of 34.0 years. These assumptions are age related and allowances
are made for future mortality improvements.
Asset allocation
Asset allocation at 30 September was:
Consolidated and Parent Entity
Cash
Equity instruments
Debt instruments
Property
Other assets1
2015
2014
Australian
Funds
Overseas
Funds
Australian
Funds
Overseas
Funds
2%
51%
20%
9%
18%
5%
28%
49%
10%
8%
2%
51%
21%
8%
18%
4%
47%
39%
8%
2%
100%
100%
100%
100%
1 Other assets comprise alternative asset classes including investments in infrastructure funds and private equity funds. These assets are
predominantly unquoted.
Equity and debt instruments are predominantly quoted assets while property assets are predominantly unquoted.
Investments held in Westpac and related entities
$m
Value of plan assets invested in debt and equity securities of Westpac
Value of plan assets invested in related parties of Westpac
Total
Consolidated
Parent Entity
2015
3
-
3
2014
11
1
12
2015
-
-
-
2014
-
1
1
Post-retirement health care
The effect of a one percentage point change in assumed health care trend rates, assuming all other assumptions remain
constant, would not be material on either the current service costs or the accumulated benefit obligation of the Westpac UK
Medical Benefits Scheme at 30 September 2015.
During the financial year, the auditor of the Group and Parent Entity, PricewaterhouseCoopers (PwC), and its related practices
earned the following remuneration including goods and services tax:
OTHER
Note 39. Auditor’s remuneration
$'000
Audit and audit related fees
Audit fees
PwC Australian firm
Related practices of PwC
Total audit fees paid to PwC
Audit related fees
PwC Australian firm
Related practices of PwC
Tax fees
PwC Australian firm
Related practices of PwC
Total tax fees paid to PwC
All other fees
PwC Australian firm
Related practices of PwC
Total all other fees paid to PwC
Total remuneration paid to PwC
Total audit related fees paid to PwC
Total audit and audit related fees paid to PwC
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2015
2014
17,426
3,018
20,444
933
127
1,060
21,504
441
3
444
1,574
-
1,574
23,522
16,459
3,446
19,905
917
310
1,227
21,132
600
11
611
2,407
81
2,488
24,231
16,867
439
17,306
18,032
726
-
726
22
-
22
888
-
888
18,942
15,910
444
16,354
877
126
1,003
17,357
600
-
600
2,226
37
2,263
20,220
It is Westpac’s policy to engage the external auditors on assignments additional to their statutory audit duties, only if their
independence is not impaired or seen to be impaired, and where their expertise and experience with Westpac is important. All
services were approved by the Audit Committee in accordance with the pre-approval policy and procedures.
In the tables above, audit services include the year end audit and review of the half year statutory reports and comfort letters
associated with debt issues and capital raisings for the Parent Entity, its controlled entities and the Group.
Audit-related services include consultations regarding accounting standards and reporting requirements and regulatory
compliance reviews.
Taxation services include tax compliance and tax advisory services.
Other services include assurance on the development of an upgraded Wealth platform, data controls review and global analysis
of regulatory expectations on Trade Surveillance Technology.
The external auditor, PwC, also provides audit and non-audit services to non-consolidated entities sponsored by the Group,
non-consolidated trusts of which a Westpac Group entity is trustee, manager or responsible entity and non-consolidated
superannuation funds or pension funds. The fees in respect of their services were approximately $9.9 million in total
(2014: $7.9 million). PwC may also provide audit and non-audit services to other entities in which Westpac holds a minority
interest, and which are not consolidated. Westpac is not aware of the amount of any fees paid by those entities.
Note 40. Related party disclosures
Accounting policy
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over
the other party in making financial or operating decisions, or one other party controls both. The definition includes subsidiaries,
associates, joint ventures and superannuation plans as well as key management personnel, and persons connected with key
management personnel.
Ultimate parent
Westpac Banking Corporation is the ultimate parent company of the Group.
240
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
241
In addition to the financial assumptions presented above, the mortality assumptions for our principal fund the WGP for 2015 are
that a 60-year-old male pensioner is assumed to have a remaining life expectancy of 30.9 years and a 60-year-old female
pensioner is assumed to have a remaining life expectancy of 34.0 years. These assumptions are age related and allowances
Discount rate
Expected increase in average salary of plan members
Rate of increase for pensions
are made for future mortality improvements.
Asset allocation
Asset allocation at 30 September was:
Consolidated and Parent Entity
Cash
Equity instruments
Debt instruments
Property
Other assets1
Change in assumption
0.5%
(0.5%)
Change in obligation
(6.0%)
1.1%
5.6%
6.8%
(1.0%)
(5.0%)
2015
2014
Australian
Overseas
Australian
Overseas
Funds
Funds
Funds
Funds
2%
51%
20%
9%
18%
5%
28%
49%
10%
8%
2%
51%
21%
8%
18%
4%
47%
39%
8%
2%
100%
100%
100%
100%
1 Other assets comprise alternative asset classes including investments in infrastructure funds and private equity funds. These assets are
predominantly unquoted.
Equity and debt instruments are predominantly quoted assets while property assets are predominantly unquoted.
Investments held in Westpac and related entities
Value of plan assets invested in debt and equity securities of Westpac
Value of plan assets invested in related parties of Westpac
$m
Total
Consolidated
Parent Entity
2015
2014
2015
2014
3
-
3
11
1
12
-
-
-
-
1
1
Post-retirement health care
The effect of a one percentage point change in assumed health care trend rates, assuming all other assumptions remain
constant, would not be material on either the current service costs or the accumulated benefit obligation of the Westpac UK
Medical Benefits Scheme at 30 September 2015.
Note 38. Superannuation commitments (continued)
OTHER
Notes to the financial statements
Note 39. Auditor’s remuneration
During the financial year, the auditor of the Group and Parent Entity, PricewaterhouseCoopers (PwC), and its related practices
earned the following remuneration including goods and services tax:
$'000
Audit and audit related fees
Audit fees
PwC Australian firm
Related practices of PwC
Total audit fees paid to PwC
Audit related fees
PwC Australian firm
Related practices of PwC
Total audit related fees paid to PwC
Total audit and audit related fees paid to PwC
Tax fees
PwC Australian firm
Related practices of PwC
Total tax fees paid to PwC
All other fees
PwC Australian firm
Related practices of PwC
Total all other fees paid to PwC
Total remuneration paid to PwC
Consolidated
Parent Entity
2015
2014
2015
2014
17,426
3,018
20,444
933
127
1,060
21,504
441
3
444
1,574
-
1,574
23,522
16,459
3,446
19,905
917
310
1,227
21,132
600
11
611
2,407
81
2,488
24,231
16,867
439
17,306
726
-
726
18,032
22
-
22
888
-
888
18,942
15,910
444
16,354
877
126
1,003
17,357
600
-
600
2,226
37
2,263
20,220
It is Westpac’s policy to engage the external auditors on assignments additional to their statutory audit duties, only if their
independence is not impaired or seen to be impaired, and where their expertise and experience with Westpac is important. All
services were approved by the Audit Committee in accordance with the pre-approval policy and procedures.
In the tables above, audit services include the year end audit and review of the half year statutory reports and comfort letters
associated with debt issues and capital raisings for the Parent Entity, its controlled entities and the Group.
Audit-related services include consultations regarding accounting standards and reporting requirements and regulatory
compliance reviews.
Taxation services include tax compliance and tax advisory services.
Other services include assurance on the development of an upgraded Wealth platform, data controls review and global analysis
of regulatory expectations on Trade Surveillance Technology.
The external auditor, PwC, also provides audit and non-audit services to non-consolidated entities sponsored by the Group,
non-consolidated trusts of which a Westpac Group entity is trustee, manager or responsible entity and non-consolidated
superannuation funds or pension funds. The fees in respect of their services were approximately $9.9 million in total
(2014: $7.9 million). PwC may also provide audit and non-audit services to other entities in which Westpac holds a minority
interest, and which are not consolidated. Westpac is not aware of the amount of any fees paid by those entities.
Note 40. Related party disclosures
Accounting policy
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over
the other party in making financial or operating decisions, or one other party controls both. The definition includes subsidiaries,
associates, joint ventures and superannuation plans as well as key management personnel, and persons connected with key
management personnel.
Ultimate parent
Westpac Banking Corporation is the ultimate parent company of the Group.
240
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
241
3
Note 40. Related party disclosures (continued)
Subsidiaries
Details of the Group’s subsidiaries are presented in Note 35.
Transactions between the Parent Entity and its subsidiaries during 2015 have included the provision of a wide range of banking
and other financial facilities, some of which have been on commercial terms and conditions; others have been on terms and
conditions which represented a concession to the subsidiaries. Details of amounts paid to or received from subsidiaries, in the
form of dividends or interest, are set out in Note 3 and Note 4.
Other intragroup transactions, which may or may not be on commercial terms, include the provision of management and
administration services, staff training, data processing facilities, transfer of tax losses, and the leasing of property and
equipment. Similar transactions between Group entities and other related parties have been almost invariably on commercial
terms and conditions as agreed between the parties.
Balances due from and due to subsidiaries are disclosed in the balance sheet on page 118.
The details of the agreements entered into between the Parent Entity and its wholly owned Australian subsidiaries as a result of
the tax consolidation legislation are set out in Note 7.
The details of Parent Entity guarantees and undertakings extended by the Parent Entity to entities in the Group are set out in
Note 31.
Associates
Transactions between the Parent Entity and its associates during 2015 have included the provision of a wide range of banking
and other financial facilities and funds management activities on commercial terms and conditions. Details of the Group’s
associates are presented in Note 35.
Superannuation plans
Details of Group’s defined benefit plans and the contributions made to these plans are detailed in Note 38. Contributions made
by the Group to defined contribution plans were $300 million (2014: $279 million).
Key management personnel
Key management personnel are defined as those persons having authority and responsibility for planning, directing and
controlling the activities of Westpac, directly or indirectly, including any director (whether executive or otherwise).
Compensation of directors and other key management personnel
Total compensation of all key management personnel, including Non-executive Directors, the CEO and other key
management personnel:
$
Consolidated
2015
2014
Parent Entity
2015
2014
Short-term
Benefits
Post Employment
Benefits
Termination
Benefits
Share-based
Payments
Total
28,494,588
32,629,048
27,276,010
31,449,374
553,853
433,456
2,584,709
-
16,901,143
19,010,878
48,534,293
52,073,382
484,294
429,955
2,584,709
-
16,601,039
18,632,631
46,946,052
50,511,960
Detailed remuneration disclosures of Non-executive Directors, the CEO and other key management personnel are included in
the Remuneration report in Section 1.
Financial transactions with Directors and other key management personnel disclosures
All financial instrument transactions that have occurred during the financial year between the Directors or other key
management personnel and the Group are in the ordinary course of business on normal terms and conditions (including
interest and collateral) as apply for comparable transactions with other persons including employees and did not involve more
than the normal risk of repayment or present other unfavourable features. These transactions consisted principally of normal
personal banking and financial investment services.
Details of loans to Directors and other key management personnel (including their related parties) of the Group are:
Notes to the financial statements
Note 40. Related party disclosures (continued)
Options and share rights holdings1
For compliance with SEC disclosure requirements, the following table sets out certain details of the performance options,
performance share rights and unhurdled share rights held at 30 September 2015 by the CEO and other key management
personnel (including their related parties):
Managing Director & Chief Executive Officer
Latest Date for Exercise
Number of
Number
Exercise Price
Share Rights
of Options
of Options
Alexandra Holcomb
Ranges from 1 October 2020 to 1 October 2024
38,847
$30.10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Brian Hartzer
Group Executives
John Arthur
Philip Coffey
Brad Cooper
David Curran
George Frazis
Peter King
David Lindberg
David McLean
Christine Parker
Gail Kelly
Rob Whitfield
Jason Yetton
Ranges from 1 October 2022 to 1 October 2024
Ranges from 1 October 2020 to 1 October 2024
Ranges from 1 October 2020 to 1 October 2024
Ranges from 1 October 2020 to 1 October 2024
1 October 2014
Ranges from 1 October 2020 to 1 October 2024
17 December 2017
Ranges from 1 October 2020 to 1 October 2024
Ranges from 1 October 2023 to 1 October 2024
Ranges from 1 October 2020 to 1 September 2025
Ranges from 1 October 2020 to 1 October 2024
Ranges from 1 October 2020 to 1 October 2023
Ranges from 1 October 2020 to 1 July 2025
Ranges from 1 October 2020 to 1 October 2024
246,155
251,163
282,039
251,914
63,519
173,597
120,060
-
122,900
64,984
54,541
144,970
390,534
187,525
214,022
Former Managing Director & Chief Executive Officer
Former Group Executives
1 Lyn Cobley has not yet been awarded any options or share rights.
Note 41. Notes to the cash flow statements
Accounting policy
Further details of the equity holdings of key management personnel are included in the Remuneration report in Section 1.
Cash and balances with central banks include cash at branches, Reserve Bank settlement account balances and nostro
balances. They are brought to account at the face value or the gross value of the outstanding balance, where appropriate.
These balances have a maturity of less than three months.
Cash and cash equivalents
$m
Cash on hand
Balances with central banks
Total cash and cash equivalents
Consolidated
Parent Entity
2015
9,282
5,488
14,770
2014
19,582
6,178
25,760
2013
9,862
1,837
2015
8,575
4,797
11,699
13,372
2014
18,952
4,448
23,400
$
2015
2014
242
Balance at
Start of Year
18,442,040
14,837,949
Interest Paid
and Payable
for the Year
867,564
884,631
Interest Not
Charged
Balance at
End of Year
-
-
15,445,388
18,442,040
Number in
Group at End
of Year
10
10
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
243
Note 40. Related party disclosures (continued)
Subsidiaries
Details of the Group’s subsidiaries are presented in Note 35.
Transactions between the Parent Entity and its subsidiaries during 2015 have included the provision of a wide range of banking
and other financial facilities, some of which have been on commercial terms and conditions; others have been on terms and
conditions which represented a concession to the subsidiaries. Details of amounts paid to or received from subsidiaries, in the
form of dividends or interest, are set out in Note 3 and Note 4.
Other intragroup transactions, which may or may not be on commercial terms, include the provision of management and
administration services, staff training, data processing facilities, transfer of tax losses, and the leasing of property and
equipment. Similar transactions between Group entities and other related parties have been almost invariably on commercial
terms and conditions as agreed between the parties.
Balances due from and due to subsidiaries are disclosed in the balance sheet on page 118.
The details of the agreements entered into between the Parent Entity and its wholly owned Australian subsidiaries as a result of
the tax consolidation legislation are set out in Note 7.
The details of Parent Entity guarantees and undertakings extended by the Parent Entity to entities in the Group are set out in
Note 31.
Associates
associates are presented in Note 35.
Superannuation plans
Transactions between the Parent Entity and its associates during 2015 have included the provision of a wide range of banking
and other financial facilities and funds management activities on commercial terms and conditions. Details of the Group’s
Details of Group’s defined benefit plans and the contributions made to these plans are detailed in Note 38. Contributions made
by the Group to defined contribution plans were $300 million (2014: $279 million).
Key management personnel
Key management personnel are defined as those persons having authority and responsibility for planning, directing and
controlling the activities of Westpac, directly or indirectly, including any director (whether executive or otherwise).
Compensation of directors and other key management personnel
Total compensation of all key management personnel, including Non-executive Directors, the CEO and other key
management personnel:
Short-term
Post Employment
Termination
Share-based
Benefits
Benefits
Benefits
Payments
Total
28,494,588
32,629,048
27,276,010
31,449,374
553,853
433,456
484,294
429,955
2,584,709
16,901,143
48,534,293
19,010,878
52,073,382
2,584,709
16,601,039
46,946,052
18,632,631
50,511,960
-
-
Detailed remuneration disclosures of Non-executive Directors, the CEO and other key management personnel are included in
the Remuneration report in Section 1.
Financial transactions with Directors and other key management personnel disclosures
All financial instrument transactions that have occurred during the financial year between the Directors or other key
management personnel and the Group are in the ordinary course of business on normal terms and conditions (including
interest and collateral) as apply for comparable transactions with other persons including employees and did not involve more
than the normal risk of repayment or present other unfavourable features. These transactions consisted principally of normal
personal banking and financial investment services.
Details of loans to Directors and other key management personnel (including their related parties) of the Group are:
Interest Paid
Number in
Balance at
and Payable
Interest Not
Balance at
Group at End
Start of Year
for the Year
Charged
End of Year
of Year
18,442,040
14,837,949
867,564
884,631
-
-
15,445,388
18,442,040
10
10
Consolidated
Parent Entity
$
2015
2014
2015
2014
$
2015
2014
242
Notes to the financial statements
Note 40. Related party disclosures (continued)
Options and share rights holdings1
For compliance with SEC disclosure requirements, the following table sets out certain details of the performance options,
performance share rights and unhurdled share rights held at 30 September 2015 by the CEO and other key management
personnel (including their related parties):
Managing Director & Chief Executive Officer
Brian Hartzer
Ranges from 1 October 2022 to 1 October 2024
Latest Date for Exercise
Group Executives
John Arthur
Philip Coffey
Brad Cooper
David Curran
George Frazis
Ranges from 1 October 2020 to 1 October 2024
Ranges from 1 October 2020 to 1 October 2024
Ranges from 1 October 2020 to 1 October 2024
1 October 2014
Ranges from 1 October 2020 to 1 October 2024
Alexandra Holcomb
Ranges from 1 October 2020 to 1 October 2024
Peter King
David Lindberg
David McLean
Christine Parker
17 December 2017
Ranges from 1 October 2020 to 1 October 2024
Ranges from 1 October 2023 to 1 October 2024
Ranges from 1 October 2020 to 1 September 2025
Ranges from 1 October 2020 to 1 October 2024
Former Managing Director & Chief Executive Officer
Gail Kelly
Ranges from 1 October 2020 to 1 October 2023
Former Group Executives
Rob Whitfield
Ranges from 1 October 2020 to 1 July 2025
Jason Yetton
1 Lyn Cobley has not yet been awarded any options or share rights.
Ranges from 1 October 2020 to 1 October 2024
Number of
Share Rights
Number
of Options
Exercise Price
of Options
246,155
251,163
282,039
251,914
63,519
173,597
120,060
-
122,900
64,984
54,541
144,970
390,534
187,525
214,022
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
38,847
$30.10
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Further details of the equity holdings of key management personnel are included in the Remuneration report in Section 1.
Note 41. Notes to the cash flow statements
Accounting policy
Cash and balances with central banks include cash at branches, Reserve Bank settlement account balances and nostro
balances. They are brought to account at the face value or the gross value of the outstanding balance, where appropriate.
These balances have a maturity of less than three months.
Cash and cash equivalents
$m
Cash on hand
Balances with central banks
Total cash and cash equivalents
Consolidated
Parent Entity
2015
9,282
5,488
14,770
2014
19,582
6,178
25,760
2013
9,862
1,837
2015
8,575
4,797
11,699
13,372
2014
18,952
4,448
23,400
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
243
3
Note 41. Notes to the cash flow statements (continued)
Reconciliation of net cash (used in)/provided by operating activities to net profit for the year is set out below:
Note 41. Notes to the cash flow statements (continued)
Details of assets and liabilities of controlled entities and business acquired
Notes to the financial statements
Consolidated
Parent Entity
2015
2014
2013
2015
2014
8,068
7,625
6,825
6,747
7,234
Fair value of assets and liabilities of controlled entities and businesses acquired
Consolidated
2015
2014
2013
$m
Reconciliation of net cash (used in)/provided by
operating activities to net profit for the year1
Net profit for the year
Adjustments:
Depreciation, amortisation and impairment
Impairment charges
Other non-cash items
Net (increase)/decrease in derivative financial instruments
11,730
(3,329)
Net (decrease)/increase in current and deferred tax
Net (increase)/decrease in life insurance assets and liabilities
(Increase)/decrease in other operating assets:
Accrued interest receivable
Trading securities and financial assets designated at fair value
Loans
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
Other assets
(Decrease)/increase in other operating liabilities:
Accrued interest payable
Provisions
Other financial liabilities at fair value through income statement
Deposits and other borrowings
Payables due to other financial institutions
Other liabilities
(78)
(191)
115
21,538
(39,569)
(1,000)
497
95
(291)
(1,137)
(10,027)
8,526
(1,194)
95
1,671
884
(273)
1,020
756
900
904
923
2,212
9,126
147
(154)
84
(319)
332
(156)
(64)
1,724
(35,734)
(15,667)
3,932
126
121
(53)
(1,174)
9,079
34,229
9,419
(382)
(511)
489
425
(376)
(1,309)
266
22,155
363
(3)
1,476
704
970
11,497
(906)
-
108
22,668
(38,270)
(2,108)
511
729
(301)
(1,045)
(9,945)
6,548
(1,544)
158
867
634
(359)
(3,028)
(221)
-
(47)
1,083
(33,659)
3,966
145
667
(55)
(962)
8,992
32,244
9,280
(423)
Net cash (used in)/provided by operating activities
26,358
1 The presentation has been revised to better reflect the nature of our business. Certain cash flows have been reclassified between operating activities
(2,003)
25,580
28,371
(541)
and comparatives have been revised for consistency. Changes did not have an impact on the reported net increase/decrease in cash and
cash equivalents.
Business acquired
Acquisition of selected business of Lloyds
On 31 December 2013 the Group acquired 100% of the share capital in Capital Finance Australia Ltd (CFAL) and BOS
International Australia Ltd (BOSI). The business acquired adds scale and geographic diversity to the Group’s motor vehicle
finance business, expands the Group’s capability and reach within equipment finance and creates opportunities to deepen
customer relationships with the opportunity to cross sell other Westpac Group products. The provisional goodwill recognised of
$225 million primarily reflects the value of synergies expected to arise as a result of the acquisition.
244
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
245
$m
Assets acquired:
Cash and balances with central banks
Derivative financial instruments
Loans
Identifiable intangible assets
Property and equipment
Other assets
Total assets acquired
Liabilities acquired:
Provisions
Deferred tax liabilities
Debt issues
Borrowings
Other liabilities
Total liabilities acquired
Goodwill
Total
Cash consideration
Purchase of shares
Fair value of identifiable net assets acquired
Replacement of intergroup funding
Total cash consideration
Cash consideration
Less cash and cash equivalents acquired
Cash paid (net of cash acquired)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
149
30
7,895
8,216
56
80
6
11
25
488
6,368
24
6,916
1,300
225
1,525
1,525
6,368
7,893
7,893
(149)
7,744
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Businesses disposed
Partial sale of BT Investment Management Limited (BTIM)
Westpac sold 28% of its interest in BT Investment Management (BTIM) via both an Institutional Offer (19%) and Retail Offer
(9%) priced at $8.20 per share. Following settlement of the institutional offer transaction on 23 June 2015 the Group lost control
of BTIM. Following the completion of the retail offer on 16 July 2015, Westpac now holds 31% of BTIM.
A gain on sale of $1,036 million was recognised in non-interest income. This gain consists of both the realised gain on the 28%
of BTIM sold ($492 million) and also an unrealised gain on the 31% retained ($544 million).
The remaining 31% investment in BTIM was initially recognised at $745 million being its fair value on the transaction date.
Subsequently, the investment will be accounted for using the equity method. Refer Note 35 for further details regarding the
The total consideration received, net of transaction costs, was $654 million, satisfied in cash.
retained ownership interest.
Pacific Islands
Westpac sold its banking operations in Samoa, Cook Islands, and Tonga to the Bank of South Pacific Limited (BSP).
Settlement occurred on 10 July 2015, with a loss of $3 million recognised in operating expenses.
The total consideration received, net of transaction costs, was $85 million, satisfied in cash.
The Warehouse Financial Services Limited
interest income.
Westpac sold The Warehouse Financial Services Limited on 30 September 2015, with a gain of $3 million recognised in non-
The total consideration received, net of transaction costs, was $4 million, satisfied in cash.
Net (increase)/decrease in derivative financial instruments
11,730
(3,329)
$m
Reconciliation of net cash (used in)/provided by
operating activities to net profit for the year1
Net profit for the year
Adjustments:
Impairment charges
Other non-cash items
Depreciation, amortisation and impairment
Net (decrease)/increase in current and deferred tax
Net (increase)/decrease in life insurance assets and liabilities
(Increase)/decrease in other operating assets:
Accrued interest receivable
Trading securities and financial assets designated at fair value
Loans
Other assets
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
(Decrease)/increase in other operating liabilities:
Accrued interest payable
Provisions
Other financial liabilities at fair value through income statement
Deposits and other borrowings
Payables due to other financial institutions
Other liabilities
cash equivalents.
Business acquired
Acquisition of selected business of Lloyds
Net cash (used in)/provided by operating activities
25,580
(2,003)
1 The presentation has been revised to better reflect the nature of our business. Certain cash flows have been reclassified between operating activities
and comparatives have been revised for consistency. Changes did not have an impact on the reported net increase/decrease in cash and
On 31 December 2013 the Group acquired 100% of the share capital in Capital Finance Australia Ltd (CFAL) and BOS
International Australia Ltd (BOSI). The business acquired adds scale and geographic diversity to the Group’s motor vehicle
finance business, expands the Group’s capability and reach within equipment finance and creates opportunities to deepen
customer relationships with the opportunity to cross sell other Westpac Group products. The provisional goodwill recognised of
$225 million primarily reflects the value of synergies expected to arise as a result of the acquisition.
Note 41. Notes to the cash flow statements (continued)
Reconciliation of net cash (used in)/provided by operating activities to net profit for the year is set out below:
Note 41. Notes to the cash flow statements (continued)
Details of assets and liabilities of controlled entities and business acquired
Consolidated
Parent Entity
2015
2014
2013
2015
2014
$m
Consolidated
2015
2014
2013
Fair value of assets and liabilities of controlled entities and businesses acquired
Assets acquired:
Notes to the financial statements
8,068
7,625
6,825
6,747
7,234
(35,734)
(15,667)
1,671
884
(273)
(78)
(191)
115
21,538
(39,569)
(1,000)
497
95
(291)
(1,137)
(10,027)
8,526
(1,194)
95
(541)
1,020
756
900
332
(156)
(64)
1,724
3,932
126
121
(53)
(1,174)
9,079
34,229
9,419
(382)
28,371
904
923
2,212
9,126
147
(154)
84
(319)
(511)
489
425
(376)
(1,309)
266
22,155
363
(3)
1,476
704
970
11,497
(906)
-
108
22,668
(38,270)
(2,108)
511
729
(301)
(1,045)
(9,945)
6,548
(1,544)
158
867
634
(359)
(3,028)
(221)
-
(47)
1,083
(33,659)
3,966
145
667
(55)
(962)
8,992
32,244
9,280
(423)
26,358
Cash and balances with central banks
Derivative financial instruments
Loans
Identifiable intangible assets
Property and equipment
Other assets
Total assets acquired
Liabilities acquired:
Provisions
Deferred tax liabilities
Debt issues
Borrowings
Other liabilities
Total liabilities acquired
Fair value of identifiable net assets acquired
Goodwill
Total
Cash consideration
Purchase of shares
Replacement of intergroup funding
Total cash consideration
Cash consideration
Less cash and cash equivalents acquired
Cash paid (net of cash acquired)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
149
30
7,895
56
80
6
8,216
11
25
488
6,368
24
6,916
1,300
225
1,525
1,525
6,368
7,893
7,893
(149)
7,744
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Businesses disposed
Partial sale of BT Investment Management Limited (BTIM)
Westpac sold 28% of its interest in BT Investment Management (BTIM) via both an Institutional Offer (19%) and Retail Offer
(9%) priced at $8.20 per share. Following settlement of the institutional offer transaction on 23 June 2015 the Group lost control
of BTIM. Following the completion of the retail offer on 16 July 2015, Westpac now holds 31% of BTIM.
A gain on sale of $1,036 million was recognised in non-interest income. This gain consists of both the realised gain on the 28%
of BTIM sold ($492 million) and also an unrealised gain on the 31% retained ($544 million).
The remaining 31% investment in BTIM was initially recognised at $745 million being its fair value on the transaction date.
Subsequently, the investment will be accounted for using the equity method. Refer Note 35 for further details regarding the
retained ownership interest.
The total consideration received, net of transaction costs, was $654 million, satisfied in cash.
Pacific Islands
Westpac sold its banking operations in Samoa, Cook Islands, and Tonga to the Bank of South Pacific Limited (BSP).
Settlement occurred on 10 July 2015, with a loss of $3 million recognised in operating expenses.
The total consideration received, net of transaction costs, was $85 million, satisfied in cash.
The Warehouse Financial Services Limited
Westpac sold The Warehouse Financial Services Limited on 30 September 2015, with a gain of $3 million recognised in non-
interest income.
The total consideration received, net of transaction costs, was $4 million, satisfied in cash.
244
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245
3
Notes to the financial statements
Note 42. Subsequent events (continued)
Shares for the institutional component of the entitlement offer were issued on 29 October 2015 raising approximately
$1.6 billion. Shares for the retail component for the remaining approximately $1.9 billion are scheduled to be issued on 20
No other matters have arisen since the year ended 30 September 2015 which is not otherwise dealt with in this report, that has
significantly affected or may significantly affect the operations of the Group, the results of its operations or the state of affairs of
the Group in subsequent periods.
Note 41. Notes to the cash flow statements (continued)
Details of the assets and liabilities over which control was lost
$m
Assets:
Cash and balances with central banks
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans
Regulatory deposits with central banks overseas
Property and equipment
Deferred tax assets
Goodwill and other intangible assets
Other assets
Total assets
Liabilities:
Deposits and other borrowings
Debt issues
Current tax liabilities
Provisions
Deferred tax liabilities
Other liabilities
Total liabilities
Net assets
Non-controlling interests
Total equity attributable to owners of Westpac Banking Corporation
Cash proceeds (net of transaction costs)
Fair value of retained interest
Total consideration
Reserves recycled to income statement
Gain/(loss) on disposal
Reconciliation of cash proceeds from disposal
Cash proceeds received
Less: Cash deconsolidated
Cash consideration received (net of transaction costs and cash held)
Non-cash financing activities
Consolidated
Parent Entity
2015
2014
2013
2015
2014
November 2015.
95
75
90
226
8
11
36
450
84
1,075
267
20
14
98
23
55
477
598
(84)
514
743
745
1,488
62
1,036
743
(95)
648
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6
-
-
72
-
2
3
-
22
105
90
-
-
-
-
-
90
15
-
15
22
-
22
(2)
5
22
(6)
16
Consolidated
Parent Entity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$m
Shares issued under the dividend reinvestment plan1
Issuance of loan capital2
Shares issued on redemption of Westpac SPS
-
1 The dividend reinvestment plan for 2014: interim dividend and 2013 final and special dividends ($1,022 million) (2013: interim dividend $543 million)
1,412
1,412
2013
2014
2015
2015
2014
173
332
531
529
529
-
-
-
-
-
-
-
2
was satisfied in full through purchase of existing shares and transfer of shares to participating shareholders.
In 2014, amounts relate to holders of Westpac SPS II who participated in the reinvestment offer to subscribe for Westpac Capital Notes 2. In 2013,
amounts relate to holders of Westpac SPS who participated in the reinvestment offer to subscribe for Westpac Subordinates Notes II.
Restricted cash
The amount of cash and cash equivalents not available for use at 30 September 2015 was $132 million (2014: $35 million) for
the Group.
Note 42. Subsequent events
On 14 October 2015, Westpac announced a fully underwritten, pro rata accelerated renounceable entitlement offer to raise
approximately $3.5 billion of share capital. The capital raised responds to changes in mortgage risk weights that will increase
the amount of capital required to be held against mortgages by more than 50%, with increased regulatory requirement to be
applied from 1 July 2016. New shares issued under the entitlement offer will not be entitled to the 2015 final dividend of
94 cents per share.
246
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
247
Notes to the financial statements
Note 42. Subsequent events (continued)
Shares for the institutional component of the entitlement offer were issued on 29 October 2015 raising approximately
$1.6 billion. Shares for the retail component for the remaining approximately $1.9 billion are scheduled to be issued on 20
November 2015.
No other matters have arisen since the year ended 30 September 2015 which is not otherwise dealt with in this report, that has
significantly affected or may significantly affect the operations of the Group, the results of its operations or the state of affairs of
the Group in subsequent periods.
Note 41. Notes to the cash flow statements (continued)
Details of the assets and liabilities over which control was lost
$m
Assets:
Cash and balances with central banks
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans
Regulatory deposits with central banks overseas
Property and equipment
Deferred tax assets
Goodwill and other intangible assets
Other assets
Total assets
Liabilities:
Deposits and other borrowings
Debt issues
Current tax liabilities
Provisions
Deferred tax liabilities
Other liabilities
Total liabilities
Net assets
Non-controlling interests
Total equity attributable to owners of Westpac Banking Corporation
Cash proceeds (net of transaction costs)
Fair value of retained interest
Total consideration
Reserves recycled to income statement
Gain/(loss) on disposal
Reconciliation of cash proceeds from disposal
Cash proceeds received
Less: Cash deconsolidated
Cash consideration received (net of transaction costs and cash held)
Non-cash financing activities
226
95
75
90
8
11
36
450
84
1,075
267
20
14
98
23
55
477
598
(84)
514
743
745
1,488
62
1,036
743
(95)
648
2015
1,412
-
-
Consolidated
Parent Entity
2015
2014
2013
2015
2014
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
72
6
-
-
-
2
3
-
22
105
90
-
-
-
-
-
-
-
90
15
15
22
22
(2)
5
22
(6)
16
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated
Parent Entity
2014
529
-
-
2013
531
332
173
2015
1,412
-
-
2014
529
-
-
Shares issued under the dividend reinvestment plan1
Issuance of loan capital2
Shares issued on redemption of Westpac SPS
$m
2
Restricted cash
the Group.
Note 42. Subsequent events
1 The dividend reinvestment plan for 2014: interim dividend and 2013 final and special dividends ($1,022 million) (2013: interim dividend $543 million)
was satisfied in full through purchase of existing shares and transfer of shares to participating shareholders.
In 2014, amounts relate to holders of Westpac SPS II who participated in the reinvestment offer to subscribe for Westpac Capital Notes 2. In 2013,
amounts relate to holders of Westpac SPS who participated in the reinvestment offer to subscribe for Westpac Subordinates Notes II.
The amount of cash and cash equivalents not available for use at 30 September 2015 was $132 million (2014: $35 million) for
On 14 October 2015, Westpac announced a fully underwritten, pro rata accelerated renounceable entitlement offer to raise
approximately $3.5 billion of share capital. The capital raised responds to changes in mortgage risk weights that will increase
the amount of capital required to be held against mortgages by more than 50%, with increased regulatory requirement to be
applied from 1 July 2016. New shares issued under the entitlement offer will not be entitled to the 2015 final dividend of
94 cents per share.
246
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
247
3
Directors’ declaration
In the Directors’ opinion:
a.
the financial statements and notes set out in ‘Section 3 – Financial report for the year ended 30 September 2015’ are in
accordance with the Corporations Act 2001, including:
i.
complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
ii. giving a true and fair view of Westpac Banking Corporation and the Group’s financial position as at
30 September 2015 and of their performance, as represented by the results of their operations, changes in equity and
their cash flows, for the financial year ended on that date; and
b.
there are reasonable grounds to believe that Westpac will be able to pay its debts as and when they become due
and payable.
Note 1(a) confirms that the financial report also complies with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The Directors have been given the declaration by the Chief Executive Officer and the Chief Financial Officer required by section
295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
For and on behalf of the Board.
Statutory statements
Management’s report on internal control over financial reporting
The following report is required by rules of the US Securities and Exchange Commission
The management of Westpac is responsible for establishing and maintaining adequate internal control over financial reporting
for Westpac as defined in Rule 13a – 15 (f) under the Securities Exchange Act of 1934, as amended. Westpac’s internal control
system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with applicable accounting standards.
Westpac’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records
that in reasonable detail accurately reflect the transactions and dispositions of the assets of Westpac and its consolidated
entities; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with applicable accounting standards, and that receipts and expenditures of Westpac are being
made only in accordance with authorizations of management and directors of Westpac and its consolidated entities; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
assets of Westpac and its consolidated entities that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Westpac management, with the participation of the CEO and CFO, assessed the effectiveness of Westpac’s internal control
over financial reporting as of 30 September 2015 based on the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on this assessment,
management has concluded that Westpac’s internal control over financial reporting as of 30 September 2015 was effective.
The effectiveness of Westpac’s internal control over financial reporting as of 30 September 2015 has been audited by
PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which is included herein.
Lindsay Maxsted
Chairman
Sydney
2 November 2015
Brian Hartzer
Managing Director &
Chief Executive Officer
248
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
249
Directors’ declaration
In the Directors’ opinion:
a.
the financial statements and notes set out in ‘Section 3 – Financial report for the year ended 30 September 2015’ are in
accordance with the Corporations Act 2001, including:
i.
complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
ii. giving a true and fair view of Westpac Banking Corporation and the Group’s financial position as at
30 September 2015 and of their performance, as represented by the results of their operations, changes in equity and
their cash flows, for the financial year ended on that date; and
b.
there are reasonable grounds to believe that Westpac will be able to pay its debts as and when they become due
Note 1(a) confirms that the financial report also complies with International Financial Reporting Standards as issued by the
and payable.
International Accounting Standards Board.
295A of the Corporations Act 2001.
The Directors have been given the declaration by the Chief Executive Officer and the Chief Financial Officer required by section
This declaration is made in accordance with a resolution of the Directors.
For and on behalf of the Board.
Statutory statements
Management’s report on internal control over financial reporting
The following report is required by rules of the US Securities and Exchange Commission
The management of Westpac is responsible for establishing and maintaining adequate internal control over financial reporting
for Westpac as defined in Rule 13a – 15 (f) under the Securities Exchange Act of 1934, as amended. Westpac’s internal control
system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with applicable accounting standards.
Westpac’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records
that in reasonable detail accurately reflect the transactions and dispositions of the assets of Westpac and its consolidated
entities; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with applicable accounting standards, and that receipts and expenditures of Westpac are being
made only in accordance with authorizations of management and directors of Westpac and its consolidated entities; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
assets of Westpac and its consolidated entities that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Westpac management, with the participation of the CEO and CFO, assessed the effectiveness of Westpac’s internal control
over financial reporting as of 30 September 2015 based on the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on this assessment,
management has concluded that Westpac’s internal control over financial reporting as of 30 September 2015 was effective.
The effectiveness of Westpac’s internal control over financial reporting as of 30 September 2015 has been audited by
PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which is included herein.
Lindsay Maxsted
Chairman
Sydney
2 November 2015
Brian Hartzer
Managing Director &
Chief Executive Officer
248
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2015 Westpac Group Annual Report
249
3
Statutory statements
Report on the Remuneration Report
We have audited the Remuneration Report included in Section 1 of the Annual Report for the year ended 30
September 2015. The directors of the Corporation are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Auditor's opinion
In our opinion, the Remuneration Report of Westpac Banking Corporation for the year ended
30 September 2015 complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Michael Codling
Partner
Sydney
2 November 2015
Andrew Wilson
Partner
Independent auditor’s report to the members of Westpac Banking Corporation
Report on the financial report
We have audited the accompanying financial report of Westpac Banking Corporation (the ‘Corporation’), which
comprises the balance sheets as at 30 September 2015, the income statements, statements of comprehensive
income, statements of changes in equity and cash flow statements for the year ended on that date, a summary of
significant accounting policies, other explanatory notes and the directors’ declaration for both the Corporation and
the Consolidated Entity. The Consolidated Entity comprises the Corporation and the entities it controlled at year’s
end or from time to time during the financial year.
Directors' responsibility for the financial report
The directors of the Corporation are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that is free from
material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance
whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the
risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial report in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinions.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor's opinion
In our opinion:
(a) the financial report of Westpac Banking Corporation is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the Corporation's and Consolidated Entity's financial position as at 30
September 2015 and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
250
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251
Statutory statements
Report on the Remuneration Report
We have audited the Remuneration Report included in Section 1 of the Annual Report for the year ended 30
September 2015. The directors of the Corporation are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Auditor's opinion
In our opinion, the Remuneration Report of Westpac Banking Corporation for the year ended
30 September 2015 complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Michael Codling
Partner
Sydney
2 November 2015
Andrew Wilson
Partner
Independent auditor’s report to the members of Westpac Banking Corporation
Report on the financial report
We have audited the accompanying financial report of Westpac Banking Corporation (the ‘Corporation’), which
comprises the balance sheets as at 30 September 2015, the income statements, statements of comprehensive
income, statements of changes in equity and cash flow statements for the year ended on that date, a summary of
significant accounting policies, other explanatory notes and the directors’ declaration for both the Corporation and
the Consolidated Entity. The Consolidated Entity comprises the Corporation and the entities it controlled at year’s
end or from time to time during the financial year.
Directors' responsibility for the financial report
The directors of the Corporation are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that is free from
material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance
whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the
risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial report in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
(a) the financial report of Westpac Banking Corporation is in accordance with the Corporations Act 2001,
(i) giving a true and fair view of the Corporation's and Consolidated Entity's financial position as at 30
September 2015 and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
opinions.
Independence
Auditor's opinion
In our opinion:
including:
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
250
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
251
3
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Westpac Banking Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements,
consolidated statements of comprehensive income, consolidated statements of changes in equity and
consolidated cash flow statements present fairly, in all material respects, the financial position of Westpac
Banking Corporation (the ‘Corporation’) and its subsidiaries at 30 September 2015 and 30 September 2014, and
the results of their operations and their cash flows for each of the three years in the period ended
30 September 2015 in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board. Also in our opinion, the Corporation maintained, in all material respects, effective
internal control over financial reporting as of 30 September 2015, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Corporation's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included under the heading ‘Management’s Report on Internal Control
over Financial Reporting’ in the accompanying financial statements. Our responsibility is to express opinions on
these financial statements and on the Corporation's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and International Standards on Auditing. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
Our audit of the consolidated financial statements of the Corporation and its subsidiaries was conducted for the
purpose of forming an opinion on the consolidated financial statements taken as a whole. The Corporation has
included parent entity only information on the face of the consolidated financial statements and other parent
entity only disclosures in the notes to the financial statements. Such parent entity only information is presented
for purposes of additional analysis and is not a required part of the consolidated financial statements presented
in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board. Such information has been subjected to the auditing procedures applied in the audit of the
consolidated financial statements, and, in our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Statutory statements
are being made only in accordance with authorizations of management and directors of the company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PricewaterhouseCoopers
Sydney, Australia
2 November 2015
Limitation on Independent Registered Public Accounting Firm’s Liability
The liability of PricewaterhouseCoopers (an Australian partnership which we refer to as PwC Australia), with respect to claims
arising out of its audit report included in this Annual Report, is subject to the limitations set forth in the Professional Standards
Act 1994 of New South Wales, Australia, as amended (the Professional Standards Act) and The Institute of Chartered
Accountants in Australia (NSW) Scheme adopted by The Institute of Chartered Accountants in Australia (ICAA) on 8 October
2014 and approved by the New South Wales Professional Standards Council pursuant to the Professional Standards Act (the
NSW Accountants Scheme). For matters occurring on or prior to 8 October 2014, the liability of PwC Australia may be subject
to the limitations set forth in predecessor schemes. The current NSW Accountants Scheme expires on 8 October 2019 unless
further extended or replaced.
The Professional Standards Act and the NSW Accountants Scheme may limit the liability of PwC Australia for damages with
respect to certain civil claims arising in, or governed by the laws of, New South Wales directly or vicariously from anything done
or omitted to be done in the performance of its professional services for us, including, without limitation, its audits of our
financial statements. The extent of the limitation depends on the timing of the relevant matter and is:
in relation to matters occurring on or after 8 October 2013, a maximum liability for audit work of A$75 million; or
in relation to matters occurring on or prior to 7 October 2013, the lesser of (in the case of audit services) ten times the
reasonable charge for the service provided and a maximum liability for audit work of A$75 million; or
in relation to matters occurring on or prior to 7 October 2007, the lesser of (in the case of audit services) ten times the
reasonable charge for the service provided and a maximum liability (in the case of audit work) of A$20 million.
The limitations do not apply to claims for breach of trust, fraud or dishonesty.
In addition, there is equivalent professional standards legislation in place in other states and territories in Australia and
amendments have been made to a number of Australian federal statutes to limit liability under those statutes to the same extent
as liability is limited under state and territory laws by professional standards legislation. Accordingly, liability for acts or
omissions by PwC Australia in Australian states or territories other than New South Wales may be limited in a manner similar to
that in New South Wales. These limitations of liability may limit recovery upon the enforcement in Australian courts of any
judgment under US or other foreign laws rendered against PwC Australia based on or related to its audit report on our financial
statements. Substantially all of PwC Australia's assets are located in Australia. However, the Professional Standards Act and
the NSW Accountants Scheme have not been subject to judicial consideration and therefore how the limitation might be applied
by the courts and the effect of the limitation on the enforcement of foreign judgments are untested.
252
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
253
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Westpac Banking Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements,
consolidated statements of comprehensive income, consolidated statements of changes in equity and
consolidated cash flow statements present fairly, in all material respects, the financial position of Westpac
Banking Corporation (the ‘Corporation’) and its subsidiaries at 30 September 2015 and 30 September 2014, and
the results of their operations and their cash flows for each of the three years in the period ended
30 September 2015 in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board. Also in our opinion, the Corporation maintained, in all material respects, effective
internal control over financial reporting as of 30 September 2015, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Corporation's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included under the heading ‘Management’s Report on Internal Control
over Financial Reporting’ in the accompanying financial statements. Our responsibility is to express opinions on
these financial statements and on the Corporation's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and International Standards on Auditing. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
Our audit of the consolidated financial statements of the Corporation and its subsidiaries was conducted for the
purpose of forming an opinion on the consolidated financial statements taken as a whole. The Corporation has
included parent entity only information on the face of the consolidated financial statements and other parent
entity only disclosures in the notes to the financial statements. Such parent entity only information is presented
for purposes of additional analysis and is not a required part of the consolidated financial statements presented
in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board. Such information has been subjected to the auditing procedures applied in the audit of the
consolidated financial statements, and, in our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Statutory statements
are being made only in accordance with authorizations of management and directors of the company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PricewaterhouseCoopers
Sydney, Australia
2 November 2015
Limitation on Independent Registered Public Accounting Firm’s Liability
The liability of PricewaterhouseCoopers (an Australian partnership which we refer to as PwC Australia), with respect to claims
arising out of its audit report included in this Annual Report, is subject to the limitations set forth in the Professional Standards
Act 1994 of New South Wales, Australia, as amended (the Professional Standards Act) and The Institute of Chartered
Accountants in Australia (NSW) Scheme adopted by The Institute of Chartered Accountants in Australia (ICAA) on 8 October
2014 and approved by the New South Wales Professional Standards Council pursuant to the Professional Standards Act (the
NSW Accountants Scheme). For matters occurring on or prior to 8 October 2014, the liability of PwC Australia may be subject
to the limitations set forth in predecessor schemes. The current NSW Accountants Scheme expires on 8 October 2019 unless
further extended or replaced.
The Professional Standards Act and the NSW Accountants Scheme may limit the liability of PwC Australia for damages with
respect to certain civil claims arising in, or governed by the laws of, New South Wales directly or vicariously from anything done
or omitted to be done in the performance of its professional services for us, including, without limitation, its audits of our
financial statements. The extent of the limitation depends on the timing of the relevant matter and is:
in relation to matters occurring on or after 8 October 2013, a maximum liability for audit work of A$75 million; or
in relation to matters occurring on or prior to 7 October 2013, the lesser of (in the case of audit services) ten times the
reasonable charge for the service provided and a maximum liability for audit work of A$75 million; or
in relation to matters occurring on or prior to 7 October 2007, the lesser of (in the case of audit services) ten times the
reasonable charge for the service provided and a maximum liability (in the case of audit work) of A$20 million.
The limitations do not apply to claims for breach of trust, fraud or dishonesty.
In addition, there is equivalent professional standards legislation in place in other states and territories in Australia and
amendments have been made to a number of Australian federal statutes to limit liability under those statutes to the same extent
as liability is limited under state and territory laws by professional standards legislation. Accordingly, liability for acts or
omissions by PwC Australia in Australian states or territories other than New South Wales may be limited in a manner similar to
that in New South Wales. These limitations of liability may limit recovery upon the enforcement in Australian courts of any
judgment under US or other foreign laws rendered against PwC Australia based on or related to its audit report on our financial
statements. Substantially all of PwC Australia's assets are located in Australia. However, the Professional Standards Act and
the NSW Accountants Scheme have not been subject to judicial consideration and therefore how the limitation might be applied
by the courts and the effect of the limitation on the enforcement of foreign judgments are untested.
252
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2015 Westpac Group Annual Report
253
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Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations and defined terms
Contact us
254
2015 Westpac Group Annual Report
This page is intentionally left blank
Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations and defined terms
Contact us
254
2015 Westpac Group Annual Report
4
Shareholding information
Westpac ordinary shares
Top 20 ordinary shareholders as at 2 October 2015
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited
AMP Life Limited
Australian Foundation Investment Company Limited
UBS Wealth Management Australia Nominees Pty Ltd
Bond Street Custodians Limited
Argo Investments Limited
Milton Corporation Limited
BNP Paribas
Navigator Australia Ltd
Questor Financial Services Limited
Nulis Nominees (Australia) Limited
Invia Custodian Pty Limited
Netwealth Investments Limited
ANZ Executors & Trustee Company
JMB Pty Ltd
Total of Top 20 registered shareholders
Number of
Fully Paid Ordinary Shares
577,884,330
358,040,748
312,571,318
192,467,775
70,328,517
37,906,118
21,142,289
17,135,000
12,894,086
12,097,288
10,653,569
10,451,306
9,277,263
7,543,706
5,468,023
4,793,797
4,255,481
2,956,951
2,951,148
2,676,208
1,673,494,921
% Held
18.15
11.25
9.82
6.05
2.21
1.19
0.66
0.54
0.40
0.38
0.33
0.33
0.29
0.24
0.17
0.15
0.13
0.09
0.09
0.08
52.56
As at 2 October 2015 there were 615,493 holders of our ordinary shares compared to 595,907 in 2014 and 579,695 in 2013.
Ordinary shareholders with a registered address in Australia held approximately 98% of our fully paid share capital at
2 October 2015 (approximately 98% in 2014 and 98% in 2013).
Substantial shareholders as at 2 October 2015
As at 2 October 2015 there were no shareholders who had a ‘substantial holding’ of our shares within the meaning of the
Corporations Act. A person has a substantial holding of our shares if the total votes attached to our voting shares in which they
or their associates have relevant interests is 5% or more of the total number of votes attached to all our voting shares. The
above table of the Top 20 ordinary shareholders includes shareholders that may hold shares for the benefit of third parties.
Significant changes in ordinary share ownership of substantial shareholders
There have been no significant changes in ordinary share ownership of substantial shareholders during the full year ended 30
September 2015.
Control of registrant
We are not directly or indirectly owned or controlled by any other corporation(s) or by any foreign government. Refer to the
section ‘Exchange controls and other limitations affecting security holders’, which provides information on the Foreign
Acquisitions and Takeovers Act 1975, Corporations Act 2001 and Financial Sector (Shareholdings) Act 1998, which impose
limits on equity holdings.
At 30 September 2015, our Directors and Executive Officers owned beneficially, directly or indirectly, an aggregate of
1,065,879 (0.0335%) of the fully paid ordinary shares outstanding.
256
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
There were nine security holders holding less than a marketable parcel ($500) of Westpac CPS based on a market price of
$97.85 at the close of trading on 2 October 2015.
Shareholding information
Analysis by range of holdings of ordinary shares as at 2 October 2015
Number of Shares
%
Ordinary Shares
Number of Holders
of Fully Paid
Ordinary Shares
346,829
207,919
36,413
23,689
643
615,493
56.35
33.78
5.92
3.85
0.10
100.00
Number of
Fully Paid
141,421,520
475,688,809
256,130,946
498,689,229
1,811,977,282
3,183,907,786
%
4.44
14.94
8.04
15.66
56.91
100.00
Number of Holders
of Share Options
and Rights
14
75
19
99
53
260
There were 11,218 shareholders holding less than a marketable parcel ($500) based on a market price of $29.75 at the close
–
–
–
–
1,000
5,000
10,000
100,000
1
1,001
5,001
10,001
Totals
100,001 and over
of trading on 2 October 2015.
Voting rights of ordinary shares
Holders of our fully paid ordinary shares have, at general meetings (including special general meetings), one vote on a show of
hands and, upon a poll, one vote for each fully paid ordinary share held by them.
Westpac Convertible Preference Shares (Westpac CPS)
Top 20 holders of Westpac CPS as at 2 October 2015
Number of
Westpac CPS
% Held
UBS Wealth Management Australia
HSBC Custody Nominees
BT Portfolio Services Limited
Navigator Australia Limited
Questor Financial Services Limited
Nulis Nominees (Australia) Limited
National Nominees Limited
Netwealth Investments Limited
Avanteos Investments Limited
J P Morgan Nominees Australia Ltd
Austrust Limited
Dimbulu Pty Ltd
Mrs Linda Anne van Lieshout
RBC Dexia Investor Services Australia Nominees Pty Limited
Asgard Capital Management Ltd
Eastcote Pty Ltd
Finot Pty Ltd
JMB Pty Ltd
Randazzo C & G Developments Pty Ltd
Citicorp Nominees Pty Limited
Total of Top 20 registered holders
Analysis by range of holdings of Westpac CPS as at 2 October 2015
Number of Securities
–
–
–
–
1,000
5,000
10,000
100,000
1
1,001
5,001
10,001
Totals
100,001 and over
Number of Holders of
Westpac CPS
18,035
1,182
92
53
7
%
93.11
6.10
0.47
0.27
0.04
19,369
100.00
471,443
311,206
233,672
233,488
212,166
206,942
204,275
149,984
126,726
109,417
96,633
70,000
60,000
50,845
50,000
50,000
50,000
50,000
50,000
46,779
Number of
Westpac CPS
5,402,137
2,578,428
718,085
1,504,200
1,690,755
11,893,605
3.96
2.62
1.96
1.96
1.78
1.74
1.72
1.26
1.07
0.92
0.81
0.59
0.50
0.43
0.42
0.42
0.42
0.42
0.42
0.39
%
45.42
21.68
6.04
12.65
14.22
100.00
257
2,833,576
23.82
–
–
–
–
1,000
5,000
10,000
100,000
Totals
615,493
100.00
3,183,907,786
100.00
Number of Shares
1
1,001
5,001
10,001
100,001 and over
Number of Holders
of Share Options
and Rights
14
75
19
99
53
260
Analysis by range of holdings of ordinary shares as at 2 October 2015
Shareholding information
Number of Holders
of Fully Paid
Ordinary Shares
346,829
207,919
36,413
23,689
643
%
56.35
33.78
5.92
3.85
0.10
Number of
Fully Paid
Ordinary Shares
141,421,520
475,688,809
256,130,946
498,689,229
1,811,977,282
%
4.44
14.94
8.04
15.66
56.91
Shareholding information
Westpac ordinary shares
Top 20 ordinary shareholders as at 2 October 2015
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited
AMP Life Limited
Australian Foundation Investment Company Limited
UBS Wealth Management Australia Nominees Pty Ltd
Bond Street Custodians Limited
Argo Investments Limited
Milton Corporation Limited
BNP Paribas
Navigator Australia Ltd
Questor Financial Services Limited
Nulis Nominees (Australia) Limited
Invia Custodian Pty Limited
Netwealth Investments Limited
ANZ Executors & Trustee Company
JMB Pty Ltd
Fully Paid Ordinary Shares
Number of
577,884,330
358,040,748
312,571,318
192,467,775
70,328,517
37,906,118
21,142,289
17,135,000
12,894,086
12,097,288
10,653,569
10,451,306
9,277,263
7,543,706
5,468,023
4,793,797
4,255,481
2,956,951
2,951,148
2,676,208
% Held
18.15
11.25
9.82
6.05
2.21
1.19
0.66
0.54
0.40
0.38
0.33
0.33
0.29
0.24
0.17
0.15
0.13
0.09
0.09
0.08
Total of Top 20 registered shareholders
1,673,494,921
52.56
As at 2 October 2015 there were 615,493 holders of our ordinary shares compared to 595,907 in 2014 and 579,695 in 2013.
Ordinary shareholders with a registered address in Australia held approximately 98% of our fully paid share capital at
2 October 2015 (approximately 98% in 2014 and 98% in 2013).
Substantial shareholders as at 2 October 2015
As at 2 October 2015 there were no shareholders who had a ‘substantial holding’ of our shares within the meaning of the
Corporations Act. A person has a substantial holding of our shares if the total votes attached to our voting shares in which they
or their associates have relevant interests is 5% or more of the total number of votes attached to all our voting shares. The
above table of the Top 20 ordinary shareholders includes shareholders that may hold shares for the benefit of third parties.
Significant changes in ordinary share ownership of substantial shareholders
There have been no significant changes in ordinary share ownership of substantial shareholders during the full year ended 30
September 2015.
Control of registrant
limits on equity holdings.
We are not directly or indirectly owned or controlled by any other corporation(s) or by any foreign government. Refer to the
section ‘Exchange controls and other limitations affecting security holders’, which provides information on the Foreign
Acquisitions and Takeovers Act 1975, Corporations Act 2001 and Financial Sector (Shareholdings) Act 1998, which impose
At 30 September 2015, our Directors and Executive Officers owned beneficially, directly or indirectly, an aggregate of
1,065,879 (0.0335%) of the fully paid ordinary shares outstanding.
There were 11,218 shareholders holding less than a marketable parcel ($500) based on a market price of $29.75 at the close
of trading on 2 October 2015.
Voting rights of ordinary shares
Holders of our fully paid ordinary shares have, at general meetings (including special general meetings), one vote on a show of
hands and, upon a poll, one vote for each fully paid ordinary share held by them.
Westpac Convertible Preference Shares (Westpac CPS)
Top 20 holders of Westpac CPS as at 2 October 2015
UBS Wealth Management Australia
HSBC Custody Nominees
BT Portfolio Services Limited
Navigator Australia Limited
Questor Financial Services Limited
Nulis Nominees (Australia) Limited
National Nominees Limited
Netwealth Investments Limited
Avanteos Investments Limited
J P Morgan Nominees Australia Ltd
Austrust Limited
Dimbulu Pty Ltd
Mrs Linda Anne van Lieshout
RBC Dexia Investor Services Australia Nominees Pty Limited
Asgard Capital Management Ltd
Eastcote Pty Ltd
Finot Pty Ltd
JMB Pty Ltd
Randazzo C & G Developments Pty Ltd
Citicorp Nominees Pty Limited
Total of Top 20 registered holders
Analysis by range of holdings of Westpac CPS as at 2 October 2015
Number of Securities
–
1
1,000
1,001
5,001
10,001
–
–
–
5,000
10,000
100,000
100,001 and over
Totals
Number of Holders of
Westpac CPS
18,035
1,182
92
53
7
%
93.11
6.10
0.47
0.27
0.04
19,369
100.00
Number of
Westpac CPS
471,443
% Held
3.96
311,206
233,672
233,488
212,166
206,942
204,275
149,984
126,726
109,417
96,633
70,000
60,000
50,845
50,000
50,000
50,000
50,000
50,000
46,779
2,833,576
Number of
Westpac CPS
5,402,137
2,578,428
718,085
1,504,200
1,690,755
11,893,605
2.62
1.96
1.96
1.78
1.74
1.72
1.26
1.07
0.92
0.81
0.59
0.50
0.43
0.42
0.42
0.42
0.42
0.42
0.39
23.82
%
45.42
21.68
6.04
12.65
14.22
100.00
256
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
257
There were nine security holders holding less than a marketable parcel ($500) of Westpac CPS based on a market price of
$97.85 at the close of trading on 2 October 2015.
4
Westpac Capital Notes
Top 20 holders of Westpac Capital Notes as at 2 October 2015
Westpac Capital Notes 2
Top 20 holders of Westpac Capital Notes 2 as at 2 October 2015
UBS Wealth Management Australia
HSBC Custody Nominees
BT Portfolio Services Limited
National Nominees Limited
J P Morgan Nominees Australia Ltd
Citicorp Nominees Pty Limited
Pejr Pty Ltd
Questor Financial Services Limited
Austrust Limited
Tandom Pty Ltd
Williambury Pty Ltd
V S Access Pty Ltd
Netwealth Investments Limited
Cogent Nominees Pty Limited
Navigator Australia Limited
Nulis Nominees (Australia) Limited
Bond Street Custodians Limited
Northern Metropolitan Cemeteries
Royal Freemasons Benevolent Institution
Mr Alexander Shaw
Total of Top 20 registered holders
Analysis by range of holdings of Westpac Capital Notes as at 2 October 2015
Number of Securities
–
1
1,000
1,001
5,001
10,001
–
–
–
5,000
10,000
100,000
100,001 and over
Totals
Number of Holders of
Westpac Capital Notes
16,729
1,607
117
60
9
%
90.32
8.68
0.63
0.32
0.05
18,522
100.00
Number of
Westpac Capital Notes
5,535,181
3,475,299
953,564
1,809,276
2,062,370
13,835,690
Number of
Westpac Capital Notes
610,038
% Held
4.41
315,508
246,417
217,696
208,890
189,989
184,462
137,143
125,101
100,000
100,000
90,000
75,761
74,350
71,638
59,573
52,874
50,000
50,000
50,000
3,009,440
2.28
1.78
1.57
1.51
1.37
1.33
0.99
0.90
0.72
0.72
0.65
0.55
0.54
0.52
0.43
0.38
0.36
0.36
0.36
21.75
%
40.01
25.12
6.89
13.08
14.91
100.00
BT Portfolio Services Limited
Pejr Pty Ltd
HSBC Custody Nominees (Australia) Limited
UBS Wealth Management Australia Nominees Pty Ltd
National Nominees Limited
Navigator Australia Limited
Invia Custodian Pty Limited
Nulis Nominees (Australia) Limited
Questor Financial Services Limited
Netwealth Investments Limited
Mrs Eva Maria Lederer
Paul Lederer Pty Ltd
Bond Street Custodians Limited
Pershing Australia Nominees Pty Ltd
J P Morgan Nominees Australia Ltd
Rakio Pty Ltd
Alsop Pty Ltd
Dimbulu Pty Ltd
Bayswater Car Rental Pty Ltd
Domer Mining Co P/L
Ms Sarah Louise Haddrick
Royal Freemasons Benevolent Institution
Randazzo C & G Developments Pty Ltd
Total of Top 20 registered holders
2,920,631
22.29
Analysis by range of holdings of Westpac Capital Notes 2 as at 2 October 2015
Number of Securities
Westpac Capital Notes 2
%
Westpac Capital Notes 2
Number of Holders of
–
–
–
–
1,000
5,000
10,000
100,000
1
1,001
5,001
10,001
Totals
100,001 and over
14,451
88.88
1,593
127
81
7
9.80
0.78
0.50
0.04
16,259
100.00
There were four security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 2 based on a market
price of $90.00 at the close of trading on 2 October 2015.
Shareholding information
Number of
Westpac Capital Notes 2
% Held
448,226
352,774
277,652
212,001
190,287
140,957
129,386
124,850
111,429
109,532
100,000
90,540
73,198
71,429
64,370
63,000
60,000
51,000
50,000
50,000
50,000
50,000
50,000
Number of
4,856,514
3,528,507
993,363
2,194,518
1,532,803
13,105,705
3.42
2.69
2.12
1.62
1.45
1.08
0.99
0.95
0.85
0.84
0.76
0.69
0.56
0.55
0.49
0.48
0.46
0.39
0.38
0.38
0.38
0.38
0.38
%
37.06
26.92
7.58
16.74
11.70
100.00
There were six security holders holding less than a marketable parcel ($500) of Westpac Capital Notes based on a market
price of $96.20 at the close of trading on 2 October 2015.
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Shareholding information
Number of
Westpac Capital Notes 2
448,226
% Held
3.42
Westpac Capital Notes
Top 20 holders of Westpac Capital Notes as at 2 October 2015
Westpac Capital Notes 2
Top 20 holders of Westpac Capital Notes 2 as at 2 October 2015
Number of
Westpac Capital Notes
% Held
BT Portfolio Services Limited
Pejr Pty Ltd
HSBC Custody Nominees (Australia) Limited
UBS Wealth Management Australia Nominees Pty Ltd
National Nominees Limited
Navigator Australia Limited
Invia Custodian Pty Limited
Nulis Nominees (Australia) Limited
Questor Financial Services Limited
Netwealth Investments Limited
Mrs Eva Maria Lederer
Paul Lederer Pty Ltd
Bond Street Custodians Limited
Pershing Australia Nominees Pty Ltd
J P Morgan Nominees Australia Ltd
Rakio Pty Ltd
Alsop Pty Ltd
Dimbulu Pty Ltd
Bayswater Car Rental Pty Ltd
Domer Mining Co P/L
Ms Sarah Louise Haddrick
Royal Freemasons Benevolent Institution
Randazzo C & G Developments Pty Ltd
Total of Top 20 registered holders
UBS Wealth Management Australia
HSBC Custody Nominees
BT Portfolio Services Limited
National Nominees Limited
J P Morgan Nominees Australia Ltd
Citicorp Nominees Pty Limited
Pejr Pty Ltd
Questor Financial Services Limited
Austrust Limited
Tandom Pty Ltd
Williambury Pty Ltd
V S Access Pty Ltd
Netwealth Investments Limited
Cogent Nominees Pty Limited
Navigator Australia Limited
Nulis Nominees (Australia) Limited
Bond Street Custodians Limited
Northern Metropolitan Cemeteries
Royal Freemasons Benevolent Institution
Mr Alexander Shaw
Total of Top 20 registered holders
Number of Securities
–
–
–
–
1,000
5,000
10,000
100,000
1
1,001
5,001
10,001
Totals
100,001 and over
Analysis by range of holdings of Westpac Capital Notes as at 2 October 2015
Number of Holders of
Westpac Capital Notes
Westpac Capital Notes
3,009,440
21.75
16,729
1,607
117
60
9
%
90.32
8.68
0.63
0.32
0.05
18,522
100.00
There were six security holders holding less than a marketable parcel ($500) of Westpac Capital Notes based on a market
price of $96.20 at the close of trading on 2 October 2015.
610,038
315,508
246,417
217,696
208,890
189,989
184,462
137,143
125,101
100,000
100,000
90,000
75,761
74,350
71,638
59,573
52,874
50,000
50,000
50,000
Number of
5,535,181
3,475,299
953,564
1,809,276
2,062,370
13,835,690
4.41
2.28
1.78
1.57
1.51
1.37
1.33
0.99
0.90
0.72
0.72
0.65
0.55
0.54
0.52
0.43
0.38
0.36
0.36
0.36
%
40.01
25.12
6.89
13.08
14.91
100.00
Analysis by range of holdings of Westpac Capital Notes 2 as at 2 October 2015
Number of Securities
–
1
1,000
1,001
5,001
10,001
–
–
–
5,000
10,000
100,000
100,001 and over
Totals
Number of Holders of
Westpac Capital Notes 2
14,451
1,593
127
81
7
%
88.88
9.80
0.78
0.50
0.04
16,259
100.00
Number of
Westpac Capital Notes 2
4,856,514
3,528,507
993,363
2,194,518
1,532,803
13,105,705
352,774
277,652
212,001
190,287
140,957
129,386
124,850
111,429
109,532
100,000
90,540
73,198
71,429
64,370
63,000
60,000
51,000
50,000
50,000
50,000
50,000
50,000
2,920,631
2.69
2.12
1.62
1.45
1.08
0.99
0.95
0.85
0.84
0.76
0.69
0.56
0.55
0.49
0.48
0.46
0.39
0.38
0.38
0.38
0.38
0.38
22.29
%
37.06
26.92
7.58
16.74
11.70
100.00
There were four security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 2 based on a market
price of $90.00 at the close of trading on 2 October 2015.
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4
Number of
Westpac Capital Notes 3
% Held
Voting rights of Westpac CPS, Westpac Capital Notes,
Exchange controls and other limitations affecting
Westpac Capital Notes 2 and Westpac Capital Notes 3
security holders
Shareholding information
Westpac Capital Notes 3
Top 20 holders of Westpac Capital Notes 3 as at 2 October 2015
UBS Wealth Management Australia Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
JDB Services Pty Ltd
Navigator Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Invia Custodian Pty Limited
Nulis Nominees (Australia) Limited
Balanced Property Pty Ltd
Tandom Pty Ltd
Netwealth Investments Limited
V S Access Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Limited
Bob Spargo Investments Pty Ltd
Barob Pty Limited
Dimbulu Pty Ltd
JMB Pty Ltd
KMJ Pty Ltd
Randazzo C & G Developments Pty Ltd
The Walter and Eliza Hall Institute of Medical Research
Total of Top 20 registered holders
Analysis by range of holdings of Westpac Capital Notes 3 as at 2 October 2015
Number of Securities
1
–
1,001
–
5,001
–
10,001
–
100,001 and over
Totals
1,000
5,000
10,000
100,000
Number of Holders of
Westpac Capital Notes 3
11,886
1,437
128
91
7
13,549
%
87.73
10.61
0.94
0.67
0.05
100.00
Number of
Westpac Capital Notes 3
4,290,941
3,416,888
1,098,461
2,480,816
1,957,174
13,244,280
698,826
382,898
272,000
209,070
174,701
148,528
126,430
109,540
100,000
100,000
72,075
60,000
55,683
51,670
50,000
50,000
50,000
50,000
50,000
50,000
2,861,421
5.28
2.89
2.05
1.58
1.32
1.12
0.95
0.83
0.76
0.76
0.54
0.45
0.42
0.39
0.38
0.38
0.38
0.38
0.38
0.38
21.60
%
32.40
25.80
8.29
18.73
14.78
100.00
There was one security holder holding less than a marketable parcel ($500) of Westpac Capital Notes 3 based on a market
price of $97.80 at the close of trading on 2 October 2015.
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261
In accordance with the terms of issue, holders of Westpac
CPS have no right to vote at any general meeting of
Westpac except in the following circumstances:
a. on a proposal:
– to reduce the share capital of Westpac;
– that affects rights attached to Westpac CPS;
– to wind up Westpac; or
– for the disposal of the whole of the property, business
and undertaking of Westpac;
b. on a resolution to approve the terms of a share buy back
agreement, other than a buy back agreement relating to
Westpac CPS;
c. during a period in which a dividend (or part of a
dividend) in respect of Westpac CPS is in arrears; or
d. during the winding up of Westpac.
When entitled to vote at a general meeting of Westpac in
respect of the matters listed above, holders of Westpac CPS
are entitled to exercise one vote on a show of hands and
one vote for each Westpac CPS held on a poll.
Holders of Westpac CPS have the same rights as the
holders of Westpac’s ordinary shares in relation to receiving
notices, reports and financial statements, and attending and
being heard at all general meetings of Westpac.
In accordance with the terms of issue, holders of Westpac
Capital Notes, Westpac Capital Notes 2 and Westpac
Capital Notes 3 have no right to vote at any general meeting
of Westpac before conversion into Westpac ordinary shares.
If conversion occurs (in accordance with the applicable
terms of issue), holders of Westpac CPS, Westpac Capital
Notes, Westpac Capital Notes 2 or Westpac Capital Notes 3
(as applicable) will become holders of Westpac ordinary
shares and have the voting rights that attach to Westpac
ordinary shares.
Australian exchange controls
Australian laws control and regulate or permit the control
and regulation of a broad range of payments and
transactions involving non-residents of Australia. Pursuant to
a number of exemptions, authorities and approvals, there
are no general restrictions from transferring funds from
Australia or placing funds to the credit of non-residents of
Australia. However, Australian foreign exchange controls are
implemented from time to time against prescribed countries,
entities and persons. At the present time, these include:
a. withholding taxes in relation to remittances or dividends
(to the extent they are unfranked) and
interest payments;
b.
the financial sanctions administered by the Department
of Foreign Affairs and Trade (DFAT) in accordance with
the Autonomous Sanctions Act 2011 and the
Autonomous Sanctions Regulations 2011, specifically,
in relation to transactions involving the transfer of funds
or payments to, by the order of, or on behalf of:
– supporters of the former Federal Republic of
Yugoslavia (the Milosevic regime) and certain
persons indicted within the jurisdiction of the
International Criminal Tribunal for the former
Yugoslavia;
– persons or entities engaged in activities that seriously
undermine democracy, respect for human rights and
the rule of law in Zimbabwe;
– certain entities and individuals associated with the
Democratic People’s Republic of Korea;
– persons or entities that have contributed to or are
contributing to Iran’s nuclear or missile program;
– certain individuals and entities associated with the
former Qadhafi regime in Libya;
– certain individuals and entities associated with the
– certain individuals and entities supporting the Syrian
Myanmar military;
regime; and
– persons who have been instrumental in the threat to
the sovereignty and territorial integrity of Ukraine,
without the prior approval of the Minister for
Foreign Affairs.
c.
the United Nations Security Council (UNSC) financial
sanctions administered by DFAT including:
– Terrorist Asset Freezing Regime
In accordance with the Charter of the United Nations
Act 1945 and the Charter of the United Nations
(Dealings with Assets) Regulations 2008, a person is
prohibited from using or dealing with funds, financial
assets or economic resources of persons or entities
listed as terrorists by the Minister for Foreign Affairs
in the Commonwealth of Australia Gazette. It is also
a criminal offence to make assets available to such
persons or entities; and
Westpac Capital Notes 3
Top 20 holders of Westpac Capital Notes 3 as at 2 October 2015
UBS Wealth Management Australia Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Number of
Westpac Capital Notes 3
% Held
JDB Services Pty Ltd
Navigator Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Invia Custodian Pty Limited
Nulis Nominees (Australia) Limited
Balanced Property Pty Ltd
Tandom Pty Ltd
Netwealth Investments Limited
V S Access Pty Ltd
Barob Pty Limited
Dimbulu Pty Ltd
JMB Pty Ltd
KMJ Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Limited
Bob Spargo Investments Pty Ltd
Randazzo C & G Developments Pty Ltd
The Walter and Eliza Hall Institute of Medical Research
Total of Top 20 registered holders
Analysis by range of holdings of Westpac Capital Notes 3 as at 2 October 2015
2,861,421
21.60
Number of Holders of
Westpac Capital Notes 3
Westpac Capital Notes 3
Number of Securities
–
–
–
–
1,000
5,000
10,000
100,000
1
1,001
5,001
10,001
Totals
100,001 and over
11,886
1,437
128
91
7
%
87.73
10.61
0.94
0.67
0.05
13,549
100.00
There was one security holder holding less than a marketable parcel ($500) of Westpac Capital Notes 3 based on a market
price of $97.80 at the close of trading on 2 October 2015.
698,826
382,898
272,000
209,070
174,701
148,528
126,430
109,540
100,000
100,000
72,075
60,000
55,683
51,670
50,000
50,000
50,000
50,000
50,000
50,000
Number of
4,290,941
3,416,888
1,098,461
2,480,816
1,957,174
13,244,280
5.28
2.89
2.05
1.58
1.32
1.12
0.95
0.83
0.76
0.76
0.54
0.45
0.42
0.39
0.38
0.38
0.38
0.38
0.38
0.38
%
32.40
25.80
8.29
18.73
14.78
100.00
Shareholding information
Voting rights of Westpac CPS, Westpac Capital Notes,
Westpac Capital Notes 2 and Westpac Capital Notes 3
In accordance with the terms of issue, holders of Westpac
CPS have no right to vote at any general meeting of
Westpac except in the following circumstances:
a. on a proposal:
– to reduce the share capital of Westpac;
– that affects rights attached to Westpac CPS;
– to wind up Westpac; or
– for the disposal of the whole of the property, business
and undertaking of Westpac;
b. on a resolution to approve the terms of a share buy back
agreement, other than a buy back agreement relating to
Westpac CPS;
Exchange controls and other limitations affecting
security holders
Australian exchange controls
Australian laws control and regulate or permit the control
and regulation of a broad range of payments and
transactions involving non-residents of Australia. Pursuant to
a number of exemptions, authorities and approvals, there
are no general restrictions from transferring funds from
Australia or placing funds to the credit of non-residents of
Australia. However, Australian foreign exchange controls are
implemented from time to time against prescribed countries,
entities and persons. At the present time, these include:
a. withholding taxes in relation to remittances or dividends
(to the extent they are unfranked) and
interest payments;
c. during a period in which a dividend (or part of a
dividend) in respect of Westpac CPS is in arrears; or
b.
d. during the winding up of Westpac.
When entitled to vote at a general meeting of Westpac in
respect of the matters listed above, holders of Westpac CPS
are entitled to exercise one vote on a show of hands and
one vote for each Westpac CPS held on a poll.
Holders of Westpac CPS have the same rights as the
holders of Westpac’s ordinary shares in relation to receiving
notices, reports and financial statements, and attending and
being heard at all general meetings of Westpac.
In accordance with the terms of issue, holders of Westpac
Capital Notes, Westpac Capital Notes 2 and Westpac
Capital Notes 3 have no right to vote at any general meeting
of Westpac before conversion into Westpac ordinary shares.
If conversion occurs (in accordance with the applicable
terms of issue), holders of Westpac CPS, Westpac Capital
Notes, Westpac Capital Notes 2 or Westpac Capital Notes 3
(as applicable) will become holders of Westpac ordinary
shares and have the voting rights that attach to Westpac
ordinary shares.
the financial sanctions administered by the Department
of Foreign Affairs and Trade (DFAT) in accordance with
the Autonomous Sanctions Act 2011 and the
Autonomous Sanctions Regulations 2011, specifically,
in relation to transactions involving the transfer of funds
or payments to, by the order of, or on behalf of:
– supporters of the former Federal Republic of
Yugoslavia (the Milosevic regime) and certain
persons indicted within the jurisdiction of the
International Criminal Tribunal for the former
Yugoslavia;
– persons or entities engaged in activities that seriously
undermine democracy, respect for human rights and
the rule of law in Zimbabwe;
– certain entities and individuals associated with the
Democratic People’s Republic of Korea;
– persons or entities that have contributed to or are
contributing to Iran’s nuclear or missile program;
– certain individuals and entities associated with the
former Qadhafi regime in Libya;
– certain individuals and entities associated with the
Myanmar military;
– certain individuals and entities supporting the Syrian
regime; and
– persons who have been instrumental in the threat to
the sovereignty and territorial integrity of Ukraine,
without the prior approval of the Minister for
Foreign Affairs.
c.
the United Nations Security Council (UNSC) financial
sanctions administered by DFAT including:
– Terrorist Asset Freezing Regime
In accordance with the Charter of the United Nations
Act 1945 and the Charter of the United Nations
(Dealings with Assets) Regulations 2008, a person is
prohibited from using or dealing with funds, financial
assets or economic resources of persons or entities
listed as terrorists by the Minister for Foreign Affairs
in the Commonwealth of Australia Gazette. It is also
a criminal offence to make assets available to such
persons or entities; and
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261
4
– Country-based sanctions
Under the Charter of the United Nations Act 1945
and associated regulations, UNSC financial sanctions
have been implemented. It is an offence to use or
deal with funds, financial assets or economic
resources of persons or entities associated with
certain countries designated by the UNSC. It is also a
criminal offence to make assets available to such
persons or entities.
Limitations affecting security holders
The following Australian laws impose limitations on the right
of non-residents or non-citizens of Australia to hold, own or
vote Westpac shares. All these limitations apply to the
holders of the American Depositary Receipts (ADRs)
evidencing ADS, issued by our Depositary in the
United States.
Foreign Acquisitions and Takeovers Act 1975
Acquisitions of interests in shares in Australian companies
by foreign interests are subject to review and approval by
the Treasurer of Australia under the Australian
Government’s foreign investment policy, and where
required, the Foreign Acquisitions and Takeovers Act 1975
(Cth). That legislation applies to any acquisition by a foreign
person, including a corporation or group of associated
foreign persons, which results in ownership of 15% or more
of the issued shares of an Australian company or the ability
to control 15% or more of the total voting power. In addition,
the legislation applies to any acquisition by a foreign person
that would result in non-associated foreign persons having,
together with any associate or associates of any of them, in
the aggregate, 40% or more of the total voting power or
ownership of an Australian company. The legislation
requires any persons proposing to make any such
acquisition to first notify the Treasurer of their intention to do
so. Where such an acquisition has already occurred, the
Treasurer has the power to order divestment.
Financial Sector (Shareholdings) Act 1998
The Financial Sector (Shareholdings) Act 1998 (Cth)
imposes restrictions on shareholdings in Australian financial
sector companies (which includes Westpac). Under that
legislation a person (including a corporation) may not hold
more than a 15% ‘stake’ in a financial sector company
without prior approval from the Treasurer of Australia. A
person’s stake in a financial sector company is equal to the
aggregate of the person’s voting power in the company and
the voting power of the person’s associates. The concept of
voting power is very broadly defined. The Treasurer may
approve a higher percentage stake if the Treasurer is
satisfied that it is in the national interest to do so.
In addition, even if a person’s stake in a financial sector
company does not exceed the 15% limit, the Treasurer has
the power to declare that a person has ‘practical control’ of a
financial sector company and require the person to
relinquish that control or reduce their stake in that company.
Corporations Act 2001
The Corporations Act 2001 (Cth) prohibits any person
(including a corporation) from acquiring a relevant interest in
our voting shares if, after the acquisition, that person or any
other person would be entitled to exercise more than 20% of
the voting power in our shares. The prohibition is subject to
certain limited exceptions. In addition, under the
Corporations Act, a person is required to give a notice to us
and to the ASX providing certain prescribed information,
including their name, address and details of their relevant
interests in our voting shares if they begin to have, or cease
to have, a substantial holding in us, or if they already have a
substantial holding and there is a movement of at least 1%
in their holding. Such notice must, generally, be provided
within two business days after the person becomes aware of
that information.
A person will have a substantial holding if the total votes
attached to our voting shares in which they or their
associates have relevant interests is 5% or more of the total
number of votes attached to all our voting shares. The
concepts of ‘associate’ and ‘relevant interest’ are broadly
defined in the Corporations Act and investors are advised to
seek their own advice on their scope. In general terms, a
person will have a relevant interest in a share if they:
a. are the holder of that share;
b. have power to exercise, or control the exercise of, a
right to vote attached to that share; or
c. have power to dispose of, or control the exercise of a
power to dispose of, that share.
It does not matter how remote the relevant interest is or how
it arises. If two or more persons can jointly exercise any one
of these powers, each of them is taken to have that power.
Nor does it matter that the power or control is express or
implied, formal or informal, exercisable either alone or jointly
with someone else.
The American Depositary Shares (ADSs) agreement
There is a Deposit Agreement between The Bank of New
York Mellon as Depositary, and us, and the record holders
from time to time of all ADSs. Holders of our ADSs are
subject to the foregoing limitations on the rights of non-
residents or non-citizens of Australia to own or vote Westpac
shares. Record holders of ADSs are required by the Deposit
Agreement to comply with our requests for information as to
the capacity in which such holders own ADSs and related
ordinary shares as well as to the identity of any other person
interested in such ADSs and related ordinary shares and the
nature of such interest.
Enforceability of foreign judgments in Australia
We are an Australian public corporation with limited liability.
All of our Directors and Executive Officers reside outside the
US. Substantially all or a substantial portion of the assets of
all or many of such persons are located outside the US. As a
result, it may not be possible for investors to effect service of
process within the US upon such persons or to enforce
against them judgments obtained in US courts predicated
upon the civil liability provisions of the federal securities laws
of the US. There may be doubt as to the enforceability in
Australia, in original actions or in actions for enforcement of
judgments of US courts, of civil liabilities predicated upon the
federal securities laws of the US.
Taxation
Australian taxation
The following discussion is a summary of certain Australian
taxation implications of the ownership and disposition of
ordinary shares (including ADS) for shareholders holding
their shares on capital account. This discussion is based on
the laws in force at the date of the Annual Report and the
are held and the extent to which the shareholder is ‘at risk’ in
Convention between the Government of Australia and the
relation to their shareholding.
Shareholding information
Taxation of dividends
Under the Australian dividend imputation system, Australian
indexation formula.
Government of the United States of America for the
Avoidance of Double Taxation and The Prevention of Fiscal
Evasion with respect to Taxes on Income (the Tax Treaty),
and is subject to any changes in Australian law and any
change in the Tax Treaty occurring after that date.
This discussion is intended only as a descriptive summary
and does not purport to be a complete analysis of all the
potential Australian tax implications of owning and disposing
of ordinary shares. The specific tax position of each investor
will determine the applicable Australian income tax
implications for that investor and we recommend that
investors consult their own tax advisers concerning the
implications of owning and disposing of ordinary shares.
tax paid at the company level is imputed (or allocated) to
shareholders by means of imputation credits which attach to
dividends paid by the company to the shareholder. Such
dividends are termed ‘franked dividends’.
When an Australian resident individual shareholder receives
a franked dividend, the shareholder receives a tax offset to
the extent of the franking credits, which can be offset against
the Australian income tax payable by the shareholder. An
Australian resident shareholder may, in certain
circumstances, be entitled to a refund of excess franking.
The extent to which a dividend is franked typically depends
upon a company’s available franking credits at the time of
payment of the dividend. Accordingly, a dividend paid to a
shareholder may be wholly or partly franked or
wholly unfranked.
Fully franked dividends paid to non-resident shareholders
are exempt from Australian dividend withholding tax.
Dividends paid to a non-resident shareholder which are not
fully franked are subject to dividend withholding tax at the
rate of 30% (unless reduced by a double tax treaty) to the
extent they are unfranked. In the case of residents of the US
who are entitled to the benefits of the Tax Treaty and are
beneficially entitled to the dividends, the rate is reduced to
15% under the Tax Treaty, provided the shares are not
effectively connected with a permanent establishment or a
fixed base of the non-resident in Australia through which the
non-resident carries on business in Australia or provides
independent personal services. In the case of residents of
the US that have a permanent establishment or fixed base in
Australia where the shares in respect of which the dividends
are paid are attributable to that permanent establishment or
fixed base, there is no dividend withholding tax. Rather, such
dividends will be taxed on a net assessment basis and,
where the dividends are franked, entitlement to a tax offset
may arise.
income tax.
Fully franked dividends paid to non-resident shareholders
and dividends that have been subject to dividend withholding
tax should not be subject to any further Australian
There are circumstances where a shareholder may not be
entitled to the benefit of franking credits. The application of
these rules depend upon the shareholder’s own
circumstances, including the period during which the shares
Gain or loss on disposition of shares
Generally, any profit made by a resident shareholder on
disposal of shares will be subject to capital gains tax.
However, if the shareholder is regarded as a trader or
speculator, or carries on a business of investing for profit,
any profits may be taxed as ordinary income.
A discount may be available on capital gains on shares held
for 12 months or more by individuals, trusts or complying
superannuation entities. The discount is one half for
individuals and trusts, and one third for complying
superannuation entities. Companies are not eligible for the
capital gains tax discount. For shares acquired prior to
21 September 1999, an alternative basis of calculation of the
capital gain may be available which allows the use of an
Normal rates of income tax would apply to capital gains so
calculated. Any capital loss can only be offset against capital
gains. Excess capital losses can be carried forward for offset
against future capital gains.
Generally, subject to two exceptions, a non-resident
disposing of shares in an Australian public company who
holds those shares on capital account will be free from
income tax in Australia. The main exceptions are:
shares held as part of a trade or business conducted
through a permanent establishment in Australia. In such a
case, any profit on disposal would be assessable to tax.
Losses may give rise to capital losses or be otherwise
deductible; and
shares held in public companies where the shareholder
and its associates have held at the time of disposal (or at
least 12 months in the 24 months prior to disposal) a
holding of 10% or more in the company and more than
50% of the company’s assets are represented by
interests in Australian real property (which is unlikely to
be the case for Westpac). In such a case, capital gains
tax would apply.
United States taxation
The following discussion is a summary of certain US federal
income tax implications of the ownership and disposition of
ordinary shares (including ADS) by US holders (as defined
below) that hold the ordinary shares as capital assets. This
discussion is based on the US Internal Revenue Code of
1986, as amended, its legislative history, existing and
proposed regulations, published rulings and court decisions,
and the Tax Treaty, all as currently in effect and all of which
are subject to change, possibly on a retroactive basis.
This discussion is intended only as a descriptive summary.
It does not purport to be a complete analysis of all the
potential US federal income tax consequences of owning
and disposing of ordinary shares and does not address
US federal income tax considerations that may be relevant
to US holders subject to special treatment under US federal
income tax law (such as banks, insurance companies, real
estate investment trusts, regulated investment companies,
dealers in securities, tax-exempt entities, retirement plans,
certain former citizens or residents of the US, persons
holding ordinary shares as part of a straddle, hedge,
conversion transaction or other integrated investment,
262
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– Country-based sanctions
Under the Charter of the United Nations Act 1945
Corporations Act, a person is required to give a notice to us
and to the ASX providing certain prescribed information,
and associated regulations, UNSC financial sanctions
including their name, address and details of their relevant
have been implemented. It is an offence to use or
deal with funds, financial assets or economic
resources of persons or entities associated with
interests in our voting shares if they begin to have, or cease
to have, a substantial holding in us, or if they already have a
substantial holding and there is a movement of at least 1%
certain countries designated by the UNSC. It is also a
in their holding. Such notice must, generally, be provided
criminal offence to make assets available to such
within two business days after the person becomes aware of
persons or entities.
that information.
Limitations affecting security holders
A person will have a substantial holding if the total votes
The following Australian laws impose limitations on the right
attached to our voting shares in which they or their
of non-residents or non-citizens of Australia to hold, own or
associates have relevant interests is 5% or more of the total
vote Westpac shares. All these limitations apply to the
holders of the American Depositary Receipts (ADRs)
evidencing ADS, issued by our Depositary in the
United States.
Foreign Acquisitions and Takeovers Act 1975
Acquisitions of interests in shares in Australian companies
by foreign interests are subject to review and approval by
the Treasurer of Australia under the Australian
Government’s foreign investment policy, and where
required, the Foreign Acquisitions and Takeovers Act 1975
(Cth). That legislation applies to any acquisition by a foreign
person, including a corporation or group of associated
foreign persons, which results in ownership of 15% or more
of the issued shares of an Australian company or the ability
to control 15% or more of the total voting power. In addition,
the legislation applies to any acquisition by a foreign person
that would result in non-associated foreign persons having,
together with any associate or associates of any of them, in
the aggregate, 40% or more of the total voting power or
ownership of an Australian company. The legislation
requires any persons proposing to make any such
acquisition to first notify the Treasurer of their intention to do
so. Where such an acquisition has already occurred, the
Treasurer has the power to order divestment.
Financial Sector (Shareholdings) Act 1998
The Financial Sector (Shareholdings) Act 1998 (Cth)
imposes restrictions on shareholdings in Australian financial
sector companies (which includes Westpac). Under that
legislation a person (including a corporation) may not hold
more than a 15% ‘stake’ in a financial sector company
without prior approval from the Treasurer of Australia. A
person’s stake in a financial sector company is equal to the
aggregate of the person’s voting power in the company and
the voting power of the person’s associates. The concept of
voting power is very broadly defined. The Treasurer may
approve a higher percentage stake if the Treasurer is
satisfied that it is in the national interest to do so.
In addition, even if a person’s stake in a financial sector
company does not exceed the 15% limit, the Treasurer has
the power to declare that a person has ‘practical control’ of a
financial sector company and require the person to
relinquish that control or reduce their stake in that company.
Corporations Act 2001
number of votes attached to all our voting shares. The
concepts of ‘associate’ and ‘relevant interest’ are broadly
defined in the Corporations Act and investors are advised to
seek their own advice on their scope. In general terms, a
person will have a relevant interest in a share if they:
a. are the holder of that share;
b. have power to exercise, or control the exercise of, a
right to vote attached to that share; or
c. have power to dispose of, or control the exercise of a
power to dispose of, that share.
It does not matter how remote the relevant interest is or how
it arises. If two or more persons can jointly exercise any one
of these powers, each of them is taken to have that power.
Nor does it matter that the power or control is express or
implied, formal or informal, exercisable either alone or jointly
with someone else.
The American Depositary Shares (ADSs) agreement
There is a Deposit Agreement between The Bank of New
York Mellon as Depositary, and us, and the record holders
from time to time of all ADSs. Holders of our ADSs are
subject to the foregoing limitations on the rights of non-
residents or non-citizens of Australia to own or vote Westpac
shares. Record holders of ADSs are required by the Deposit
Agreement to comply with our requests for information as to
the capacity in which such holders own ADSs and related
ordinary shares as well as to the identity of any other person
interested in such ADSs and related ordinary shares and the
nature of such interest.
Enforceability of foreign judgments in Australia
We are an Australian public corporation with limited liability.
All of our Directors and Executive Officers reside outside the
US. Substantially all or a substantial portion of the assets of
all or many of such persons are located outside the US. As a
result, it may not be possible for investors to effect service of
process within the US upon such persons or to enforce
against them judgments obtained in US courts predicated
upon the civil liability provisions of the federal securities laws
of the US. There may be doubt as to the enforceability in
Australia, in original actions or in actions for enforcement of
judgments of US courts, of civil liabilities predicated upon the
federal securities laws of the US.
The Corporations Act 2001 (Cth) prohibits any person
Taxation
(including a corporation) from acquiring a relevant interest in
our voting shares if, after the acquisition, that person or any
other person would be entitled to exercise more than 20% of
the voting power in our shares. The prohibition is subject to
certain limited exceptions. In addition, under the
Australian taxation
The following discussion is a summary of certain Australian
taxation implications of the ownership and disposition of
ordinary shares (including ADS) for shareholders holding
their shares on capital account. This discussion is based on
the laws in force at the date of the Annual Report and the
Convention between the Government of Australia and the
Government of the United States of America for the
Avoidance of Double Taxation and The Prevention of Fiscal
Evasion with respect to Taxes on Income (the Tax Treaty),
and is subject to any changes in Australian law and any
change in the Tax Treaty occurring after that date.
This discussion is intended only as a descriptive summary
and does not purport to be a complete analysis of all the
potential Australian tax implications of owning and disposing
of ordinary shares. The specific tax position of each investor
will determine the applicable Australian income tax
implications for that investor and we recommend that
investors consult their own tax advisers concerning the
implications of owning and disposing of ordinary shares.
Taxation of dividends
Under the Australian dividend imputation system, Australian
tax paid at the company level is imputed (or allocated) to
shareholders by means of imputation credits which attach to
dividends paid by the company to the shareholder. Such
dividends are termed ‘franked dividends’.
When an Australian resident individual shareholder receives
a franked dividend, the shareholder receives a tax offset to
the extent of the franking credits, which can be offset against
the Australian income tax payable by the shareholder. An
Australian resident shareholder may, in certain
circumstances, be entitled to a refund of excess franking.
The extent to which a dividend is franked typically depends
upon a company’s available franking credits at the time of
payment of the dividend. Accordingly, a dividend paid to a
shareholder may be wholly or partly franked or
wholly unfranked.
Fully franked dividends paid to non-resident shareholders
are exempt from Australian dividend withholding tax.
Dividends paid to a non-resident shareholder which are not
fully franked are subject to dividend withholding tax at the
rate of 30% (unless reduced by a double tax treaty) to the
extent they are unfranked. In the case of residents of the US
who are entitled to the benefits of the Tax Treaty and are
beneficially entitled to the dividends, the rate is reduced to
15% under the Tax Treaty, provided the shares are not
effectively connected with a permanent establishment or a
fixed base of the non-resident in Australia through which the
non-resident carries on business in Australia or provides
independent personal services. In the case of residents of
the US that have a permanent establishment or fixed base in
Australia where the shares in respect of which the dividends
are paid are attributable to that permanent establishment or
fixed base, there is no dividend withholding tax. Rather, such
dividends will be taxed on a net assessment basis and,
where the dividends are franked, entitlement to a tax offset
may arise.
Fully franked dividends paid to non-resident shareholders
and dividends that have been subject to dividend withholding
tax should not be subject to any further Australian
income tax.
There are circumstances where a shareholder may not be
entitled to the benefit of franking credits. The application of
these rules depend upon the shareholder’s own
circumstances, including the period during which the shares
Shareholding information
are held and the extent to which the shareholder is ‘at risk’ in
relation to their shareholding.
Gain or loss on disposition of shares
Generally, any profit made by a resident shareholder on
disposal of shares will be subject to capital gains tax.
However, if the shareholder is regarded as a trader or
speculator, or carries on a business of investing for profit,
any profits may be taxed as ordinary income.
A discount may be available on capital gains on shares held
for 12 months or more by individuals, trusts or complying
superannuation entities. The discount is one half for
individuals and trusts, and one third for complying
superannuation entities. Companies are not eligible for the
capital gains tax discount. For shares acquired prior to
21 September 1999, an alternative basis of calculation of the
capital gain may be available which allows the use of an
indexation formula.
Normal rates of income tax would apply to capital gains so
calculated. Any capital loss can only be offset against capital
gains. Excess capital losses can be carried forward for offset
against future capital gains.
Generally, subject to two exceptions, a non-resident
disposing of shares in an Australian public company who
holds those shares on capital account will be free from
income tax in Australia. The main exceptions are:
shares held as part of a trade or business conducted
through a permanent establishment in Australia. In such a
case, any profit on disposal would be assessable to tax.
Losses may give rise to capital losses or be otherwise
deductible; and
shares held in public companies where the shareholder
and its associates have held at the time of disposal (or at
least 12 months in the 24 months prior to disposal) a
holding of 10% or more in the company and more than
50% of the company’s assets are represented by
interests in Australian real property (which is unlikely to
be the case for Westpac). In such a case, capital gains
tax would apply.
United States taxation
The following discussion is a summary of certain US federal
income tax implications of the ownership and disposition of
ordinary shares (including ADS) by US holders (as defined
below) that hold the ordinary shares as capital assets. This
discussion is based on the US Internal Revenue Code of
1986, as amended, its legislative history, existing and
proposed regulations, published rulings and court decisions,
and the Tax Treaty, all as currently in effect and all of which
are subject to change, possibly on a retroactive basis.
This discussion is intended only as a descriptive summary.
It does not purport to be a complete analysis of all the
potential US federal income tax consequences of owning
and disposing of ordinary shares and does not address
US federal income tax considerations that may be relevant
to US holders subject to special treatment under US federal
income tax law (such as banks, insurance companies, real
estate investment trusts, regulated investment companies,
dealers in securities, tax-exempt entities, retirement plans,
certain former citizens or residents of the US, persons
holding ordinary shares as part of a straddle, hedge,
conversion transaction or other integrated investment,
262
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4
Shareholding information
any taxable year, hold any interest in any specified foreign
financial asset, generally will be required to file with their
US federal income tax returns certain information on
IRS Form 8938 if the aggregate value of all such assets
exceeds certain specified amounts. ‘Specified foreign
financial asset’ generally includes any financial account
maintained with a non-US financial institution and may also
include the ordinary shares if they are not held in an account
maintained with a financial institution. Substantial penalties
may be imposed, and the period of limitations on
assessment and collection of US federal income taxes may
be extended, in the event of a failure to comply. US holders
should consult their own tax advisers as to the possible
application to them of this filing requirement.
Information reporting and backup withholding
Under certain circumstances, information reporting and/or
backup withholding may apply to US holders with respect to
payments on or the proceeds from the sale, exchange or
other disposition of the ordinary shares, unless an applicable
exemption is satisfied.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules generally will be
allowed as a refund or credit against a US holder’s
US federal income tax liability if the required information is
furnished by the US holder on a timely basis to the IRS.
persons that have a ‘functional currency’ other than the
US dollar, persons that own 10% or more (by voting power)
of our stock, persons that generally mark their securities to
market for US federal income tax purposes or persons that
receive ordinary shares as compensation). As this is a
complex area, we recommend investors consult their own
tax advisers concerning the US federal, state and/or local
implications of owning and disposing of ordinary shares.
For the purposes of this discussion you are a US holder if
you are a beneficial owner of ordinary shares and you are
for US federal income tax purposes:
an individual that is a citizen or resident of the US;
a corporation created or organised in or under the laws of
the US or any state thereof or the District of Columbia;
an estate, the income of which is subject to US federal
income taxation regardless of its source; or
a trust, if a US court can exercise primary supervision
over the trust’s administration and one or more
US persons are authorised to control all substantial
decisions of the trust, or certain electing trusts that were
in existence on 19 August 1996 and were treated as
domestic trusts on that date.
If an entity treated as a partnership for US federal income
tax purposes owns the ordinary shares, the US federal
income tax implications of the ownership and disposition of
ordinary shares will generally depend upon the status and
activities of such partnership and its partners. Such an entity
should consult its own tax adviser concerning the US federal
income tax implications to it and its partners of owning and
disposing of ordinary shares.
Taxation of dividends
If you are a US holder, you must include in your income as a
dividend, the gross amount of any distributions paid by us
out of our current or accumulated earnings and profits (as
determined for US federal income tax purposes) without
reduction for any Australian tax withheld from such
distribution. If you are a non-corporate US holder, dividends
paid to you that constitute qualified dividend income may be
taxable to you at a preferential tax rate so long as certain
holding period and other requirements are met. Dividends
we pay with respect to the ordinary shares generally will be
qualified dividend income. Each non-corporate US holder
should consult their own tax advisor regarding the possible
applicability of the reduced tax rate and the related
restrictions and special rules.
Dividends paid by us constitute ordinary income that must
generally be included in income when actually or
constructively received. Such dividends will not be eligible
for the dividends-received deduction generally allowed to
corporate shareholders with respect to dividends received
from US corporations. The amount of the dividend that you
must include in your income as a US holder will be the
US dollar value of the Australian dollar payments made,
determined at the spot Australian dollar/US dollar rate on the
date the dividend distribution is included in your income,
regardless of whether the payment is in fact converted into
US dollars. Generally, any gain or loss resulting from
currency exchange fluctuations during the period from the
date you include the dividend payment in income to the date
you convert the payment into US dollars will be treated as
ordinary income or loss and will not be eligible for the special
tax rate applicable to qualified dividend income. This gain or
loss generally will be income from sources within the US for
foreign tax credit limitation purposes. Distributions on an
ordinary share in excess of current and accumulated
earnings and profits, as determined for US federal income
tax purposes, will be treated as a non-taxable return of
capital to the extent of your basis in such ordinary share and
thereafter as capital gain.
Subject to certain limitations, Australian tax withheld in
accordance with the Tax Treaty and paid over to Australia
may be claimed as a foreign tax credit against your US
federal income tax liability. Special rules apply in
determining the foreign tax credit limitation with respect to
dividends that are subject to a preferential tax rate. A US
holder that does not elect to claim a US foreign tax credit for
Australian income tax withheld may instead claim a
deduction for such withheld tax, but only for a taxable year in
which the US holder elects to do so with respect to all non-
US income taxes paid or accrued in such taxable year.
Dividends paid by us generally will be income from sources
outside the US for foreign tax credit limitation purposes.
Under the foreign tax credit rules, dividends will, depending
on your circumstances, be ‘passive category’ or ‘general
category’ income for purposes of computing the foreign
tax credit.
The rules relating to US foreign tax credits are very complex,
and each US holder should consult its own tax adviser
regarding the application of such rules.
Taxation of capital gains
If you sell or otherwise dispose of your ordinary shares, you
will generally recognise a capital gain or loss for US federal
income tax purposes equal to the difference between the
US dollar value of the amount that you realise and your tax
basis, determined in US dollars, in your ordinary shares. A
capital gain of a non-corporate US holder is generally taxed
at a reduced rate if the holder has a holding period greater
than one year. The deductibility of capital losses is subject to
limitations. Such capital gain or loss generally will be income
from sources within the US, for foreign tax credit
limitation purposes.
Medicare tax
In addition to regular US federal income tax, certain
US holders that are individuals, estates or trusts are subject
to a 3.8% tax on all or a portion of their ‘net investment
income’, which may include all or a portion of their dividend
income and net gain from the sale, exchange or other
disposition of their ordinary shares.
Passive foreign investment company considerations
We believe that we will not be treated as a passive foreign
investment company (PFIC) for US federal income tax
purposes, and this discussion assumes we are not a PFIC.
However, the determination as to whether we are a PFIC is
made annually at the end of each taxable year and therefore
could change. If we were to be treated as a PFIC, a
US holder of ordinary shares could be subject to certain
adverse tax consequences.
Disclosure requirements for specified foreign financial assets
Individual US holders (and certain US entities specified in
US Internal Revenue Service (IRS) guidance) who, during
264
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Shareholding information
any taxable year, hold any interest in any specified foreign
financial asset, generally will be required to file with their
US federal income tax returns certain information on
IRS Form 8938 if the aggregate value of all such assets
exceeds certain specified amounts. ‘Specified foreign
financial asset’ generally includes any financial account
maintained with a non-US financial institution and may also
include the ordinary shares if they are not held in an account
maintained with a financial institution. Substantial penalties
may be imposed, and the period of limitations on
assessment and collection of US federal income taxes may
be extended, in the event of a failure to comply. US holders
should consult their own tax advisers as to the possible
application to them of this filing requirement.
Information reporting and backup withholding
Under certain circumstances, information reporting and/or
backup withholding may apply to US holders with respect to
payments on or the proceeds from the sale, exchange or
other disposition of the ordinary shares, unless an applicable
exemption is satisfied.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules generally will be
allowed as a refund or credit against a US holder’s
US federal income tax liability if the required information is
furnished by the US holder on a timely basis to the IRS.
persons that have a ‘functional currency’ other than the
ordinary income or loss and will not be eligible for the special
US dollar, persons that own 10% or more (by voting power)
tax rate applicable to qualified dividend income. This gain or
of our stock, persons that generally mark their securities to
loss generally will be income from sources within the US for
market for US federal income tax purposes or persons that
foreign tax credit limitation purposes. Distributions on an
receive ordinary shares as compensation). As this is a
ordinary share in excess of current and accumulated
complex area, we recommend investors consult their own
earnings and profits, as determined for US federal income
tax advisers concerning the US federal, state and/or local
tax purposes, will be treated as a non-taxable return of
implications of owning and disposing of ordinary shares.
capital to the extent of your basis in such ordinary share and
For the purposes of this discussion you are a US holder if
thereafter as capital gain.
you are a beneficial owner of ordinary shares and you are
Subject to certain limitations, Australian tax withheld in
for US federal income tax purposes:
an individual that is a citizen or resident of the US;
a corporation created or organised in or under the laws of
the US or any state thereof or the District of Columbia;
an estate, the income of which is subject to US federal
income taxation regardless of its source; or
a trust, if a US court can exercise primary supervision
over the trust’s administration and one or more
US persons are authorised to control all substantial
decisions of the trust, or certain electing trusts that were
in existence on 19 August 1996 and were treated as
domestic trusts on that date.
If an entity treated as a partnership for US federal income
tax purposes owns the ordinary shares, the US federal
income tax implications of the ownership and disposition of
ordinary shares will generally depend upon the status and
activities of such partnership and its partners. Such an entity
should consult its own tax adviser concerning the US federal
income tax implications to it and its partners of owning and
disposing of ordinary shares.
Taxation of dividends
If you are a US holder, you must include in your income as a
dividend, the gross amount of any distributions paid by us
out of our current or accumulated earnings and profits (as
determined for US federal income tax purposes) without
reduction for any Australian tax withheld from such
distribution. If you are a non-corporate US holder, dividends
paid to you that constitute qualified dividend income may be
taxable to you at a preferential tax rate so long as certain
holding period and other requirements are met. Dividends
we pay with respect to the ordinary shares generally will be
qualified dividend income. Each non-corporate US holder
should consult their own tax advisor regarding the possible
applicability of the reduced tax rate and the related
restrictions and special rules.
Dividends paid by us constitute ordinary income that must
generally be included in income when actually or
constructively received. Such dividends will not be eligible
for the dividends-received deduction generally allowed to
corporate shareholders with respect to dividends received
from US corporations. The amount of the dividend that you
must include in your income as a US holder will be the
US dollar value of the Australian dollar payments made,
determined at the spot Australian dollar/US dollar rate on the
date the dividend distribution is included in your income,
regardless of whether the payment is in fact converted into
US dollars. Generally, any gain or loss resulting from
currency exchange fluctuations during the period from the
date you include the dividend payment in income to the date
you convert the payment into US dollars will be treated as
accordance with the Tax Treaty and paid over to Australia
may be claimed as a foreign tax credit against your US
federal income tax liability. Special rules apply in
determining the foreign tax credit limitation with respect to
dividends that are subject to a preferential tax rate. A US
holder that does not elect to claim a US foreign tax credit for
Australian income tax withheld may instead claim a
deduction for such withheld tax, but only for a taxable year in
which the US holder elects to do so with respect to all non-
US income taxes paid or accrued in such taxable year.
Dividends paid by us generally will be income from sources
outside the US for foreign tax credit limitation purposes.
Under the foreign tax credit rules, dividends will, depending
on your circumstances, be ‘passive category’ or ‘general
category’ income for purposes of computing the foreign
tax credit.
The rules relating to US foreign tax credits are very complex,
and each US holder should consult its own tax adviser
regarding the application of such rules.
Taxation of capital gains
If you sell or otherwise dispose of your ordinary shares, you
will generally recognise a capital gain or loss for US federal
income tax purposes equal to the difference between the
US dollar value of the amount that you realise and your tax
basis, determined in US dollars, in your ordinary shares. A
capital gain of a non-corporate US holder is generally taxed
at a reduced rate if the holder has a holding period greater
than one year. The deductibility of capital losses is subject to
limitations. Such capital gain or loss generally will be income
from sources within the US, for foreign tax credit
limitation purposes.
Medicare tax
In addition to regular US federal income tax, certain
US holders that are individuals, estates or trusts are subject
to a 3.8% tax on all or a portion of their ‘net investment
income’, which may include all or a portion of their dividend
income and net gain from the sale, exchange or other
disposition of their ordinary shares.
Passive foreign investment company considerations
We believe that we will not be treated as a passive foreign
investment company (PFIC) for US federal income tax
purposes, and this discussion assumes we are not a PFIC.
However, the determination as to whether we are a PFIC is
made annually at the end of each taxable year and therefore
could change. If we were to be treated as a PFIC, a
US holder of ordinary shares could be subject to certain
adverse tax consequences.
Disclosure requirements for specified foreign financial assets
Individual US holders (and certain US entities specified in
US Internal Revenue Service (IRS) guidance) who, during
264
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4
Additional information
Our constitution
Overview
We were incorporated in 1850 under the Bank of New South
Wales Act, a special piece of legislation passed by the New
South Wales Parliament at a time when there was no
general companies’ legislation in Australia. On
23 August 2002, Westpac became registered under the
Corporations Act 2001 (Cth) as a public company limited
by shares.
As part of the process of becoming a company regulated
under the Corporations Act, shareholders adopted a new
constitution at the AGM on 15 December 2000, which came
into operation on 23 August 2002. Our constitution has been
subsequently amended by shareholders on
15 December 2005, 13 December 2007 and
13 December 2012.
Our objects and purposes
Our constitution does not contain a statement of our objects
and purposes. As a company regulated by the Corporations
Act, we have the legal capacity and powers of an individual
both within and outside Australia, and all the powers of a
body corporate, including the power to issue and cancel
shares, to issue debentures, to distribute our property
among our equity holders (either in kind or otherwise), to
give security by charging our uncalled capital, to grant a
floating charge over our property and to do any other act
permitted by any law.
Directors’ voting powers
Under clause 9.11(a) of our constitution, subject to
complying with the Corporations Act regarding disclosure of
and voting on matters involving material personal interests,
our Directors may:
a. hold any office or place of profit in our company, except
that of auditor;
b. hold any office or place of profit in any other company,
body corporate, trust or entity promoted by our company
or in which it has an interest of any kind;
c. enter into any contract or arrangement with
our company;
d. participate in any association, institution, fund, trust or
scheme for past or present employees or directors of
our company or persons dependent on or connected
with them;
e. act in a professional capacity (or be a member of a firm
that acts in a professional capacity) for our company,
except as auditor; and
f. participate in, vote on and be counted in a quorum for
any meeting, resolution or decision of the Directors and
be present at any meeting where any matter is being
considered by the Directors.
Under clause 9.11(b) of our constitution, a Director may do
any of the above despite the fiduciary relationship of the
Director’s office:
a. without any liability to account to our company for any
direct or indirect benefit accruing to the Director; and
b. without affecting the validity of any contract
or arrangement.
Under the Corporations Act, however, a Director who has a
material personal interest in any matter to be considered at
any Board meeting must not be present while the matter is
being considered or vote on the matter, unless the other
Directors resolve to allow that Director to be present and
vote or a declaration is made by ASIC permitting that
Director to participate and vote. These restrictions do not
apply to a limited range of matters set out in section 191(2)
of the Corporations Act, where the Director’s interest:
a. arises because the Director is a shareholder of the
company in common with other shareholders;
b. arises in relation to the Director’s remuneration as a
Director of the company;
c.
relates to a contract the company is proposing to enter
into that is subject to shareholder approval and will not
impose obligations on the company if not approved
by shareholders;
d. arises merely because the Director is a guarantor or has
given an indemnity or security for all or part of a loan (or
proposed loan) to the company;
e. arises merely because the Director has a right of
subrogation in relation to a guarantee or indemnity
referred to in (d);
f.
g.
h.
relates to a contract that insures, or would insure, the
Director against liabilities the Director incurs as an
officer of the company (but only if the contract does not
make the company or related body corporate
the insurer);
relates to any payment by the company or a related
body corporate in respect of certain indemnities
permitted by the Corporations Act or any contract
relating to such an indemnity; or
is in a contract or proposed contract with, or for the
benefit of, or on behalf of, a related body corporate and
arises merely because the Director is a Director of that
related body corporate.
If there are not enough Directors to form a quorum for the
Board meeting because of Directors’ interests in a particular
matter, a general meeting for shareholders may be called to
consider the matter and interested Directors are entitled to
vote on any proposal to requisition such a meeting.
Under clause 9.7 of our constitution, the maximum
aggregate amount of annual remuneration to be paid to our
Non-executive Directors must be approved by our
shareholders. This aggregate amount is paid to the
Non-executive Directors in such manner as the Board from
time to time determines. Directors’ remuneration is one of
the exceptions under section 191 of the Corporations Act to
the prohibitions against being present and voting on any
matter in which a Director has a material personal interest.
The rights attaching to our ordinary shares are set out in the
Corporations Act and in our constitution, and may be
(ii) if, under the Banking Act 1959 (Cth), we are directed by
APRA not to pay a dividend;
Directors’ borrowing powers
Clause 10.2 of our constitution empowers our Directors, as a
Board, to exercise all the powers of Westpac to borrow or
raise money, to charge any property or business of Westpac
or all or any of its uncalled capital and to issue debentures or
give any other security for a debt, liability or obligation of
Westpac or of any other person. Such powers may only be
changed by amending the constitution, which requires a
special resolution (that is, a resolution passed by at least
75% of the votes cast by members entitled to vote on the
resolution and for which notice has been given in
accordance with the Corporations Act).
Minimum number of Directors
Our constitution requires that the minimum number of
Directors is determined in accordance with the Corporations
Act or other regulations. Currently the Corporations Act
prescribes three as a minimum number of Directors and
APRA governance standards specify five as the minimum
number of Directors for APRA regulated entities. Westpac’s
current number of Directors is above these
prescribed minimums.
Share rights
summarised as follows:
a) Profits and dividends
Holders of ordinary shares are entitled to receive such
dividends on those shares as may be determined by our
Directors from time to time. Dividends that are paid but not
claimed may be invested by our Directors for the benefit of
Westpac until required to be dealt with in accordance with
any law relating to unclaimed monies.
Our constitution requires that dividends be paid out of our
profits. In addition, under the Corporations Act, Westpac
must not pay a dividend unless our assets exceed our
liabilities immediately before the dividend is declared and the
excess is sufficient for payment of the dividend. In addition,
the payment must be fair and reasonable to the company’s
shareholders and must not materially prejudice our ability to
pay our creditors.
Subject to the Corporations Act, the constitution, the rights of
persons (if any) entitled to shares with special rights to
dividend and any contrary terms of issue of or applying to
any shares, our Directors may determine that a dividend is
payable, fix the amount and the time for payment and
authorise the payment or crediting by Westpac to, or at the
direction of, each shareholder entitled to that dividend.
If any dividends are returned unclaimed, we are generally
obliged, under the Banking Act 1959 (Cth), to hold those
amounts as unclaimed monies for a period of three years. If
at the end of that period the monies remain unclaimed by the
shareholder concerned, we must submit an annual
unclaimed money return to the Australian Securities and
Investment Commission by 31 March each year containing
the unclaimed money as at 31 December of the previous
year. Upon such payment being made, we are discharged
from further liability in respect of that amount.
Additional information
Our Directors may, before paying any dividend, set aside out
of our profits such sums as they think proper as reserves, to
be applied, at the discretion of our Directors, for any purpose
for which the profits may be properly applied. Our Directors
may carry forward so much of the profits remaining as they
consider ought not to be distributed as dividends without
transferring those profits to a reserve.
The following restrictions apply to our ability to declare
and/or pay dividends:
(i)
if the payment of the dividend would breach or cause a
breach by us of applicable capital adequacy or other
supervisory requirements of APRA. Currently, one such
requirement is that a dividend should not be paid without
APRA’s prior consent if payment of that dividend, after
taking into account all other dividends (if any) paid on
our shares and payments on more senior capital
instruments, in the preceding 12 consecutive months to
which they relate, would cause the aggregate of such
dividend payments to exceed our after tax earnings for
the preceding 12 consecutive months, as reflected in
our relevant audited consolidated financial
statements; and
(iii) if the declaration or payment of the dividend would result
in us becoming insolvent; or
(iv) if any interest payment, dividend, redemption payment
or other distribution on certain Additional Tier 1
securities issued by the Group is not paid in accordance
with the terms of those securities, we may be restricted
from declaring and/or paying dividends on ordinary
shares (and certain Additional Tier 1 securities). This
restriction is subject to a number of exceptions.
b) Voting rights
Holders of our fully paid ordinary shares have, at general
meetings (including special general meetings), one vote on a
show of hands and, upon a poll, one vote for each fully paid
share held by them.
c) Voting and re-election of Directors
Under our constitution, at each AGM one-third of eligible
Directors (or if their number is not a multiple of three, the
number nearest to one-third) and any other Director who has
held office for three years or more since the Director’s last
election, must retire from office. In determining the number
of Directors to retire, no account is to be taken of a Director
who holds office in order to fill a casual vacancy or the
Managing Director. A retiring Director holds office until the
conclusion of the meeting at which that Director retires but is
eligible for re-election at the meeting.
Under the ASX Listing Rules, no Executive or Non-executive
Director of a listed entity, apart from the Managing Director,
may continue to hold office, without offering himself or
herself for re-election, past the third AGM following their
appointment or three years, whichever is the longer.
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Additional information
Our constitution
Overview
We were incorporated in 1850 under the Bank of New South
Wales Act, a special piece of legislation passed by the New
South Wales Parliament at a time when there was no
general companies’ legislation in Australia. On
23 August 2002, Westpac became registered under the
Corporations Act 2001 (Cth) as a public company limited
by shares.
As part of the process of becoming a company regulated
under the Corporations Act, shareholders adopted a new
constitution at the AGM on 15 December 2000, which came
into operation on 23 August 2002. Our constitution has been
subsequently amended by shareholders on
15 December 2005, 13 December 2007 and
13 December 2012.
Our objects and purposes
Our constitution does not contain a statement of our objects
and purposes. As a company regulated by the Corporations
Act, we have the legal capacity and powers of an individual
both within and outside Australia, and all the powers of a
body corporate, including the power to issue and cancel
shares, to issue debentures, to distribute our property
among our equity holders (either in kind or otherwise), to
give security by charging our uncalled capital, to grant a
floating charge over our property and to do any other act
permitted by any law.
Directors’ voting powers
Under clause 9.11(a) of our constitution, subject to
complying with the Corporations Act regarding disclosure of
and voting on matters involving material personal interests,
our Directors may:
that of auditor;
a. hold any office or place of profit in our company, except
b. without affecting the validity of any contract
or arrangement.
Under the Corporations Act, however, a Director who has a
material personal interest in any matter to be considered at
any Board meeting must not be present while the matter is
being considered or vote on the matter, unless the other
Directors resolve to allow that Director to be present and
vote or a declaration is made by ASIC permitting that
Director to participate and vote. These restrictions do not
apply to a limited range of matters set out in section 191(2)
of the Corporations Act, where the Director’s interest:
a. arises because the Director is a shareholder of the
company in common with other shareholders;
b. arises in relation to the Director’s remuneration as a
Director of the company;
c.
relates to a contract the company is proposing to enter
into that is subject to shareholder approval and will not
impose obligations on the company if not approved
by shareholders;
d. arises merely because the Director is a guarantor or has
given an indemnity or security for all or part of a loan (or
proposed loan) to the company;
e. arises merely because the Director has a right of
subrogation in relation to a guarantee or indemnity
referred to in (d);
f.
relates to a contract that insures, or would insure, the
Director against liabilities the Director incurs as an
officer of the company (but only if the contract does not
make the company or related body corporate
the insurer);
g.
relates to any payment by the company or a related
body corporate in respect of certain indemnities
permitted by the Corporations Act or any contract
b. hold any office or place of profit in any other company,
relating to such an indemnity; or
body corporate, trust or entity promoted by our company
or in which it has an interest of any kind;
c. enter into any contract or arrangement with
our company;
h.
is in a contract or proposed contract with, or for the
benefit of, or on behalf of, a related body corporate and
arises merely because the Director is a Director of that
related body corporate.
d. participate in any association, institution, fund, trust or
If there are not enough Directors to form a quorum for the
scheme for past or present employees or directors of
our company or persons dependent on or connected
with them;
e. act in a professional capacity (or be a member of a firm
Board meeting because of Directors’ interests in a particular
matter, a general meeting for shareholders may be called to
consider the matter and interested Directors are entitled to
vote on any proposal to requisition such a meeting.
that acts in a professional capacity) for our company,
Under clause 9.7 of our constitution, the maximum
except as auditor; and
f. participate in, vote on and be counted in a quorum for
any meeting, resolution or decision of the Directors and
be present at any meeting where any matter is being
considered by the Directors.
Under clause 9.11(b) of our constitution, a Director may do
any of the above despite the fiduciary relationship of the
Director’s office:
a. without any liability to account to our company for any
direct or indirect benefit accruing to the Director; and
aggregate amount of annual remuneration to be paid to our
Non-executive Directors must be approved by our
shareholders. This aggregate amount is paid to the
Non-executive Directors in such manner as the Board from
time to time determines. Directors’ remuneration is one of
the exceptions under section 191 of the Corporations Act to
the prohibitions against being present and voting on any
matter in which a Director has a material personal interest.
Directors’ borrowing powers
Clause 10.2 of our constitution empowers our Directors, as a
Board, to exercise all the powers of Westpac to borrow or
raise money, to charge any property or business of Westpac
or all or any of its uncalled capital and to issue debentures or
give any other security for a debt, liability or obligation of
Westpac or of any other person. Such powers may only be
changed by amending the constitution, which requires a
special resolution (that is, a resolution passed by at least
75% of the votes cast by members entitled to vote on the
resolution and for which notice has been given in
accordance with the Corporations Act).
Minimum number of Directors
Our constitution requires that the minimum number of
Directors is determined in accordance with the Corporations
Act or other regulations. Currently the Corporations Act
prescribes three as a minimum number of Directors and
APRA governance standards specify five as the minimum
number of Directors for APRA regulated entities. Westpac’s
current number of Directors is above these
prescribed minimums.
Share rights
The rights attaching to our ordinary shares are set out in the
Corporations Act and in our constitution, and may be
summarised as follows:
a) Profits and dividends
Holders of ordinary shares are entitled to receive such
dividends on those shares as may be determined by our
Directors from time to time. Dividends that are paid but not
claimed may be invested by our Directors for the benefit of
Westpac until required to be dealt with in accordance with
any law relating to unclaimed monies.
Our constitution requires that dividends be paid out of our
profits. In addition, under the Corporations Act, Westpac
must not pay a dividend unless our assets exceed our
liabilities immediately before the dividend is declared and the
excess is sufficient for payment of the dividend. In addition,
the payment must be fair and reasonable to the company’s
shareholders and must not materially prejudice our ability to
pay our creditors.
Subject to the Corporations Act, the constitution, the rights of
persons (if any) entitled to shares with special rights to
dividend and any contrary terms of issue of or applying to
any shares, our Directors may determine that a dividend is
payable, fix the amount and the time for payment and
authorise the payment or crediting by Westpac to, or at the
direction of, each shareholder entitled to that dividend.
If any dividends are returned unclaimed, we are generally
obliged, under the Banking Act 1959 (Cth), to hold those
amounts as unclaimed monies for a period of three years. If
at the end of that period the monies remain unclaimed by the
shareholder concerned, we must submit an annual
unclaimed money return to the Australian Securities and
Investment Commission by 31 March each year containing
the unclaimed money as at 31 December of the previous
year. Upon such payment being made, we are discharged
from further liability in respect of that amount.
Additional information
Our Directors may, before paying any dividend, set aside out
of our profits such sums as they think proper as reserves, to
be applied, at the discretion of our Directors, for any purpose
for which the profits may be properly applied. Our Directors
may carry forward so much of the profits remaining as they
consider ought not to be distributed as dividends without
transferring those profits to a reserve.
The following restrictions apply to our ability to declare
and/or pay dividends:
(i)
if the payment of the dividend would breach or cause a
breach by us of applicable capital adequacy or other
supervisory requirements of APRA. Currently, one such
requirement is that a dividend should not be paid without
APRA’s prior consent if payment of that dividend, after
taking into account all other dividends (if any) paid on
our shares and payments on more senior capital
instruments, in the preceding 12 consecutive months to
which they relate, would cause the aggregate of such
dividend payments to exceed our after tax earnings for
the preceding 12 consecutive months, as reflected in
our relevant audited consolidated financial
statements; and
(ii) if, under the Banking Act 1959 (Cth), we are directed by
APRA not to pay a dividend;
(iii) if the declaration or payment of the dividend would result
in us becoming insolvent; or
(iv) if any interest payment, dividend, redemption payment
or other distribution on certain Additional Tier 1
securities issued by the Group is not paid in accordance
with the terms of those securities, we may be restricted
from declaring and/or paying dividends on ordinary
shares (and certain Additional Tier 1 securities). This
restriction is subject to a number of exceptions.
b) Voting rights
Holders of our fully paid ordinary shares have, at general
meetings (including special general meetings), one vote on a
show of hands and, upon a poll, one vote for each fully paid
share held by them.
c) Voting and re-election of Directors
Under our constitution, at each AGM one-third of eligible
Directors (or if their number is not a multiple of three, the
number nearest to one-third) and any other Director who has
held office for three years or more since the Director’s last
election, must retire from office. In determining the number
of Directors to retire, no account is to be taken of a Director
who holds office in order to fill a casual vacancy or the
Managing Director. A retiring Director holds office until the
conclusion of the meeting at which that Director retires but is
eligible for re-election at the meeting.
Under the ASX Listing Rules, no Executive or Non-executive
Director of a listed entity, apart from the Managing Director,
may continue to hold office, without offering himself or
herself for re-election, past the third AGM following their
appointment or three years, whichever is the longer.
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267
4
Additional information
Exchange rates
For each of the years indicated, the high, low, average and year-end noon buying rates1 for Australian dollars were:
2016²
2015
2014
2013
2012
2011
Year Ended 30 September
(US$ per A$1.00)
High
Low
Average3
Close (on 30 September)4
0.7328
0.7025
n/a
n/a
0.8904
0.6917
0.7781
0.7020
0.9705
0.8715
0.9155
0.8737
For each of the months indicated, the high and low noon buying rates for Australian dollars were:
October
2015²
September
2015
0.7328
0.7025
0.7222
0.6917
Month
August
2015
0.7419
0.7087
(US$ per A$1.00)
High
Low
of New York.
1 The noon buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank
2 Through to 23 October 2015. On 23 October 2015, the noon buying rate was A$1.00 = US$0.7215.
3 The average is calculated by using the average of the exchange rates on the last day of each month during the period.
4 The noon buying rate at such date may differ from the rate used in the preparation of our consolidated financial statements at such date. Refer to
Note 1(a)(vi) to the financial statements.
1.0579
0.8901
0.9885
0.9342
July
2015
0.7664
0.7278
1.0806
0.9453
1.0371
1.0388
June
2015
0.7831
0.7613
1.1026
0.9594
1.0318
0.9744
May
2015
0.8118
0.7631
Under the Corporations Act, the election or re-election of
each Director by shareholders at a general meeting of a
public company must proceed as a separate item, unless the
shareholders first resolve that the elections or re-elections
may be voted on collectively. A resolution to allow collective
voting in relation to elections or re-elections is effective only
if no votes are cast against that resolution. Any resolution
electing or re-electing two or more Directors in contravention
of this requirement is void.
d) Winding up
Subject to any preferential entitlement of holders of
preference shares on issue at the relevant time, holders of
our ordinary shares are entitled to share equally in any
surplus assets if we are wound up.
e) Sinking fund provisions
We do not have any class of shares on issue that is subject
to any sinking fund provisions.
Variation of rights attaching to our shares
Under the Corporations Act, unless otherwise provided by
the terms of issue of a class of shares, the terms of issue of
a class of shares in Westpac can only be varied or cancelled
in any way by a special resolution of Westpac and with
either the written consent of our shareholders holding at
least three quarters of the votes in that class of shares or
with the sanction of a special resolution passed at a
separate meeting of the holders of that class of shares.
Convening general meetings
Under our constitution, our Directors may convene and
arrange to hold a general meeting of Westpac whenever
they think fit and must do so if required to do so under the
Corporations Act and ASX Listing Rules. Under the
Corporations Act, our Directors must call and arrange to hold
a general meeting of Westpac if requested to do so by our
shareholders who hold at least 5% of the votes that may be
cast at the general meeting. Shareholders who hold at least
5% of the votes that may be cast at a general meeting may
also call and arrange to hold a general meeting of Westpac
at their own expense.
At least 28 days notice must be given of a meeting of our
shareholders. Written notice must be given to all
shareholders entitled to attend and vote at the meeting. All
ordinary shareholders are entitled to attend and, subject to
the constitution and the Corporations Act, to vote at general
meetings of Westpac.
Limitations on securities ownership
A number of limitations apply in relation to the ownership of
our shares, and these are more fully described in the section
‘Limitations affecting security holders’.
Change in control restrictions
Restrictions apply under the Corporations Act, the Financial
Sector (Shareholdings) Act 1998 (Cth) and the Foreign
Acquisitions and Takeovers Act 1975 (Cth).
For more detailed descriptions of these restrictions, refer to
the sections ‘Limitations affecting security holders’, Foreign
Acquisitions and Takeovers Act 1975, Financial Sector
(Shareholdings) Act 1998, and Corporations Act 2001.
Substantial shareholder disclosure
There is no provision in our constitution that requires a
shareholder to disclose the extent of their ownership of
our shares.
Under the Corporations Act, however, any person who
begins or ceases to have a substantial holding of our shares
must notify us within two business days after they become
aware of that information. A further notice must be given to
us if there is an increase or decrease of 1% in a person’s
substantial holding. Copies of these notices must also be
given to the ASX. A person has a substantial holding of our
shares if the total votes attached to our voting shares in
which they or their associates have relevant interests is 5%
or more of the total number of votes attached to all our
voting shares. For more details, refer to the section
‘Corporations Act 2001’.
We also have a statutory right under the Corporations Act to
trace the beneficial ownership of our shares by giving a
direction to a shareholder, or certain other persons, requiring
disclosure to us of, among other things, their own relevant
interest in our shares and the name and address of each
other person who has a relevant interest in those shares, the
nature and extent of that interest and the circumstances that
gave rise to that other person’s interest. Such disclosure
must, except in certain limited circumstances, be provided
within two business days after the direction is received.
Australian Company and Business Numbers
All Australian companies have a unique nine-digit identifier,
referred to as an Australian Company Number (ACN), which
must be included on public documents, eligible negotiable
instruments and the company’s common seal. In addition,
entities can apply for registration on the Australian Business
Register and be allocated a unique eleven-digit identifier
known as an Australian Business Number (ABN). For
Australian companies, the last nine digits of their ABN are
identical to their ACN. The ABN may be quoted on
documents in lieu of the ACN.
Our ACN is 007 457 141 and our ABN is 33 007 457 141.
Documents on display
We are subject to the disclosure requirements of the
U.S. Securities Exchange Act of 1934, as amended. In
accordance with these requirements, we file Annual Reports
with, and furnish other information to, the US Securities &
Exchange Commission (SEC). These materials and other
information furnished by us may be inspected and copied at
the SEC's Conventional and Electronic Reading Room at
100 F Street, N.E., Room 1580, Washington, D.C. 20549 at
prescribed rates. The public may obtain information on the
operation of the SEC’s Conventional and Electronic Reading
Room by calling the SEC in the United States at 1-800-SEC-
0330. The SEC also maintains a website at www.sec.gov
that contains reports, proxy statements and other
information regarding registrants that file electronically with
the SEC. Since April 2002, we have filed our reports on
Form 20-F and have furnished other information to the SEC
in electronic format which may be accessed through
this website.
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269
High
0.7328
0.7222
0.7419
0.7664
0.7831
Low
1 The noon buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank
Additional information
Exchange rates
For each of the years indicated, the high, low, average and year-end noon buying rates1 for Australian dollars were:
High
Low
Average3
Close (on 30 September)4
2016²
0.7328
0.7025
n/a
n/a
Year Ended 30 September
2014
2013
2015
(US$ per A$1.00)
2012
2011
0.8904
0.6917
0.7781
0.7020
0.9705
0.8715
0.9155
0.8737
1.0579
0.8901
0.9885
0.9342
1.0806
0.9453
1.0371
1.0388
1.1026
0.9594
1.0318
0.9744
For each of the months indicated, the high and low noon buying rates for Australian dollars were:
October
2015²
September
2015
Month
August
2015
(US$ per A$1.00)
July
2015
June
2015
May
2015
Under the Corporations Act, the election or re-election of
each Director by shareholders at a general meeting of a
public company must proceed as a separate item, unless the
shareholders first resolve that the elections or re-elections
may be voted on collectively. A resolution to allow collective
voting in relation to elections or re-elections is effective only
if no votes are cast against that resolution. Any resolution
electing or re-electing two or more Directors in contravention
of this requirement is void.
d) Winding up
Subject to any preferential entitlement of holders of
preference shares on issue at the relevant time, holders of
our ordinary shares are entitled to share equally in any
surplus assets if we are wound up.
e) Sinking fund provisions
We do not have any class of shares on issue that is subject
to any sinking fund provisions.
Variation of rights attaching to our shares
Under the Corporations Act, unless otherwise provided by
the terms of issue of a class of shares, the terms of issue of
a class of shares in Westpac can only be varied or cancelled
in any way by a special resolution of Westpac and with
either the written consent of our shareholders holding at
least three quarters of the votes in that class of shares or
with the sanction of a special resolution passed at a
separate meeting of the holders of that class of shares.
Convening general meetings
Under our constitution, our Directors may convene and
arrange to hold a general meeting of Westpac whenever
they think fit and must do so if required to do so under the
Corporations Act and ASX Listing Rules. Under the
Corporations Act, our Directors must call and arrange to hold
a general meeting of Westpac if requested to do so by our
shareholders who hold at least 5% of the votes that may be
cast at the general meeting. Shareholders who hold at least
5% of the votes that may be cast at a general meeting may
also call and arrange to hold a general meeting of Westpac
at their own expense.
At least 28 days notice must be given of a meeting of our
shareholders. Written notice must be given to all
shareholders entitled to attend and vote at the meeting. All
ordinary shareholders are entitled to attend and, subject to
the constitution and the Corporations Act, to vote at general
meetings of Westpac.
Limitations on securities ownership
A number of limitations apply in relation to the ownership of
our shares, and these are more fully described in the section
‘Limitations affecting security holders’.
Change in control restrictions
Restrictions apply under the Corporations Act, the Financial
Sector (Shareholdings) Act 1998 (Cth) and the Foreign
Acquisitions and Takeovers Act 1975 (Cth).
For more detailed descriptions of these restrictions, refer to
the sections ‘Limitations affecting security holders’, Foreign
Acquisitions and Takeovers Act 1975, Financial Sector
(Shareholdings) Act 1998, and Corporations Act 2001.
Substantial shareholder disclosure
There is no provision in our constitution that requires a
shareholder to disclose the extent of their ownership of
our shares.
Under the Corporations Act, however, any person who
begins or ceases to have a substantial holding of our shares
must notify us within two business days after they become
aware of that information. A further notice must be given to
us if there is an increase or decrease of 1% in a person’s
substantial holding. Copies of these notices must also be
given to the ASX. A person has a substantial holding of our
shares if the total votes attached to our voting shares in
which they or their associates have relevant interests is 5%
or more of the total number of votes attached to all our
voting shares. For more details, refer to the section
‘Corporations Act 2001’.
We also have a statutory right under the Corporations Act to
trace the beneficial ownership of our shares by giving a
direction to a shareholder, or certain other persons, requiring
disclosure to us of, among other things, their own relevant
interest in our shares and the name and address of each
other person who has a relevant interest in those shares, the
nature and extent of that interest and the circumstances that
gave rise to that other person’s interest. Such disclosure
must, except in certain limited circumstances, be provided
within two business days after the direction is received.
Australian Company and Business Numbers
All Australian companies have a unique nine-digit identifier,
referred to as an Australian Company Number (ACN), which
must be included on public documents, eligible negotiable
instruments and the company’s common seal. In addition,
entities can apply for registration on the Australian Business
Register and be allocated a unique eleven-digit identifier
known as an Australian Business Number (ABN). For
Australian companies, the last nine digits of their ABN are
identical to their ACN. The ABN may be quoted on
documents in lieu of the ACN.
Our ACN is 007 457 141 and our ABN is 33 007 457 141.
Documents on display
We are subject to the disclosure requirements of the
U.S. Securities Exchange Act of 1934, as amended. In
accordance with these requirements, we file Annual Reports
with, and furnish other information to, the US Securities &
Exchange Commission (SEC). These materials and other
information furnished by us may be inspected and copied at
the SEC's Conventional and Electronic Reading Room at
100 F Street, N.E., Room 1580, Washington, D.C. 20549 at
prescribed rates. The public may obtain information on the
operation of the SEC’s Conventional and Electronic Reading
Room by calling the SEC in the United States at 1-800-SEC-
0330. The SEC also maintains a website at www.sec.gov
that contains reports, proxy statements and other
information regarding registrants that file electronically with
the SEC. Since April 2002, we have filed our reports on
Form 20-F and have furnished other information to the SEC
in electronic format which may be accessed through
this website.
of New York.
2 Through to 23 October 2015. On 23 October 2015, the noon buying rate was A$1.00 = US$0.7215.
3 The average is calculated by using the average of the exchange rates on the last day of each month during the period.
4 The noon buying rate at such date may differ from the rate used in the preparation of our consolidated financial statements at such date. Refer to
Note 1(a)(vi) to the financial statements.
268
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
269
0.8118
0.7631
0.6917
0.7278
0.7613
0.7087
0.7025
4
Westpac Subordinated Notes II (ASX code: WBCHB)
Record date for quarterly interest payment 13 November 20151
Payment date for quarterly
interest payment
23 November 20152
Payment date for quarterly
interest payment
22 February 2016
Record date for quarterly interest payment 13 May 20161
Payment date for quarterly
interest payment
23 May 20162
Record date for quarterly interest payment 12 August 20161
Payment date for quarterly
interest payment
22 August 2016
1 Immediately preceding business day when a record date falls on a non-ASX
2 Next business day when a payment due falls on a non-ASX business day.
Annual General Meeting
The Westpac Annual General Meeting (AGM) will be held in the Grand Ballroom at the Sofitel Sydney Wentworth, Level 3, 61-
101 Phillip Street, Sydney, on Friday, 11 December 2015, commencing at 10.00am (Sydney time).
The AGM will be webcast live on the internet at www.westpac.com.au/investorcentre and an archived version of the webcast
will be placed on the website to enable the AGM proceedings to be viewed at a later time.
Information for shareholders
Financial calendar
Westpac Ordinary Shares (ASX code: WBC)
Westpac Capital Notes 2 (ASX code: WBCPE)
Record date for final dividend
13 November 20151
Record date for quarterly distribution
15 December 2015
Annual General Meeting
11 December 2015
Payment date for quarterly distribution
23 December 2015
Final dividend payable
Financial Half Year end
21 December 2015
Record date for quarterly distribution
15 March 2016
Record date for quarterly interest payment 12 February 20161
31 March 2016
Payment date for quarterly distribution
23 March 2016
Interim results and dividend announcement 2 May 2016
Record date for quarterly distribution
15 June 2016
Ex-dividend date for interim dividend
Record date for interim dividend
Interim dividend payable
12 May 20163
13 May 20162,3
4 July 20163
Payment date for quarterly distribution
23 June 2016
Record date for quarterly distribution
15 September 2016
Payment date for quarterly distribution
23 September 2016
Information for shareholders
Financial Year end
30 September 2016
Final results and dividend announcement
7 November 2016
Ex-dividend date for final dividend
Record date for final dividend
Annual General Meeting
14 November 20164,7
15 November 20165,7
9 December 20166
Final dividend payable
1 Record date for 2015 final dividend in New York – 12 November 2015.
2 Record date for 2016 interim dividend in New York – 12 May 2016.
3 Dates will be confirmed at the time of announcing the 2016 interim results.
4 Ex-dividend date for 2016 final dividend in New York – 10
21 December 20167
November 2016.
5 Record date for 2016 final dividend in New York – 14 November 2016.
6 Details regarding the location of this meeting and the business to be dealt
with will be contained in the separate Notice of Meeting sent to
shareholders in November 2016.
7 Dates will be confirmed at the time of announcing the 2016 final results.
Westpac Convertible Preference Shares
(ASX code: WBCPC)
Record date for semi-annual dividend
23 March 2016
Westpac Capital Notes 3 (ASX code: WBCPF)
Record date for quarterly distribution
14 December 2015
Payment date for quarterly distribution
22 December 2015
business day.
Record date for quarterly distribution
11 March 20161
Payment date for quarterly distribution
22 March 2016
Record date for quarterly distribution
14 June 2016
Payment date for quarterly distribution
22 June 2016
Record date for quarterly distribution
14 September 2016
22 September 2016
Payment date for quarterly distribution
1 Immediately preceding business day when a record date falls on a non-ASX
business day.
Westpac Subordinated Notes (ASX code: WBCHA)
Record date for quarterly interest payment 13 November 20151
Payment date for quarterly
interest payment
23 November 2015
Payment date for semi-annual dividend
31 March 2016
Record date for quarterly interest payment 15 February 2016
Record date for semi-annual dividend
22 September 2016
Payment date for semi-annual dividend
30 September 2016
Payment date for quarterly
interest payment
23 February 2016
Westpac Capital Notes (ASX code: WBCPD)
Record date for quarterly distribution
30 November 2015
Payment date for quarterly distribution
8 December 2015
Record date for quarterly distribution
29 February 2016
Payment date for quarterly distribution
8 March 2016
Record date for quarterly distribution
31 May 2016
Payment date for quarterly distribution
8 June 2016
Record date for quarterly distribution
31 August 2016
Payment date for quarterly distribution
8 September 2016
Record date for quarterly interest payment 13 May 20161
Payment date for quarterly
interest payment
23 May 2016
Record date for quarterly interest payment 15 August 2016
Payment date for quarterly
interest payment
1 Immediately preceding business day when a record date falls on a non-ASX
business day.
23 August 2016
270
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
271
21 December 2015
Record date for quarterly distribution
15 March 2016
Record date for quarterly interest payment 12 February 20161
Westpac Subordinated Notes II (ASX code: WBCHB)
Record date for quarterly interest payment 13 November 20151
Payment date for quarterly
interest payment
23 November 20152
Information for shareholders
Payment date for quarterly
interest payment
22 February 2016
Record date for quarterly interest payment 13 May 20161
Payment date for quarterly
interest payment
23 May 20162
Record date for quarterly interest payment 12 August 20161
Payment date for quarterly
interest payment
1 Immediately preceding business day when a record date falls on a non-ASX
business day.
2 Next business day when a payment due falls on a non-ASX business day.
22 August 2016
Annual General Meeting
The Westpac Annual General Meeting (AGM) will be held in the Grand Ballroom at the Sofitel Sydney Wentworth, Level 3, 61-
101 Phillip Street, Sydney, on Friday, 11 December 2015, commencing at 10.00am (Sydney time).
The AGM will be webcast live on the internet at www.westpac.com.au/investorcentre and an archived version of the webcast
will be placed on the website to enable the AGM proceedings to be viewed at a later time.
Information for shareholders
Financial calendar
Westpac Ordinary Shares (ASX code: WBC)
Westpac Capital Notes 2 (ASX code: WBCPE)
Record date for final dividend
13 November 20151
Record date for quarterly distribution
15 December 2015
Annual General Meeting
11 December 2015
Payment date for quarterly distribution
23 December 2015
Final dividend payable
Financial Half Year end
31 March 2016
Payment date for quarterly distribution
23 March 2016
Interim results and dividend announcement 2 May 2016
Record date for quarterly distribution
15 June 2016
Ex-dividend date for interim dividend
Record date for interim dividend
Interim dividend payable
12 May 20163
13 May 20162,3
4 July 20163
Payment date for quarterly distribution
23 June 2016
Record date for quarterly distribution
15 September 2016
Payment date for quarterly distribution
23 September 2016
Financial Year end
30 September 2016
Final results and dividend announcement
7 November 2016
Ex-dividend date for final dividend
Record date for final dividend
Annual General Meeting
Final dividend payable
14 November 20164,7
15 November 20165,7
9 December 20166
21 December 20167
1 Record date for 2015 final dividend in New York – 12 November 2015.
2 Record date for 2016 interim dividend in New York – 12 May 2016.
3 Dates will be confirmed at the time of announcing the 2016 interim results.
4 Ex-dividend date for 2016 final dividend in New York – 10
November 2016.
5 Record date for 2016 final dividend in New York – 14 November 2016.
6 Details regarding the location of this meeting and the business to be dealt
with will be contained in the separate Notice of Meeting sent to
shareholders in November 2016.
7 Dates will be confirmed at the time of announcing the 2016 final results.
Westpac Capital Notes 3 (ASX code: WBCPF)
Record date for quarterly distribution
14 December 2015
Payment date for quarterly distribution
22 December 2015
Record date for quarterly distribution
11 March 20161
Payment date for quarterly distribution
22 March 2016
Record date for quarterly distribution
14 June 2016
Payment date for quarterly distribution
22 June 2016
Record date for quarterly distribution
14 September 2016
Payment date for quarterly distribution
22 September 2016
1 Immediately preceding business day when a record date falls on a non-ASX
business day.
Westpac Subordinated Notes (ASX code: WBCHA)
Westpac Convertible Preference Shares
Record date for quarterly interest payment 13 November 20151
(ASX code: WBCPC)
Record date for semi-annual dividend
23 March 2016
Payment date for quarterly
interest payment
23 November 2015
Payment date for semi-annual dividend
31 March 2016
Record date for quarterly interest payment 15 February 2016
Record date for semi-annual dividend
22 September 2016
Payment date for semi-annual dividend
30 September 2016
Payment date for quarterly
interest payment
23 February 2016
Record date for quarterly interest payment 13 May 20161
Payment date for quarterly
interest payment
23 May 2016
Record date for quarterly interest payment 15 August 2016
Payment date for quarterly
interest payment
23 August 2016
Payment date for quarterly distribution
8 March 2016
1 Immediately preceding business day when a record date falls on a non-ASX
business day.
Westpac Capital Notes (ASX code: WBCPD)
Record date for quarterly distribution
30 November 2015
Payment date for quarterly distribution
8 December 2015
Record date for quarterly distribution
29 February 2016
Record date for quarterly distribution
31 May 2016
Payment date for quarterly distribution
8 June 2016
Record date for quarterly distribution
31 August 2016
Payment date for quarterly distribution
8 September 2016
270
2015 Westpac Group Annual Report
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271
4
Useful information
Key sources of information for shareholders
We report our full year performance to shareholders, in late
October or early November, in two forms: an Annual Review
and Sustainability Report, and an Annual Report.
Electronic communications
Shareholders can elect to receive the following
communications electronically:
Annual Review and Annual Report;
Dividend statements when paid by direct credit or via
Westpac’s Dividend Reinvestment Plan (DRP);
Notices of Meetings and proxy forms; and
Shareholder Newsletters and major
company announcements.
Shareholders who wish to register their email address should
go to www.westpac.com.au/investorcentre and click on
‘Download a form’ under ‘Manage your shareholding’,
or contact the Westpac share Registrar. For Registrar contact
details see opposite.
Online information
Australia
Westpac’s internet site www.westpac.com.au provides
information for shareholders and customers, including:
access to internet banking and online investing services;
details on Westpac’s products and services;
company history, results, economic updates, market
releases and news; and
corporate responsibility and Westpac in the
community activities.
Investors can short cut to the Investor Centre at
www.westpac.com.au/investorcentre. The Centre includes the
current Westpac share price and charting, and links to the
latest ASX announcements and Westpac’s share Registrars’
websites.
New Zealand
Westpac’s New Zealand internet site www.westpac.co.nz
provides:
access to internet banking services;
details on products and services, including a
comprehensive home buying guide;
economic updates, news and information, key financial
results; and
sponsorships and other community activities.
Stock exchange listings
Westpac ordinary shares are listed on:
Australian Securities Exchange, (code WBC);
New York Stock Exchange (NYSE), as American
Depositary Shares, (code WBK); and
New Zealand Exchange Limited, (code WBC).
Westpac Investor Relations
Information other than that relating to your shareholding can
be obtained from:
Westpac Investor Relations
Level 20, 275 Kent Street
Sydney NSW 2000 Australia
Telephone: +61 2 8253 3143
Facsimile: +61 2 8253 1207
Email: investorrelations@westpac.com.au
Share registrars
For information about your shareholding or to notify a
change of address etc., you should contact the appropriate
share Registrar. Please note that, in Australia, broker
sponsored holders are required to contact their broker to
amend their address.
Australia – Ordinary shares on the main register
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Postal address: Locked Bag A6015,
Sydney South NSW 1235
Website: www.linkmarketservices.com.au
Shareholder enquiries:
Telephone: 1800 804 255 (toll free within Australia)
International: +61 1800 804 255
Facsimile: +61 2 9287 0303
Email: westpac@linkmarketservices.com.au
New Zealand – Ordinary shares on the New Zealand
Branch register
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010, New Zealand
Postal address: P.O. Box 91976, Auckland 1142,
New Zealand
Website: www.linkmarketservices.co.nz
Shareholder enquiries:
Telephone: 0800 002 727 (toll free within New Zealand)
International: +64 9 375 5998
Facsimile: +64 9 375 5990
Email: enquiries@linkmarketservices.co.nz
Depositary in USA for American Depositary Shares
(ADS) 1
Listed on New York Stock Exchange
(code WBK - CUSIP 961214301)
The Bank of New York Mellon
PO Box 30170
College Station, TX 77842-3170, USA
ADS holder enquiries:
Telephone: 1-888-BNY-ADRS (1-888-269-2377)
(toll free number for domestic callers)
International: +1 201 680 6825
Email: shrrelations@bnymellon.com
Website: www.bnymellon.com/shareowner
1 Each ADS represents one fully paid ordinary share
Asset-backed securities
Dodd-Frank Act
Dodd-Frank Wall Street Reform and
Westpac Group Asset & Liability Committee
FATCA
Foreign Account Tax Compliance Act
ANZSIC
Australian and New Zealand Standard
Glossary of abbreviations and defined terms
Advanced IRB
Advanced Internal Ratings Based
AUSTRAC
Australian Transaction Reports and Analysis
6MMA
AAS
AASB
ABS
ACCC
ADI
ADRs
ADS
AFS
AGM
AIRB
ALCO
ALM
AMA
APRA
ASIC
ASX
ASXCGC
ATMs
ATO
BAC
BCBS
BankSA
BBSW
BOSI
bps
BRCC
BTFG
BTIM
CAPs
CCE
CDO
CDS
CEO
CFAL
CFO
CFTC
CGU
CHF
CLF
CPM
CRG
CRO
Six month moving average
Australian Accounting Standards
Australian Accounting Standards Board
Australian Competition and Consumer
Commission
Authorised Deposit-taking Institution
American Depositary Receipts
American Depositary Shares
Australian Financial Services
Annual General Meeting
Advanced Internal Ratings Based
Asset and Liability Management
Advanced Measurement Approach
Industrial Classification
Australian Prudential Regulation Authority
Australian Securities and Investments
Commission
Australian Securities Exchange
ASX Limited’s Corporate Governance Council
Automatic teller machines
Australian Taxation Office
Centre
Board Audit Committee
Bank of South Australia
Bank Bills Swap Rate
Basel Committee on Banking Supervision
BOS International Australia Limited
Basis points
Board Risk and Compliance Committee
BT Financial Group (Australia)
BT Investment Management Limited
Collectively Assessed Provisions
Commodity, Carbon and Energy trading
Collateralised debt obligations
Credit default swap
Chief Executive Officer
Capital Finance Australia Limited
Chief Financial Officer
Commodity Futures Trading Commission
Cash-Generating Unit
Swiss franc
Committed Liquidity Facility
Treadway Commission
Credit Portfolio Management
Customer Risk Grade
Chief Risk Officer
CRS
CVA
DFAT
DRP
D-SIBS
EAD
EFTPOS
EMIR
EPS
ESG
ESP
FCA
FCS
FFIs
FMA
FMCA
FMTR
FOFA
FSB
FTE
FUA
FUM
FVA
FX
GHG
G-SIBS
G-SIFI
HKD
HKMA
IAPs
IASB
ICAAP
IFRS
IGA
IRS
IOSCO
IRRBB
IRS
ISDA
JOHCM
LCR
LGBTI
LGD
LIBOR
LTI Plan
LTIFR
LVR
MFI
Cash EPS
Cash earnings per share
Cash EPS CAGR
Compound Annual Growth in Cash EPS
CEOPP
CEO RSP
Chief Executive Officer Performance Plan
Chief Executive Officer Restricted Share Plan
Corporations Act
Corporations Act 2001
COSO
Committee of Sponsoring Organizations of the
Common Reporting Standard
Credit valuation adjustment
Department of Foreign Affairs and Trade
Consumer Protection Act
Dividend Reinvestment Plan
Domestic Systemically Important Banks
Exposure at default
Electronic Funds Transfer Point Of Sale
European Market Infrastructure Regulations
Earnings per share
Environmental, social and governance
Employee Share Plan
Financial Conduct Authority
Financial Claims Scheme
Foreign Financial Institutions
Financial Markets Authority
Financial Markets Conduct Act
Financial Markets and Treasury Risk
Future of Financial Advice
Financial Stability Board
Full time equivalent employees
Funds under administration
Funds under management
Funding Valuation Adjustment
Foreign Exchange
Greenhouse gas
Global Systemically Important Banks
Global Systemically Important Financial
Institution
Hong Kong dollar
Hong Kong Monetary Authority
Individually Assessed Provisions
International Accounting Standards Board
Internal Capital Adequacy Assessment
Process
International Financial Reporting Standards
Intergovernmental Agreement
Internal Revenue Service
International Organization of Securities
Commission
Interest Rate Risk in the Banking Book
Internal Revenue Service
International Swaps and Derivatives
Association
J O Hambro Capital Management
Liquidity Coverage Ratio
Lesbian, gay, bisexual, transgender and
intersex
Loss given default
London InterBank Offer Rate
Westpac Long Term Incentive Plan
Lost Time Injury Frequency Rate
Loan to value ratio
Main Financial Institution
Hastings
Hastings Funds Management Limited
272
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
273
Useful information
Key sources of information for shareholders
Westpac Investor Relations
We report our full year performance to shareholders, in late
Information other than that relating to your shareholding can
October or early November, in two forms: an Annual Review
be obtained from:
and Sustainability Report, and an Annual Report.
6MMA
AAS
AASB
ABS
ACCC
ADI
ADRs
ADS
Westpac Group Asset & Liability Committee
FATCA
Foreign Account Tax Compliance Act
Glossary of abbreviations and defined terms
Six month moving average
Australian Accounting Standards
Australian Accounting Standards Board
CRS
CVA
DFAT
Asset-backed securities
Dodd-Frank Act
Advanced IRB
Advanced Internal Ratings Based
Australian Competition and Consumer
Commission
Authorised Deposit-taking Institution
American Depositary Receipts
American Depositary Shares
Australian Financial Services
Annual General Meeting
Advanced Internal Ratings Based
Asset and Liability Management
Advanced Measurement Approach
Australian and New Zealand Standard
Industrial Classification
Australian Prudential Regulation Authority
Australian Securities and Investments
Commission
Australian Securities Exchange
ASX Limited’s Corporate Governance Council
Automatic teller machines
Australian Taxation Office
Australian Transaction Reports and Analysis
Centre
Board Audit Committee
Basel Committee on Banking Supervision
Bank of South Australia
Bank Bills Swap Rate
BOS International Australia Limited
Basis points
Board Risk and Compliance Committee
BT Financial Group (Australia)
BT Investment Management Limited
Collectively Assessed Provisions
AFS
AGM
AIRB
ALCO
ALM
AMA
ANZSIC
APRA
ASIC
ASX
ASXCGC
ATMs
ATO
AUSTRAC
BAC
BCBS
BankSA
BBSW
BOSI
bps
BRCC
BTFG
BTIM
CAPs
Cash EPS
Cash earnings per share
Cash EPS CAGR
Compound Annual Growth in Cash EPS
CCE
CDO
CDS
CEO
Commodity, Carbon and Energy trading
Collateralised debt obligations
Credit default swap
Chief Executive Officer
CEOPP
CEO RSP
Chief Executive Officer Performance Plan
Chief Executive Officer Restricted Share Plan
CFAL
CFO
CFTC
CGU
CHF
CLF
Capital Finance Australia Limited
Chief Financial Officer
Commodity Futures Trading Commission
Cash-Generating Unit
Swiss franc
Committed Liquidity Facility
Corporations Act
Corporations Act 2001
COSO
CPM
CRG
CRO
Committee of Sponsoring Organizations of the
Treadway Commission
Credit Portfolio Management
Customer Risk Grade
Chief Risk Officer
Common Reporting Standard
Credit valuation adjustment
Department of Foreign Affairs and Trade
Dodd-Frank Wall Street Reform and
Consumer Protection Act
Dividend Reinvestment Plan
Domestic Systemically Important Banks
Exposure at default
Electronic Funds Transfer Point Of Sale
European Market Infrastructure Regulations
Earnings per share
Environmental, social and governance
Employee Share Plan
DRP
D-SIBS
EAD
EFTPOS
EMIR
EPS
ESG
ESP
FCA
FCS
FFIs
FMA
FMCA
FMTR
FOFA
FSB
FTE
FUA
FUM
FVA
FX
GHG
G-SIBS
G-SIFI
Financial Conduct Authority
Financial Claims Scheme
Foreign Financial Institutions
Financial Markets Authority
Financial Markets Conduct Act
Financial Markets and Treasury Risk
Future of Financial Advice
Financial Stability Board
Full time equivalent employees
Funds under administration
Funds under management
Funding Valuation Adjustment
Foreign Exchange
Greenhouse gas
Global Systemically Important Banks
Global Systemically Important Financial
Institution
Hastings
Hastings Funds Management Limited
HKD
HKMA
IAPs
IASB
ICAAP
IFRS
IGA
IRS
IOSCO
IRRBB
IRS
ISDA
JOHCM
LCR
LGBTI
LGD
LIBOR
LTI Plan
LTIFR
LVR
MFI
Hong Kong dollar
Hong Kong Monetary Authority
Individually Assessed Provisions
International Accounting Standards Board
Internal Capital Adequacy Assessment
Process
International Financial Reporting Standards
Intergovernmental Agreement
Internal Revenue Service
International Organization of Securities
Commission
Interest Rate Risk in the Banking Book
Internal Revenue Service
International Swaps and Derivatives
Association
J O Hambro Capital Management
Liquidity Coverage Ratio
Lesbian, gay, bisexual, transgender and
intersex
Loss given default
London InterBank Offer Rate
Westpac Long Term Incentive Plan
Lost Time Injury Frequency Rate
Loan to value ratio
Main Financial Institution
Electronic communications
Shareholders can elect to receive the following
communications electronically:
Annual Review and Annual Report;
Westpac’s Dividend Reinvestment Plan (DRP);
Notices of Meetings and proxy forms; and
Shareholder Newsletters and major
company announcements.
Dividend statements when paid by direct credit or via
Share registrars
Shareholders who wish to register their email address should
amend their address.
go to www.westpac.com.au/investorcentre and click on
‘Download a form’ under ‘Manage your shareholding’,
or contact the Westpac share Registrar. For Registrar contact
details see opposite.
Online information
Australia
Westpac’s internet site www.westpac.com.au provides
information for shareholders and customers, including:
access to internet banking and online investing services;
details on Westpac’s products and services;
company history, results, economic updates, market
releases and news; and
corporate responsibility and Westpac in the
community activities.
Investors can short cut to the Investor Centre at
www.westpac.com.au/investorcentre. The Centre includes the
current Westpac share price and charting, and links to the
latest ASX announcements and Westpac’s share Registrars’
websites.
New Zealand
provides:
Westpac’s New Zealand internet site www.westpac.co.nz
access to internet banking services;
details on products and services, including a
comprehensive home buying guide;
economic updates, news and information, key financial
results; and
sponsorships and other community activities.
Stock exchange listings
Westpac ordinary shares are listed on:
Australian Securities Exchange, (code WBC);
New York Stock Exchange (NYSE), as American
Depositary Shares, (code WBK); and
New Zealand Exchange Limited, (code WBC).
Westpac Investor Relations
Level 20, 275 Kent Street
Sydney NSW 2000 Australia
Telephone: +61 2 8253 3143
Facsimile: +61 2 8253 1207
Email: investorrelations@westpac.com.au
For information about your shareholding or to notify a
change of address etc., you should contact the appropriate
share Registrar. Please note that, in Australia, broker
sponsored holders are required to contact their broker to
Australia – Ordinary shares on the main register
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Postal address: Locked Bag A6015,
Sydney South NSW 1235
Website: www.linkmarketservices.com.au
Shareholder enquiries:
Telephone: 1800 804 255 (toll free within Australia)
International: +61 1800 804 255
Facsimile: +61 2 9287 0303
Email: westpac@linkmarketservices.com.au
New Zealand – Ordinary shares on the New Zealand
Branch register
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010, New Zealand
Postal address: P.O. Box 91976, Auckland 1142,
New Zealand
Website: www.linkmarketservices.co.nz
Shareholder enquiries:
Telephone: 0800 002 727 (toll free within New Zealand)
International: +64 9 375 5998
Facsimile: +64 9 375 5990
Email: enquiries@linkmarketservices.co.nz
Depositary in USA for American Depositary Shares
(ADS) 1
Listed on New York Stock Exchange
(code WBK - CUSIP 961214301)
The Bank of New York Mellon
PO Box 30170
College Station, TX 77842-3170, USA
ADS holder enquiries:
Telephone: 1-888-BNY-ADRS (1-888-269-2377)
(toll free number for domestic callers)
International: +1 201 680 6825
Email: shrrelations@bnymellon.com
Website: www.bnymellon.com/shareowner
1 Each ADS represents one fully paid ordinary share
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4
Notes
MiFID II
Moody’s
NaR
NII
NPS
NYSE
NZSX
NZX
OBR
OCC
OFAC
OTC
PD
PFIC
PNG
RAMS
RBA
RBNZ
RECs
Markets in Financial Instruments Directive
Moody’s Investors Service
Net interest income-at-risk
Net interest income
Net Promoter Score
New York Stock Exchange
New Zealand Stock Exchange
New Zealand Exchange
Open Bank Resolution
Office of the Comptroller of the Currency
Office of Foreign Assets Control
Over the counter
Probability of default
Passive foreign investment company
Papua New Guinea
RAMS Home Loans
Reserve Bank of Australia
Reserve Bank of New Zealand
Renewable Energy Certificates
RISKCO
RMBS
Westpac Group Executive Risk Committee
Residential Mortgage Backed Securities
RSP
RWA
S&P
SCF
SEC
SFR
SIFIs
SME
SOx
SPS
SRAs
St.George
The Group
TLAC
2003 TPS
2004 TPS
2006 TPS
TSR
UKSS
UNSC
US
VaR
Restricted Share Plan
Risk-weighted assets
Standard & Poor’s
Structured Commodities Finance
US Securities and Exchange Commission
Stable Funding Ratio
Systemically Important Financial Institutions
Small to medium enterprises
Sarbanes- Oxley Act of 2002
Stapled Preferred Securities
Settlement Residue Auctions
St.George Banking Group
Westpac Banking Corporation Group
Total Loss Absorbing Capacity
Trust Preferred Securities 2003
Trust Preferred Securities 2004
Trust Preferred Securities 2006
Total Shareholder Return
UK Staff Superannuation Scheme
United Nations Security Council
United States
Value at Risk
Westpac CN
Westpac Capital Notes
Westpac CPS
Westpac Convertible Preference Shares
WGP
Westpac Group Plan
Westpac RBB
Westpac Retail & Business Banking
WHS
WIB
WNZL
WNZS
WPP
WRP
WSNZL
274
Workplace Health and Safety
Westpac Institutional Bank
Westpac New Zealand Limited
Westpac New Zealand Superannuation
Scheme
Westpac Performance Plan
Westpac Reward Plan
Westpac Securities NZ Limited
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
275
RISKCO
RMBS
Westpac Group Executive Risk Committee
Residential Mortgage Backed Securities
Markets in Financial Instruments Directive
Moody’s Investors Service
Net interest income-at-risk
Net interest income
Net Promoter Score
New York Stock Exchange
New Zealand Stock Exchange
New Zealand Exchange
Open Bank Resolution
Office of the Comptroller of the Currency
Office of Foreign Assets Control
Over the counter
Probability of default
Papua New Guinea
RAMS Home Loans
Passive foreign investment company
Reserve Bank of Australia
Reserve Bank of New Zealand
Renewable Energy Certificates
Restricted Share Plan
Risk-weighted assets
Standard & Poor’s
Structured Commodities Finance
US Securities and Exchange Commission
Stable Funding Ratio
Systemically Important Financial Institutions
Small to medium enterprises
Sarbanes- Oxley Act of 2002
Stapled Preferred Securities
Settlement Residue Auctions
St.George Banking Group
Westpac Banking Corporation Group
Total Loss Absorbing Capacity
Trust Preferred Securities 2003
Trust Preferred Securities 2004
Trust Preferred Securities 2006
Total Shareholder Return
UK Staff Superannuation Scheme
United Nations Security Council
United States
Value at Risk
Westpac CN
Westpac Capital Notes
Westpac CPS
Westpac Convertible Preference Shares
Westpac RBB
Westpac Retail & Business Banking
Westpac Group Plan
Workplace Health and Safety
Westpac Institutional Bank
Westpac New Zealand Limited
Westpac New Zealand Superannuation
Scheme
Westpac Performance Plan
Westpac Reward Plan
Westpac Securities NZ Limited
MiFID II
Moody’s
NaR
NII
NPS
NYSE
NZSX
NZX
OBR
OCC
OFAC
OTC
PD
PFIC
PNG
RAMS
RBA
RBNZ
RECs
RSP
RWA
S&P
SCF
SEC
SFR
SIFIs
SME
SOx
SPS
SRAs
St.George
The Group
TLAC
2003 TPS
2004 TPS
2006 TPS
TSR
UKSS
UNSC
US
VaR
WGP
WHS
WIB
WNZL
WNZS
WPP
WRP
WSNZL
274
Notes
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
275
4
Notes
Notes
276
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
277
Notes
Notes
276
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
277
4
Notes
Notes
278
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
279
Notes
Notes
278
2015 Westpac Group Annual Report
2015 Westpac Group Annual Report
279
4
Notes
The Westpac Group Annual Report 2015 is printed
on PEFC certified paper. Compliance with the
certification criteria set out by the Programme for
the Endorsement of Forest Certification schemes
(PEFC) means that the paper fibre is sourced from
sustainable forests.
280
2015 Westpac Group Annual Report
WESTPAC GROUP
HEAD OFFICE
275 Kent Street
Sydney NSW 2000 Australia
Telephone +61 2 9374 7113
Facsimile +61 2 8253 4128
International payments +61 2 9806 4032
Email online@westpac.com.au
www.westpac.com.au/westpacgroup
Telephone – Consumer 132 032
Telephone – Business 132 142
From outside Australia +61 2 9293 9270
Email online@westpac.com.au
www.westpac.com.au
ST.GEORGE BANK
St.George House
4-16 Montgomery Street
Kogarah NSW 2217 Australia
Mail
Locked Bag 1
Kogarah NSW 1485 Australia
Telephone +61 2 9236 1111
Facsimile +61 2 9952 1000
Email stgeorge@stgeorge.com.au
www.stgeorge.com.au
BANK OF MELBOURNE
Level 8, 530 Collins Street
Melbourne VIC 3000 Australia
Telephone 13 22 66
From outside Australia +61 3 9982 4186
Facsimile +61 3 9296 4371
Email
www.bankofmelbourne.com.au
info@bankofmelbourne.com.au
GLOBAL LOCATIONS
Specific contact details for the many locations
globally can be located on our website at
www.westpac.com.au
Select About Westpac from the top menu bar,
then Global Locations from the Explore menu.
BANKSA
97 King William Street
Adelaide SA 5000 Australia
Mail
GPO Box 399
Adelaide SA 5001 Australia
Telephone 131 376
From outside Australia +61 2 9553 5233
Email banksa@banksa.com.au
www.banksa.com.au
RAMS
RAMS Financial Group Pty Ltd
Level 7, 17 York Street
Sydney NSW 2000 Australia
Mail
GPO Box 4008
Sydney NSW 2001 Australia
Telephone +61 2 8218 7000
Facsimile +61 2 8218 7171
Email communications@rams.com.au
www.rams.com.au
BT FINANCIAL GROUP
275 Kent Street
Sydney NSW 2000 Australia
Telephone 132 135
From outside Australia +61 2 8222 7154
Email customer.relations@btfinancialgroup.com
www.bt.com.au
WESTPAC INSTITUTIONAL BANK
Telephone 132 032
Facsimile +61 2 8254 6938
Email
www.westpac.com.au
institutionalbank@westpac.com.au
Institutional Bank locations
Hong Kong
India — Mumbai
People’s Republic of China — Beijing, Shanghai
Republic of Indonesia — Jakarta
Republic of Singapore — Singapore
United States of America — New York
United Kingdom — London
EST. 1861
WESTPAC NEW ZEALAND
16 Takutai Square
Auckland 1010 New Zealand
Telephone +64 9 912 8000
Email customer_solutions@westpac.co.nz
www.westpac.co.nz
WESTPAC PACIFIC
Telephone 132 032
From outside Australia +61 2 9293 9270
Facsimile +61 2 8253 1193
Email online@westpac.com.au
www.westpac.com.au/pacific
Pacific Banking locations
Fiji — Suva
Papua New Guinea — Port Moresby
Vanuatu — Port Vila
SHARE REGISTRAR
Link Market Services Limited
680 George Street
Sydney NSW 2000 Australia
Mail
Locked Bag A6015
Sydney South NSW 1235
Telephone 1800 804 255
Facsimile +61 2 9287 0303
Email westpac@linkmarketservices.com.au
www.linkmarketservices.com.au
investorrelations@westpac.com.au
WESTPAC INVESTOR RELATIONS
Email
Telephone +61 2 8253 3143
www.westpac.com.au/investorcentre
WESTPAC GROUP SUSTAINABILITY
For further information on the Westpac Group’s
sustainability policies and performance:
Email sustainability@westpac.com.au
www.westpac.com.au/sustainability
Telephone +61 2 8254 8488
For information on our compliance with
International Agreements, including the United
Nations Global Compact and Declaration on
Human Rights, contact the General Manager
of Group Corporate Affairs & Sustainability
via the above details.
www.westpac.com.au