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2016 Westpac Group
Annual Report
Herb Smith.
Founder of Dreamtime Tuka
and Westpac customer.
Proudly
Supporting
Australia
For almost 200 years, Westpac has supported Australia and New Zealand.
As Australia’s oldest company, we’ve been a constant thread, through the ups and downs
of economic cycles as a partner in the country’s development. Our story is one of innovation,
growth, resilience, and adaptation. It’s why we’ve been in business for 200 years.
As we approach our third century we’re continuing to transform. The community wants
more from banks. And Westpac is responding: we’ve strengthened our balance sheet;
we’re digitally transforming our operations and we’re reviewing our policies, processes and
incentives to further drive our service culture. In doing so, customers can trust we have
their interests at heart and if we make a mistake we will set things right.
It’s this attitude that will help us support customers, shareholders, employees and
the community into the next 200 years.
The Westpac Group Annual Report, Annual Review & Sustainability Report, and 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.
W
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2016 Westpac Group
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Proudly
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2016 Westpac Group
Annual Review &
Sustainability Report
Proudly
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2016 Westpac Group
Sustainability
Performance Report
Westpac employee
Kate Holloway and
her son Carter.
Herb Smith.
Founder of Dreamtime Tuka
and Westpac customer.
Bob Mac Smith.
Fifth generation farmer
and Westpac customer.
2016 Annual
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& Sustainability
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2016 Sustainability
Performance
Report
ON THE COVER
Herb Smith, founder of
Dreamtime Tuka and Westpac
customer. Read Herb’s story
online at 2016annualreport.
westpacgroup.com.au
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Visit Westpac’s
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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
Outlook
Significant developments
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
Consumer Bank
Business Bank
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Group Businesses
Risk and risk management
Risk factors
Risk management
Credit risk
Liquidity risk
Market risk
Operational risk and compliance risk
Other risks
Westpac’s approach to sustainability
Sustainability performance
Five year non-financial summary
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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inside back cover
2016 Westpac Group Annual Report
1
Performance highlights
Net profit after tax $7,445 million, down 7%
Dividends $1.88 up 1%2
Net profit after tax1 ($m)
Dividends per ordinary share (cents) Special dividends
6
4
3
,
6
1
9
9
,
6
1
5
7
,
6
6
3
9
,
5
2
1
0
,
8
5
4
4
,
7
1
6
5
,
7
2
4
1
1
3
1
9
3
1
6
1
1
0
2
4
7
1
2
8
1
7
8
1
8
8
1
6
6
1
6
5
1
9
5
8
,
3
1
5
4
,
3
6
4
4
,
3
07
08
09
10
11
12
13
14
15
16
07
08
09
10
11
12
13
14
15
16
Cash earnings $7,822 million, flat
Returns 14.0%, down 185bps
Cash earnings3,4,5 ($m)
Cash earnings to average ordinary equity3,4,5 (%)
1
0
3
,
6
4
6
5
,
6
9
7
8
,
5
3
6
0
,
7
8
2
6
,
7
0
2
8
,
7
2
2
8
,
7
7
4
0
,
5
5
7
6
,
4
7
0
5
,
3
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
0
.
4
1
07
08
09
10
11
12
13
14
15
16
07
08
09
10
11
12
13
14
15
16
Cash earnings per ordinary share, down 5%
Cash earnings per ordinary share3,4,5,7 (cents)
4
.
9
8
1
3
.
8
9
1
7
.
3
6
1
3
.
9
0
2
8
.
4
1
2
8
.
7
9
1
8
.
7
2
2
4
.
5
4
2
2
.
8
4
2
5
.
5
3
2
07
08
09
10
11
12
13
14
15
16
2 0 16
% c ha nge
2 0 15 2 0 16 / 2 0 15
R e p o rte d e a rn in g s
Net profit after tax1($m)
Earnings per share (c ents)
Dividends per share (c ents)
Return on equity6 (%)
Expense to inc ome ratio (%)
Common Equity Tier 1 c apital ratio (%)
C a sh e a rn in g s b a sis 3
Cash earnings ($m)
Cash earnings per share (c ents)
Cash earnings return on equity6 (%)
Ec onomic profit8 ($m)
7,445
224.6
8,012
255.0
188
13.3
43.9
9.5
187
16.2
43.8
9.5
7,822
7,820
235.5
14.0
3,774
248.2
15.8
4,418
(7%)
(12%)
1%
291bps
15bps
(2bps)
-
(5%)
(185bps)
(15%)
1
Net profit attributable to ordinary equity holders.
2
Excluding special dividends but including dividends determined in
2016.
3
The adjustments to our reported results to derive cash earnings are
described in Note 2 of our 2016 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
2010 Annual Report.
6
Return on average ordinary equity.
7
2015 cash earnings per ordinary share have been restated for
consistency with 2016. Periods prior to 2015 have not been restated
for the bonus element of the 2015 share entitlement offer.
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 2016 Results (incorporating the requirements
of Appendix 4E) lodged with the ASX on 7 November 2016 (the
‘ASX Announcement’).
2
2016 Westpac Group Annual Report
Chairman’s report
Chief Executive Officer’s report
Information on Westpac
Directors’ report
(including Remuneration Report)
1 Chairman’s report
Lindsay Maxsted
Chairman
Materially strengthening our balance sheet
and delivering sound returns
It has been another significant year for Westpac with the
company making good progress on its strategy, materially
strengthening its balance sheet and delivering sound
returns.
Statutory net profit was lower over the year, principally
because 2015 included some positive infrequent items,
including asset sales. Cash earnings (our preferred measure
of performance) for the year ended 30 September 2016
were little changed compared to 2015, with disciplined
growth across the business contributing to 3% revenue
growth. This increase was largely offset by higher
impairment charges, mostly related to a small number of
larger companies being downgraded to impaired early in the
year.
While we have achieved much in 2016, the year has been
somewhat overshadowed by increasing public criticism of
Australia’s banks.
It is fair to say there have been recent examples of poor
behaviour in the industry and in some instances the industry
has fallen short of community expectations. We work hard to
win customers’ business and maintain returns for
shareholders, and we must also continually work hard to
maintain the trust of the community as a whole.
That is why Australia’s banks are implementing a
comprehensive suite of measures to further protect
customer interests and increase transparency and
accountability. These include ensuring there are no conflicts
in the way staff are incentivised, further protecting
whistleblowers and enhancing the handling of complaints.
However, we also need to be proud of the important role
banks play for Australians. The sector has not relied on
capital from the government, nor has it weighed down
economic activity – in fact the reverse is true. It is regrettable
that the debate and coverage around banks has not
acknowledged these benefits and, at times, has comprised
broad and ill-informed accusations.
Before I share my observations on the year that has been, I
would first like to offer some balance to this debate, so that
shareholders are more fully informed and equipped to form
their own views and contribute to the debate.
As Westpac’s Chairman, I see firsthand the overwhelming
benefit Australian banks bring to the economy – at a macro
level, supporting Australia’s investment requirements and
needs for foreign capital, and at a micro level, supporting
customers to meet their financial goals. It has been globally
acknowledged that Australia and New Zealand have been
well served by their major banks, both during and since the
GFC. You need only look at other global markets, such as
the UK, parts of Europe and the US to appreciate the
devastating impact poorly performing banks can have on
customers and economies over extended periods.
Australia’s major banks have been well managed, have not
relied on government support, and have overwhelmingly
contributed positively to the nation. Here are some facts
about the banking sector:
The Australian banking sector was not bailed out during
the GFC. Unlike many other developed nations, no
taxpayer funds were injected into the Australian banks.
In fact, the sector paid $4.5 billion in fees for a
guarantee that was never called upon, and continued to
lend and support the economy through the crisis.
Australian banks pay the most income tax of any
industry in Australia. With over $14 billion paid in taxes
or levies in 2015, tax paid by banks accounted for
nearly half of all income tax paid by companies in the
ASX200. At Westpac, our effective tax rate this year
was 29.9% - it is clear that we pay our fair share of tax.
Profitability of the Australian banks is consistent with a
sector that needs to be seen as “unquestionably
strong”. Australian banks need to be unquestionably
strong to:
– continue to support households and businesses
through economic cycles;
– support Australia’s current account deficit by raising
funds offshore; and
– invest in innovation and create a better experience
for customers.
Suggestions that banks should accept lower returns or
pay additional levies are misguided. These measures
would only weaken the system and its ability to support
the economy in economic downturns, as well as
reducing the banks’ competitiveness in a global market.
Indeed, healthy profitability is one of the key measures
that international rating agencies look at when
assessing a company’s rating – which in turn impacts
4
2016 Westpac Group Annual Report
the cost and availability of overseas funding to support
the economy.
behaviour but these are isolated and, where problems have
been found, the company has committed to put things right.
Chairman’s report
Returns of Australian banks are in-line with other
leading banking systems and the market. The average
return on equity (ROE) of the Australian major banks is
currently around 12-15%, broadly similar to other high
quality banking markets such as Canada or the
Scandinavian countries. That return is above the return
of the ASX200 of closer to 11% but below returns of
other service industries. Australian major bank returns
are above markets such as the UK, parts of Europe and
in the US. These markets are underperforming and in
many respects are still recovering from the GFC, and as
such are delivering performances to which we should
not aspire. Separately, while Australian banks make
large profits, these profits are in line with their size.
Westpac, for example, has an asset base of around
$840 billion and we make less than 1% return on those
assets.
Customers are paying less for their banking. There is a
perception that Australian banks are charging
customers more for lending and paying less for deposits
today than prior to the GFC. The net interest margin is
the best aggregate measure of the value banks
generate from their lending and borrowing activities and
that margin has been declining. For Westpac, the facts
are that in 2000 our net interest margin was 3.10%, in
2006 it was 2.29% and in 2016 it was 2.13%.
On 8 April 2017, Westpac will become the first company in
Australia to celebrate 200 years. This is something that
makes the Board, management and all our 40,000
employees incredibly proud. Westpac has supported
Australia and New Zealand through the ups and downs of
wars, depressions, crises and economic booms. Indeed our
fortunes have mirrored those cycles.
Westpac’s success depends on the success of Australia and
New Zealand.
We have never lost sight of this. We work with this in mind
by supporting the needs of customers, employees and
communities as well as working in the long-term interests of
shareholders.
Building a service culture
The Board plays an important role in building a deeper
service culture across the organisation. It starts with our own
behaviours and of course extends to holding the Group to
account in how it supports customers and responds to
issues.
There is no doubt we have made significant progress in this
respect. The 31% reduction in complaints across Australian
operations over the year demonstrates that our plans are
working.
The Board has closely monitored recent industry issues and,
together with management, has sought to ensure that your
company remains strongly placed. As an example, following
some industry issues in financial planning and life insurance,
we have asked external reviewers to look closely at our own
operations, assessing our policies and practices and our
actions and responses. Not surprisingly, with a business of
our size, we have had a small number of examples of poor
2016 performance
Turning to performance, 2016 was a sound year in
challenging circumstances. Westpac reported statutory net
profit of $7,445 million, down 7% over the year. The decline
in net profit was principally because 2015 included some
positive infrequent items, including $665 million in gains (net
of tax) associated with the partial sale of BT Investment
Management. Because of the size and nature of these
items, they were excluded from the calculation of cash
earnings.
Westpac reported cash earnings of $7,822 million for the
year ended 30 September 2016, which was little changed
from the 2015 financial year. The Group uses cash earnings
as a key metric for assessing performance, and is the basis
on which executive performance is also determined.
The Group generated solid growth through the year, with
lending rising 6% and customer deposits increasing 9%.
These gains were, however, partially offset by a reduction in
non-interest income, higher expenses, and a rise in
impairment charges, or bad debts.
The 3% rise in expenses through the year was principally
related to an increase in investment and higher regulatory
and compliance spending. Business-as-usual expenses
were largely offset by productivity gains.
Within expenses, I know there is much interest in our
approach to executive remuneration. Similar to recent years,
the Board has ensured that the starting salaries of new ‘key
management personnel’ are below those of the prior
incumbents. Two new executives became ‘key management
personnel’ this year although as their start date was
1 October 2016, their salaries will not appear in our
remuneration tables until next year.
In addition, because of this year’s earnings performance,
short-term incentives for the executive team are down, on
average, 11% on the prior year. At the same time, long-term
executive incentives did not vest this year as the hurdles set
by the Board were not achieved. These long-term incentives
make up around one third of each executive’s remuneration.
Higher impairment charges principally related to a small
number of larger companies being classified as impaired in
the first half of the year. We monitor asset quality trends
closely and Westpac’s Board and management believe that
the deterioration of these larger names is not indicative of a
more widespread deterioration in asset quality. Where
additional stress has emerged, it is principally related to
those sectors and regions whose fortunes have been closely
tied to the mining investment cycle. Additional stress has
also emerged in New Zealand dairy, to which our exposure
is modest.
Reflecting this trend, we have increased provisioning levels
and our provisioning ratios remain strong. For example, the
ratio of gross impaired asset provisions to gross impaired
assets is 49% and leads the sector. This means our
individual provisions cover almost half of our total impaired
assets.
2016 Westpac Group Annual Report
5
1 While on the topic of results, I must acknowledge the
performance of the new management team and structure.
Brian Hartzer has led Westpac as CEO for his first full year
and our new operating structure and executive team have
been in place for just over a year.
The Board has been pleased with the team’s performance.
In particular, there has undoubtedly been a further
improvement in the Group’s service culture and the digital
transformation of the company is gaining traction.
Importantly, the team has maintained the disciplines and
strengths that are hallmarks of Westpac. This includes the
effective management of capital, leading the market on
changing pricing for more capital, appropriately provisioning
for new impaired assets, as well as proactively responding to
community calls for change.
Capital and dividends
The 2016 year saw the further strengthening of our balance
sheet through both additional capital and an enhanced
liquidity position.
After raising around $6 billion in capital in the 2015 calendar
year, the Group’s common equity Tier 1 capital ratio of
9.48% is above our preferred range. On an internationally
comparable basis, this comfortably puts us in the top quartile
of banks globally.
On liquidity, global regulators have been gradually
introducing new measures to enhance banks’ ability to
remain liquid in times of stress. The Australian regulator is
seeking to be ahead of global trends, having already
required compliance with the Liquidity Coverage Ratio in
January 2015, and is looking for banks to meet the new Net
Stable Funding Ratio from 1 January 2018. Today, based on
current standards, Westpac is meeting both these
requirements.
As I indicated in last year’s report, this strengthening of our
balance sheet has come at a cost, increasing our
shareholders’ equity, lifting shares on issue and incurring
additional costs associated with our strengthened liquidity.
These changes have impacted earnings and particularly
Westpac’s ROE and earnings per share.
Reflecting the significant increase in shares on issue through
the year, our cash earnings per share of 235.5 cents was
down 5% over the year, while the Group’s ROE was 14.0%,
down from 15.8% in 2015.
The Group’s earnings, combined with our strong capital
position (the common equity Tier 1 ratio of 9.48% is some
23 basis points above the top of the Group’s preferred range
of 8.75 – 9.25%) has enabled the Board to determine a final
ordinary dividend of 94 cents per share, fully franked. This
dividend rate was unchanged from the 2016 interim ordinary
dividend of 94 cents per share. Full year dividends totalled
188 cents per share up 1 cent or 0.5% relative to Full Year
2015.
The final ordinary dividend represents a payout ratio of
80.3% (Full Year 2016 80.3%). Allowing for shares to be
issued under the DRP, the percentage of second half 2016
cash earnings paid out is estimated to be around 72%.
The 94 cent per share dividend represents a dividend yield
of 6.4% based on the closing share price at
30 September 2016 of $29.51, or over 9% after adjusting for
franking.
The final ordinary dividend will be paid on
21 December 2016 with the record date of
15 November 2016.
We recognise the importance of dividends for shareholders,
and the franking credits attached to those dividends. Our
approach is to continue to make dividend payments that are
sustainable in the long-term; that is, ensuring we retain
enough of our earnings to hold our capital levels while also
retaining sufficient capital for growth. It is also about
maximising the payment to distribute franking credits. We
are prepared to wear some volatility in the payout ratio to
give shareholders some consistency in dividend payments
but we must continue to anchor our decision to a long-term
sustainable position.
Board composition
The Board and management teams have been stable over
the year. There were no changes to the Board, although
subsequent to 30 September 2016, Elizabeth Bryan has
decided that she will retire at the conclusion of our 2016
Annual General Meeting on 9 December 2016.
Elizabeth has made an outstanding contribution to the Board
over her 10 year tenure. She was a source of stability
through the financial crisis, including serving on the
important Board Risk Management Committee (now the
Board Risk & Compliance Committee). Elizabeth has been
an exceptional Chairman of this key Committee since 2010.
In addition to Elizabeth’s director experience, her deep
understanding of the wealth management industry has also
been a great asset to the Board.
Succession planning for new directors is continually
discussed by the Board. We expect to be able to conclude
discussions and announce the appointment of two non-
executive directors in the first half of 2017, who will add
further strength and diversity to your Board.
Outlook
Our outlook for the Australian and New Zealand economies
remains positive and while growth remains a little uneven
across States, the fundamentals remain sound. The
relatively low level of the Australian dollar, and low interest
rates, have supported good growth in the services sector
(particularly health, education and tourism), a rise in
residential and infrastructure investment and improved net
exports. These gains have offset the slowdown in mining
investment.
These trends are expected to broadly continue in the year
ahead with Australia’s GDP growth expected to grow a little
ahead of 3% with unemployment likely to hold below 6%.
These settings, combined with persistent low inflation and
low interest rates, will likely lead to similar system lending
and deposit activity in 2017 as in 2016. How growth evolves
for banks will also depend on regulatory requirements
including for capital and liquidity.
Asset quality is expected to remain sound in the year ahead,
although it is likely that additional stress will continue to
emerge in sectors and regions undergoing some structural
change.
6
2016 Westpac Group Annual Report
Chairman’s report
With the banking sector in strong shape, competition is also
expected to remain intense.
Summary
It has been a challenging year for the banking sector given
the evolving operating environment. This has included
changes to capital and liquidity requirements, strong
competition and increased criticism of how customers have
been treated.
Westpac has responded to these changes by materially
strengthening our balance sheet for capital and liquidity
purposes while working diligently to respond to community
expectations and rebuild trust.
2017 will be an exciting year for Westpac. In addition to the
significant changes taking place in banking, 2017 will mark
our 200th anniversary – a milestone that is generating great
excitement and pride across the Group.
We approach our 200th anniversary in great shape, a
position of which our past Chairmen would be proud.
Westpac is strong, our strategy is delivering, our operating
divisions are well placed and our 40,000 employees are
passionate about helping customers reach their financial
goals. With this foundation, we expect to continue
generating long-term value and sound returns for
shareholders for many years to come.
.
LINDSAY MAXSTED
Chairman
2016 Westpac Group Annual Report
7
1 Chief Executive Officer’s report
Brian Hartzer
Chief Executive Officer
Australia’s first bank
Dear fellow shareholders,
Two hundred years ago this month, on the 22nd of
November 1816, a group of prominent Sydney business
people met formally for the first time to consider Governor
Lachlan Macquarie’s request that they advise him on how to
create a local currency for the still-new colony.
The request reflected Governor Macquarie’s desire to build a
strong, independent economy—an objective that was not
shared by his colonial overseers in London.
The group’s response—that to have a currency, the colony
needed its own bank—led to the founding in April 1817 of
the Bank of New South Wales: Australia’s first company, and
first bank.
Since that first meeting 200 years ago, the company we now
call Westpac has always recognised that our success is
inexorably tied to the prosperity of the local economy,
through the success of our customers. As our home
communities of Australia and New Zealand have faced and
responded to many challenges over the centuries—
economic, environmental, demographic, cultural, and
political—so too we at Westpac have constantly adapted to
support the economic development of these nations.
We reflect this role in our vision statement: “To be one of
the world’s great service companies, helping our
customers, communities and people to prosper and
grow.”
In last year’s letter I outlined our strategy to fulfil this vision,
and why we believe that a strategy focused on service is the
right response to our rapidly changing environment.
Our strategy has not changed, and because we have the
right business mix and are not burdened with major
underperforming or non-core businesses we’ve been firmly
focused on implementation.
This year my aim, once again, is to give you a candid
assessment of our performance, as well as update you on
our strategic progress and provide my perspective on the
challenges and priorities for the next period.
And, given all the negative political and media attention paid
to the banking industry in recent months, I’d like to add a few
further thoughts to those of our Chairman on the industry’s
reputation and what we are doing to close what I’ve been
referring to as the ‘trust gap’.
2016 Financial Performance
As in every year, our highest priority is to maintain the
strength of our balance sheet. This financial year we took
significant steps to increase our equity capital base—
through an entitlement offer raising $3.5 billion—which
followed other initiatives last financial year, including the
underwritten dividend reinvestment plan in May 2015 and
the partial sale of BT Investment Management (BTIM). As a
result, our common equity Tier 1 ratio stands at 9.5%, or
14.4% on an internationally comparable basis—one of the
highest ratios of any large bank in the world.
We strengthened our funding mix, with customer deposits
rising 9% to comprise 70.5% of loans. The average tenor of
wholesale funding raised this year was 5.4 years, up from
less than 5 years in 2015, and our Liquidity Coverage Ratio
(LCR) reached 134%—an important regulatory measure of
our ability to absorb market shocks. We also assessed our
Net Stable Funding Ratio (NSFR) as exceeding 100%—a
milestone set by APRA (our key prudential regulator) that all
banks must achieve by the beginning of the 2018 calendar
year.
Profitability
Turning to profit, cash earnings for the Westpac Group—our
preferred performance measure—was $7,822 million
compared to $7,820 million for Full Year 2015.
Earnings per share fell 5% to 235.5 cents, reflecting the
significant increase in capital issued over the last 12 months.
Return on Equity (ROE) was also lower at 14.0%, down from
15.8% in 2015.
On a reported basis, Westpac’s net profit was $7,445 million,
down 7% over the year.
The difference between cash earnings and reported profit
reflects a number of infrequent items that, in aggregate,
boosted reported profit by $375 million in 2015 (but were
excluded from the calculation of cash earnings in that year).
These items included gains associated with the partial sale
of BTIM and tax benefits linked to the acquisition of Lloyds
Australia in 2014, partially offset by a reduction in capitalised
software charges following a review of how we account for
some technology investments.
While these results are lower than we’d like, the flat cash
earnings growth masks the fact that below the surface we
were doing a lot of paddling—and making real progress.
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2016 Westpac Group Annual Report
It’s also worth noting that these results took place in an
environment that was difficult for banks, with more financial
headwinds than we expected at the start of the year.
Interest rates were lower, which is a significant drag on
earnings for a bank like Westpac. Global financial market
conditions also contributed to reduced customer activity for
our institutional business.
At the same time, regulatory and legal costs were higher, as
we responded to an increased number of requests by
regulators both at home and abroad. And, after a number of
years of very low credit losses—indeed, net write-backs—in
our Institutional business, we saw a small number of
relatively large ‘names’ get into difficulty. This meant that we
increased our credit provisions substantially in Westpac
Institutional Bank (WIB)—an occasional feature of being in
this business, but a drag on earnings nonetheless.
Revenue performance1
Looking within the result, operating income for the group
increased 3%, with net interest income growth of 8%
partially offset by lower non-interest income. The growth in
net interest income was driven by loan growth of 6%,
customer deposit growth of 9%, and a 5 basis point
improvement in our net interest margin.
It’s worth noting that the net interest margin picture is
complex; encompassing changes across our entire suite of
lending, deposit, and wholesale borrowing costs, as well as
changing capital and liquidity requirements from our
regulators.
Although there has been a lot of media and political attention
on our pricing of late, the fact remains that our margin has
come down over the last ten years. Ten years ago the net
interest margin was 2.29%; five years ago it was 2.22%, and
this year it averaged 2.13%—while the second half margin
was a bit lower still at 2.11%. The perception that we have
repriced loans to lift the overall margin fails to consider all
the movements across our entire balance sheet, and how
we seek to balance the impact of these movements across
borrowers, depositors, and shareholders.
Setting aside the margin picture, net interest income growth
reflected strong performance in our Consumer and Business
Bank divisions. Australian mortgages grew $28 billion, or 8%
year-on-year. We grew our share in mortgages, despite the
imposition by APRA of a cap on investor property lending
and certain other regulatory adjustments to underwriting
standards. The net result of these and other changes was to
more evenly balance home loan growth across owner-
occupied and investor lending.
Small business lending—one of our key focus areas—also
grew strongly, with loans up 8% over the year. This reflects
the benefit from our new online loan origination platform,
LOLA, and the use of video conferencing to immediately
connect customers with business specialists in areas like
transaction banking, trade, and merchant (credit card)
processing.
New Zealand’s loan book grew strongly across both
business and consumer lending, at 9%2 over the year. This
1 On a cash earnings basis.
2 In New Zealand dollars.
Chief Executive Officer’s report
growth was broad-based across industries and regions.
However, a highly competitive market for both deposits and
loans put significant pressure on the net interest margin in
New Zealand, which fell sharply in the first half (although
there are signs of stabilisation in the second half of the
year).
In WIB, the ongoing phenomenon of ‘quantitative easing’ by
central banks around the world has continued to put
pressure on margins for institutional lending here in
Australia—as global banks from markets with low to zero
interest rates seek higher returns elsewhere. In this
environment, we are focusing on managing return and
margins while preserving our most important long-term
transactional and lending relationships. As a consequence,
we stood back from a number of large transactions in the
market (especially in commercial property and trade
finance), and overall lending fell 3%—an outcome we are
comfortable with.
The other key driver of our revenue result was non-interest
income, which was down $446 million over the year. Much of
the decline was due to lower gains on asset sales, the partial
sale of our investment in BTIM, as well as reduced customer
activity in WIB. At the same time, the Consumer Bank
experienced a regulated reduction in interchange income on
credit cards.
Expense performance and investment in growth
Given the lower revenue environment this year, we’ve
remained disciplined on our expenses while continuing to
invest in ways that will drive a step-change in long-term
productivity.
Essentially our goal is to neutralise ordinary expense growth
through disciplined productivity initiatives, so that most of the
net growth in expenses is investment-related. This year we
achieved $263 million in productivity savings (3% of our cost
base), including through digitising processes, further
reconfiguring our network and renegotiating major contracts.
Given our flat financial performance, this included a
reduction of around 10% in the overall variable incentives
paid to our senior employees.
At the same time, we materially increased our strategic
investments in service and productivity, with an annual
spend of $1.2 billion against last year’s total of around
$1 billion. This meant that total expenses grew 3% and our
cost-to-income ratio was maintained at 42%—a number that
we aim to drive below 40% in coming years.
We are also investing in technology to transform customer
experiences and further strengthen our core infrastructure.
In New Zealand, after a significant upgrade to our online
platform last year, we’ve rolled out several new
innovations—most recently the CashNAV mobile app
developed in conjunction with fintech leader Moven. This
app allows customers to better track and manage their
spending. We also achieved a significant technology
milestone this year with the upgrade of our deposit and
transaction system for St.George—called Celeriti. This
system will ultimately serve as our single transaction and
deposit platform for all our consumer and business
relationships.
2016 Westpac Group Annual Report
9
1
In BTFG, our new wealth platform, Panorama, has achieved
a number of development milestones, and balances are
beginning to grow on the platform. We believe this system
will give us a significant functionality and cost advantage in
the high-growth wealth business in years to come.
With a wide variety of fintech firms emerging we are keeping
an eye on developments and are selectively investing in new
models that have the potential to disrupt traditional banking.
We are partnering with businesses in areas as diverse as
blockchain, quantum security, and digital mortgage broking.
We have also separately invested $100 million in
Reinventure, a venture capital fund that directly invests in
fintech businesses with the potential to make a significant
impact in Australia. The fund currently has 11 investments,
including data marketplace platform Data Republic,
employee platform provider Flare HR, peer-to-peer lender
Society One, and crime prevention software provider Auror.
Credit costs and asset quality
The other major impact on our earnings was credit
provisions, with impairment charges up 49% to
$1,124 million. Much of the rise was due to single ‘names’
mentioned earlier. We take a conservative approach to such
facilities and therefore significantly increased the
provisioning associated with each.
Setting aside these large impairments, overall asset quality
is in good shape: stressed assets to total committed
exposures were low at 1.20%. This is more than 60% below
financial crisis levels in 2010. There has been a small rise in
stress through the year in certain sectors and regions
impacted by the slowing in mining investment along with
some challenges in New Zealand dairy, but in our judgement
these trends don’t indicate a broader deterioration in quality.
Although there has been some commentary recently about
credit risks in commercial property and housing, we remain
very comfortable with our book, thanks in part to actions we
took in previous years. In commercial property, for example,
back in 2012 we identified regions where residential
apartment supply looked to be increasing too rapidly, and in
response we further tightened our lending criteria. Those
decisions have proven to be prudent, with those same
regions now being flagged as oversupplied.
There is no doubt that house prices are high and customers
are more leveraged. But we believe that, with a few localised
exceptions, market conditions reflect the impact of lower
interest rates along with genuine supply and demand
imbalances, rather than being fuelled by excessive
speculation or an easing in lending standards. Therefore, we
do not subscribe to the view that there is a housing bubble.
Elsewhere in the portfolio we have had some concerns on
the New Zealand dairy industry given depressed global milk
prices, but efforts of farmers to re-align their cost bases—
along with recent improvements in milk prices—have
alleviated some of our concern.
In consumer lending, we have seen a small rise in mortgage
90+ day delinquencies, but these tend to be concentrated in
regions affected by the slowdown in mining investment
mentioned above, and overall remain within our normal
tolerance levels. In fact, of the 1.5 million mortgages we
have outstanding, there are only 262 houses that are
currently in possession—which is a very low level in
absolute terms and relative to history.
Summary—Financial Performance
Taking all of these factors into account, the combination of
earnings and capital/funding actions meant that we finished
the year with a much stronger balance sheet than we
started. For our shareholders, this meant that we have
continued to grow the net tangible assets per share by 7% or
88 cents per share—an important measure of intrinsic value.
Including total dividends paid and share price movements,
total shareholder return for the 2016 financial year was
6.3%. This compares with the average total return for the
banking sector of 6.2% over the same period.
Customer and Market Performance
As part of our service strategy we changed our
organisational structure in 2015 to better align with our
customer segments. This led to the creation of two new
divisions: Consumer Bank, with end-to-end accountability for
consumer banking relationships across both Westpac and
our regional brands; and Business Bank, which serves
commercial and small business customers. The structures of
BT Financial Group (BTFG), WIB, and Westpac New
Zealand remained largely unchanged.
This is the first year we are reporting under our new
structure and comparative financials have been restated to
compare like for like.
The Consumer Bank performed strongly this year. In total,
more than 500,000 new customers joined us, contributing to
net customer growth of 3% and helping to lift cash earnings
by 14%. From a service point of view, the outcomes were
mixed. Customer satisfaction for the Consumer Bank was
down a little, from 83.8% to 81.3%1.
When we look beneath that overall survey result—which has
almost certainly been negatively impacted by the general
media climate for banks—we see substantial improvements
in how customers rate their direct experience with us. For
example, the net promoter score (NPS) across our call
centres rose from 65.5 to 68.1 and branch NPS2 for
St.George, Bank of Melbourne and BankSA for instance
grew from 55 to 57 over the year. Complaints in the
Consumer Bank reduced by 29%, and over the last quarter
we recorded three times as many compliments as
complaints in our branch network.
One particular area of focus has been on digital service,
where we saw an increase in digital logins of 11%; digital
channels now represent 23% of sales. Our Westpac Live
mobile application was rated No.1 in the world by Forrester
Research, reflecting the work underway to transform our
digital capabilities and position Westpac as the best in class
digital customer service bank. In fact, we introduced more
1 Source: Roy Morgan Research, September 2015 – 2016, 6MMA.
Westpac Group Main Financial Institution (as defined by the
customer). Satisfaction ratings are based on the relationship with the
financial institution. Customers must have at least a
Deposit/Transaction account relationship with the institution and are
aged 14 or over. Satisfaction is the percentage of customers who
answered ‘Very’ or ‘Fairly satisfied’ with their overall relationship with
their MFI.
2 Internal NPS, September 2015 – 2016, 6MMA.
10
2016 Westpac Group Annual Report
than 180 new features and enhancements across our digital
channels this year. For example, customers can now
activate a credit card using their phone’s camera, or manage
a term deposit rollover, all without having to visit a branch.
The Business Bank also performed well, with core earnings
growth of 5% over the year. Market share increased across
SME and in the merchant credit cards, to the point where
around 50% of Australian businesses now have a banking
relationship with the Westpac Group.
While customer satisfaction1 in the Business Bank was down
slightly from 7.4 to 7.3, we continue to be ranked number 1
for total Business in NPS.2
During the year we rolled out a new online banking system
for St.George business customers, significantly improving
service, and our online loan origination platform, LOLA, is
now processing two out of every three eligible loans. We
also rolled out around 127,000 merchant terminals which are
all enabled with market-leading contactless tap and go
functionality.
Despite the good core earnings growth, higher impairment
charges meant that cash earnings in this business rose by a
more modest 1%. The main driver of the increased
provisions was the fact that we had lower write-backs than in
previous years; we also had an increase in provisions in
auto finance. Overall, however, credit quality in this business
remains sound.
BTFG continued to see good underlying growth in its
business, with FUM and FUA balances growing 5% and 7%
respectively, while insurance premiums were also higher.
However a number of specific issues reduced reported cash
earnings by 4%; adjusting for the partial sale of BTIM, cash
earnings would have been down 2%. The other issues
holding back BTFG’s earnings this year included the impact
of higher claims and lower renewals in Insurance, currency
movements in Ascalon (our boutique funds management
investor), and higher regulatory costs.
As discussed earlier, WIB cash earnings were down
$245 million, reflecting higher impairment charges and our
decision to focus on return rather than growth in a difficult
market. Despite this, WIB grew its core customer base this
year, continuing to invest in service quality and grow its
leading position in transaction banking. WIB changed its
operating model to increase the focus on service and reduce
its cost base—which has set the business up for improved
performance in the years ahead.
1 Source: DBM Consultants Business Financial Services Monitor,
September 2015 – 2016, 6MMA. MFI customers, all businesses. The
Customer Satisfaction score is an average of customer satisfaction
ratings of the customer’s main financial institution for business
banking on a scale of 0 to 10 (0 means ‘extremely dissatisfied’ and
10 means ‘extremely satisfied’).
2 Source: DBM Consultants Business Financial Services Monitor,
September 2015 – 2016, 6MMA. Westpac Group, MFI customers, all
businesses. Net Promoter Score measures the net likelihood of
recommendation to others of the customer’s main financial institution.
Net Promoter ScoreSM is a trademark of Bain & Co Inc., Satmetrix
Systems, Inc., and Mr Frederick Reichheld. 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).
The ranking refers to Westpac Group’s position relative to the other
three major Australian banking groups (ANZ Group, CBA Group and
NAB Group).
Chief Executive Officer’s report
Full Year 2016 has been a year of change for Westpac New
Zealand with the start of a major transformation program and
the relaunch of its brand. Cash earnings for the division were
lower over the year, down 4%3, principally due to the highly
competitive market for home loans, and costs associated
with its transformation program. While the overall financial
result is below what we would like, I am confident that David
McLean and his refreshed management team are taking the
steps necessary to deliver a significant lift in service and
cost efficiency in the years ahead.
In summary, we are well underway with our ‘Service
Revolution’, taking real steps towards delivering world-class
service, digitising our business, and building a culture that
puts a dedication to helping at the heart of a truly
sustainable business.
Creating a workforce for the future
The environment in which our 40,000 people are working is
changing. This includes how customers wish to interact with
us, changes in daily work tasks, and expectations around
diversity and flexibility. Public scrutiny of culture across the
sector has also intensified.
With this in mind, we have been working hard to find new
ways to build the workforce of the future: where people with
diverse backgrounds can adapt to change and, importantly,
maintain a relentless focus on providing exceptional service.
As part of this, our flagship initiative during the year was the
introduction of Our Service Promise, a set of principles and
practices that clearly defines our expectations of what it
means to deliver great service—consistently.
During the year, we conducted a survey which showed an
employee engagement score of 69%. While this was a good
outcome, it is below the high bar of global best practice – a
benchmark to which we aspire. Given the amount of change
in our organisation this year, the result was not a surprise;
but nevertheless we’ve listened to feedback and are already
rolling out a number of actions to address those areas our
employees told us needed to improve.
Our new city-based corporate offices are now providing
more than 10,000 employees with some of the world’s best
physical environments, tools, and technologies, and a new
way of working that is driving greater agility, mobility, and
productivity.
We also continued to foster a more diverse and inclusive
workplace, delivering some excellent results during the year.
This included an increase in the number of women in
leadership positions to 48%—up from 46% last year—which
brings us closer to our target of 50% by 2017; and an
increase in the cultural diversity of our employees. Notably,
the percentage of employees who self-identify as Indigenous
Australians increased to more than 4%, which is greater
than the proportion in the broader Australian population.
That leads me to the final issue I wanted to address in this
year’s letter.
3 In New Zealand dollars.
2016 Westpac Group Annual Report
11
1
Bridging the trust gap
Trust is fundamental to the service we provide. For us to
fulfil our role, customers need to trust that we are acting in
their interests; that our advice is honest; and that their
money is safe.
We recognise that there have been times when we have not
met customers’ expectations and this has contributed to a
trust gap between the community and the banking sector.
We are working hard to rebuild that trust.
There has been an increase in public and political scrutiny,
with calls for further regulation and investigations into
Australian banking activity—including a potential Royal
Commission on conduct in the banking and financial
services sector.
A number of banks also face individual challenges, such as
the civil proceedings in Federal Court commenced by ASIC
in April this year, which allege manipulation of the Bank Bill
Swap Rate between the period 6 April 2010 and
6 June 2012. We don’t accept ASIC’s allegations against
Westpac and think this complex matter is now best resolved
by the Courts.
In our Code of Conduct we commit to doing the right thing by
customers. Given the changing environment and need to
build trust we’re implementing a number of programs to
ensure our products, policies, reward frameworks and
processes are even more closely aligned to customers’
interests. As part of this program we have:
appointed an independent customer advocate, Adrian
Ahern, who is empowered to resolve customer issues
and overturn decisions made by our dispute resolution
processes;
introduced new criteria to be applied to our products to
confirm they’re fair for customers. A new governance
committee assesses the application of these criteria;
and
reviewed our Whistleblower Protection Policy and
approach, to ensure people feel comfortable to speak
up and question practices when they don’t seem right,
and provide a safe environment for them to do so.
Westpac’s principles are clear: when something doesn’t
measure up, we change it. When we find a problem, we fix
it, so that it doesn’t happen again. And we’re open about the
issues we find.
At an employee level, we’re changing our remuneration
frameworks to ensure we reward our people based on the
value and outcomes delivered to customers. In
November 2016, we were the first bank to remove all
product related incentives across our 2,000 tellers in the
Westpac branch network. Their incentives are now based
entirely on the quality of service customers receive.
We have increased transparency in financial planning and
remain the only company to invite customers to publicly rate
the service provided by our financial planners via the online
Adviser View. We were also early movers in removing
commissions paid to financial planners back in 2014, and
are now revisiting the way we reward other specialised sales
roles. Similarly, we have led the market on educational
standards for financial advisers, and our current
requirements are above the new standards recently
proposed by the Federal Government.
Over the year, a range of financial issues emerged for some
of our peers across financial planning and insurance. We
have thoroughly investigated our own operations and while
we are not perfect, I can assure you that our record in this
area is strong: BTFG has been a role model in seeking to
genuinely help customers manage and protect their wealth.
At an industry-level, we publicly committed to implement six
areas of industry reform – the Australian Bankers’
Association’s (ABA) 6-point plan. The plan’s aim is to protect
customer interests and increase transparency and
accountability across the industry.
As CEO, I know our people overwhelmingly set out to do the
right thing by customers, and I want customers and the
community to be confident of that too. The contract we hold
with customers is one we’ve never taken for granted:
customers trust us to help them live the lives they want; to
grow; to be more secure; and to be better off.
By focusing on customer needs, delivering world-class
service, and measuring our success on customers’ success,
I believe we have a business strategy that will, in time, help
us to restore trust.
History and our future
As I mentioned at the outset, Westpac is fast approaching its
200th anniversary. It’s an exciting time to be part of this
organisation; a time to reflect on our past and recognise our
successes. But more importantly, we are looking to the
future and positioning Westpac for its third century.
That means ensuring our business is strong, our strategy is
right, and that we are continuing to support our customers,
shareholders, employees and the broader community. It also
means taking a leadership role in tackling emerging issues
that we believe will affect future prosperity.
It’s this approach that has contributed to Westpac being
named—for the third year in a row—the most sustainable
bank in the world in the Dow Jones Sustainability Indices
Review. This marks the ninth time we have topped this
global annual index.
During the year we invested in the people, businesses, and
community organisations that are helping to shape our
nation. Our $100 million Westpac Bicentennial Foundation is
on track to award its 200th scholarship and will continue to
add 100 scholars to the alumni every year, in perpetuity. We
also launched the Westpac Businesses of Tomorrow
program to identify 200 promising businesses that will
receive direct support and intellectual capital from some of
Australia’s leading business people.
At the same time, the grants awarded by the Westpac
Foundation have helped create more than 2,900
employment pathways for Australians experiencing
disadvantage, and the number of businesses set up or
expanded with support from Westpac’s microfinance partner,
Many Rivers, exceeded 1,000.
Our total committed exposure to the CleanTech and
environmental services sector reached $6.2 billion, directed
to activities such as generating renewable energy and
12
2016 Westpac Group Annual Report
Chief Executive Officer’s report
developing green buildings. Over the past five years, we
have increased the proportion of renewable energy financing
in our total electricity generation portfolio from 45% to 59%.
We also brought to market a $500 million Westpac Climate
Bond and an Energy Efficiency Finance Program. These are
important steps in supporting the shift to a more sustainable
economic model that is less dependent on fossil fuels. This
demonstrates our commitment to supporting the transition to
an economy that limits global warming to less than two
degrees above pre-industrial levels.
Our lending to help grow the stock of social and affordable
housing grew to $1.05 billion, as we look to play our part in
addressing the shortage of affordable housing.
Summary
It is an exciting time to be in banking. The industry is highly
competitive, our operating environment remains challenging
and we face increased regulatory and public scrutiny.
However, with change comes opportunity and we are
already responding and adapting across all elements of the
business.
Our service-led strategy is right for the times. We have
strengthened our business and are committed to
transforming our operations in ways that will give us a
sustainable competitive advantage and bring benefits to all
of our stakeholders.
As we enter our third century of business, my executive
team and I are proud to lead a company that is dedicated to
serving our customers and our communities and is
committed to operating with courage and integrity. As a
result we’re confident that we will continue to deliver growth,
returns, and stability that increases the value of your shares
and makes you proud of your decision to invest in the
Westpac Group.
With warm regards,
BRIAN HARTZER
Chief Executive Officer
Westpac Group
2016 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 consumer,1
business and institutional banking and wealth
management services.
We have branches, affiliates and controlled entities2
throughout Australia, New Zealand, Asia and in the Pacific
region, and maintain branches and offices in some of the
key financial centres around the world.3
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).
At 30 September 2016, our market capitalisation was
$99 billion4 and we had total assets of $839 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 building deep
and enduring customer relationships, being a leader in the
community, being a place where the best people want to
work and, in so doing, delivering superior returns for
shareholders.
In delivering on our strategy, we are focused 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 customers. With our strong position in these
markets, and over 13 million customers,5 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.
As 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.
2016 has been a year of delivery and building momentum
against our Service Revolution strategy. The Service
Revolution is seeking to: provide a truly personal service for
customers while better anticipating their needs; put
customers in control of their finances; respond to the
increased pace of innovation, disruption and changing
customer behaviours through digitisation and increasing our
capacity for innovation; and innovate and simplify to reinvent
the customer experience.
As part of our delivery of the Service Revolution, we have
developed an integrated, multi-year plan that will be
executed across the Group. In 2016, we pursued a number
of transformation programs focused on the digitisation of the
company through the design and development of a single
bank technology infrastructure. We expect this will
significantly transform customer experiences and drive
operational efficiency. At the same time, our Consumer Bank
and Business Bank transformation programs continued to
deliver market-leading customer services, while lowering the
cost to serve.
Over the year, substantial work has also been undertaken
on conduct and culture, with work focused on creating a
common understanding and approach to managing conduct
across the Group. In addition, we have worked with the
industry in the setup and implementation of the Australian
Bankers’ Association action plan designed to protect
consumer interests, increase transparency and
accountability and build trust and confidence in banks.
Sustainability is part of our strategy of seeking 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 makes
sustainability part of the way we do business, embedded in
our strategy, values, culture and processes.
Supporting our customer-focused strategy is a strong set of
company-wide values, which are embedded in our culture.
These are:
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 2016.
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 2016.
5 All customers with an active relationship (excludes channel only and
potential relationships) as at 30 September 2016.
delighting customers;
one team;
integrity;
courage; and
achievement.
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2016 Westpac Group Annual Report
Strategic priorities
In delivering our strategy, we have five strategic priorities
that help guide our activities:
Organisational structure
Our operations comprise the following key customer-facing
business divisions operating under multiple brands:
Information on Westpac
a)
Service leadership
provide a seamless customer experience across
all channels;
deepen relationships through context-based customer
experiences using our portfolio of brands; and
acquire new customers by making it simpler, easier and
better for customers to choose us.
b)
Digital transformation
create a 21st century, digitised bank with multi-
brand capabilities;
c)
simplify products and processes by digitising end-to-
end; and
drive efficiency opportunities from digitisation and
consolidation of systems.
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
meeting new liquidity requirements; and
maintain a high quality portfolio of assets, coupled with
strong provisioning.
Targeted growth
focus on stronger growth in small to medium enterprises
and wealth; and
d)
e)
be targeted in specific business segments.
Workforce revolution
focus on a customer-centric 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.
Consumer Bank is responsible for sales and service to
consumer customers in Australia under the Westpac,
St.George, BankSA, Bank of Melbourne and RAMS brands.
Activities are conducted through a dedicated team of
specialist consumer relationship managers along with an
extensive network of branches, call centres and ATMs.
Customers are also supported by a range of internet and
mobile banking solutions. Consumer Bank works in an
integrated way with BTFG and WIB in the sales and service
of select financial services and products, including in wealth
management and foreign exchange.
Business Bank is responsible for sales and service to micro,
SME and commercial business customers for facilities up to
approximately $150 million. The division operates under the
Westpac, St.George, BankSA and Bank of Melbourne
brands. Customers are provided with a wide range of
banking and financial products and services to support their
lending, payments and transaction needs. In addition,
specialist services are provided for cash flow finance, trade
finance, automotive and equipment finance, property finance
and treasury services. The division is also responsible for
certain consumer customers with auto finance loans.
Business Bank works in an integrated way with BTFG and
WIB in the sales and service of select financial services and
products, including corporate superannuation, foreign
exchange and interest rate hedging.
BT Financial Group (BTFG) is Westpac’s wealth
management and insurance arm of the Westpac Group
providing a broad range of associated services. BTFG’s
funds management operations include the manufacturing
and distribution of investment, superannuation, retirement
products, wealth administration platforms, private banking,
margin lending and equities broking. BTFG’s insurance
business covers the manufacturing and distribution of life,
general and lenders mortgage insurance. The division also
uses third parties for the manufacture of certain general
insurance products as well as actively reinsuring its risk
using external providers across all insurance classes. BTFG
operates a range of wealth, funds management (including
Ascalon, which is a boutique incubator of emerging fund
managers) and financial advice brands and operates under
the banking brands of Westpac, St.George, Bank of
Melbourne and BankSA for Private Wealth and Insurance.
BT Investment Management Limited (BTIM) is 29.5% owned
by BTFG (following a partial sale in June 2015) with the
business being equity accounted from July 2015. BTFG
works in an integrated way with all the Group’s Australian
divisions in supporting the insurance and wealth needs of
customers.
Westpac Institutional Bank (WIB) delivers a broad range of
financial products and services to 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 throughout
Australia as well as branches and subsidiaries located in
2016 Westpac Group Annual Report
15
1 New Zealand, US, UK and Asia. WIB is also responsible for
Westpac Pacific currently providing a range of banking
services in Fiji and PNG. WIB works in an integrated way
with all the Group’s divisions in the provision of more
complex financial needs, including across foreign exchange
and fixed interest solutions.
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 (NZ 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.
Group Businesses include:
Treasury, which is responsible for the management of
the Group’s balance sheet, including wholesale funding,
capital and management of liquidity. Treasury also
manages the interest rate risk and foreign exchange
risks inherent in the balance sheet, including managing
the mismatch between Group assets and liabilities.
Treasury’s earnings are primarily sourced from
managing the Group’s balance sheet and interest rate
risk, within set risk limits;
Group Technology, which comprises functions
responsible for technology strategy and architecture,
infrastructure and operations, applications development
and business integration; and
Core Support, which comprises functions performed
centrally, including Australian banking operations,
property services, strategy, finance, risk, compliance,
legal 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.
Competition
The 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
Group competes with other financial services industry
players for customers, by 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
focused 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 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 partly
driven by clearer global regulatory requirements for liquidity
management. 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 gearing.
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 change.
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 delivered solid growth over the year
ended June 2016, with real GDP growing 3.3%, supported
by low interest rates and the low Australian dollar. This
outcome was above expectations of around 2.75% growth
and was achieved despite the still challenging international
backdrop. The transition of the economy continues to
progress as the downturn in mining investment has been
offset by rising commodity and services exports, strong
residential construction and solid growth in public demand.
1 All data and opinions under ‘Outlook’ are generated by our internal
economists and management.
16
2016 Westpac Group Annual Report
Information on Westpac
constrained by uncertainty ahead of the July Federal
election. Similar to recent years, there has been no growth in
other consumer credit.
Given the economic backdrop, financial system credit growth
in the year to September 2017 is expected to be broadly in
line with the current year at around 5.5%. Housing-related
activity may ease a little over the year as price growth slows
and business credit will potentially strengthen a little over the
year as it rebounds from the current soft-spot.
The underlying economics of the wealth industry continues
to be sound. In addition to mandatory superannuation
contributions, the ageing of the population is expected to see
a higher portion of funds directed to retirement savings.
We will continue executing our strategy of creating a great
service company with our five strategic priorities assisting to
guide this transformation. These include:
maintaining our performance disciplines – continuing to
be prudent in the management of capital, managing
returns effectively and maintaining the strength in our
capital, funding and liquidity positions;
through service leadership, continue to grow customer
numbers reaching 1 million additional customers
between 2015 and 2017, while also increasing the
depth of customer relationships;
digital transformation – utilising technology to materially
improve efficiency and reduce the Group’s cost to
income ratio to below 40% over the next 2 years;
wealth, small and medium business enterprises are our
areas of targeted growth. These include
commercialising our investment in the Group’s new
wealth management system, called Panorama, and
using new technologies to make business banking more
accessible to customers; 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 experience
significant regulatory change and scrutiny. Globally, this
includes the expected release of a revised capital framework
by the Basel Committee on Banking Supervision, and further
developments on the implementation of the Net Stable
Funding Ratio and Total Loss Absorbing Capacity. Given the
strength of our business, and our balance sheet, we are well
placed to respond to any additional regulatory requirements.
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.
The health of the economy is also reflected in the
unemployment rate, which has fallen from around 6% to
5.6%. Growth in national income has been soft, reflecting
the drag from recent declines in commodity prices. This in
turn has weighed on wages, profits and the government’s
fiscal position. Falling commodity prices, overcapacity and
rising competition are reflected in low inflation with headline
CPI inflation sitting at just 1%. The modest level of inflation
(below the RBA’s target range), and expectations that
inflation will remain below the target for an extended period,
has seen the RBA reduce the cash rate by 50 basis points
over the year to 1.5%.
Unfortunately, the current mix of growth is creating a divide
between those states and regions that have been impacted
by the slowdown in mining investment (Western Australia
and regional Queensland) and those that have not. In
Western Australia in particular, we are seeing weaker
employment outcomes, softening house prices and more
restrained spending. Growth in New South Wales and
Victoria, on the other hand, has been stronger, as these
states have experienced the majority of construction activity
and have a more services based economy.
In New Zealand, the economy has also been sound, with a
large pipeline of construction projects, strong population
growth and low interest rates supporting growth. This has
been despite some pressure on export returns.
The international outlook softened over the year, with growth
across our major trading partners a little below recent
averages. Growth in China has continued to ease with
excess capacity in many industries. Growth in the US
economy was also lower over the past year, reflecting weak
productivity growth, although there has been some pick-up
in activity more recently. European growth has remained
relatively modest.
The international economy carries risks. In particular, the
potential for disruption to the Chinese economy remains real
given the sharp rise in debt in recent years, ‘unbalanced’
conditions across housing markets and slowing growth. In
Europe, Britain’s decision to leave the EU, stagnant growth,
uncomfortably low inflation and renewed concerns about the
banks could also continue to affect conditions. In the US,
growth continues to be overly dependent on the consumer
with business investment remaining lacklustre.
Within Australia, the 2017 outlook is for real GDP to grow at
around 3%, which remains a little above medium-term
expectations. This growth reflects expectations for higher
household spending, as income growth lifts, although
prospects for a decent lift in non-mining investment seem
remote. There are expected to be ongoing contributions from
exports (both resources and services) and from public
demand, including public infrastructure. Based on recent
approvals, residential construction is expected to remain
sound. With the end of the mining investment downturn in
sight, its drag on growth is also expected to reduce.
The mix of growth (more services-led) is more labour
intensive and is expected to be supportive of sound
employment growth overall. Lead indicators point to the
unemployment rate remaining little changed over the year.
Financial system credit grew by 5.4% in the year to
September 2016, with system housing credit rising 6.4% and
system business credit expanding by 4.7%, a result
2016 Westpac Group Annual Report
17
1 Significant developments
Corporate significant developments
Inquiry into Australia’s Financial System
In 2013, the Federal Government established an inquiry into
Australia’s financial system (FSI). The FSI examined how
the financial system could be positioned to best meet
Australia’s evolving needs and support Australia’s economic
growth.
On 7 December 2014, the FSI released its Final Report,
which made 44 recommendations relating to a broad
number of matters across the financial sector. Westpac
supported the majority of the FSI’s recommendations. On
20 October 2015, the Government announced its formal
response to the FSI’s recommendations, and in doing so,
endorsed the majority of the recommendations.
The Government continues to consult on the detailed
implementation of a number of these recommendations and
Westpac is actively contributing to these consultations.
Australian Securities and Investments Commission (ASIC)
reform package
On 20 April 2016, the Federal Government announced a
package of policy reforms designed primarily to strengthen
the powers and funding of ASIC.
As part of this package, the Government announced that it
would accelerate the implementation of certain
recommendations made by the FSI, including:
granting ASIC a product intervention power;
introducing a new ‘principles-based’ product design and
distribution obligation on issuers and distributors; and
reviewing ASIC’s enforcement regime (including the
penalties available).
On 19 October 2016, the Government released the terms of
reference for the ASIC Enforcement Review Taskforce,
which will assess the suitability of ASIC’s existing regulatory
tools and whether they need to be strengthened. The
taskforce is scheduled to report to the Government in 2017.
In addition, the Government is expected to establish
consultation processes to consider the detailed
implementation of the product-related reforms in the near
future.
BBSW proceedings
As part of ASIC’s ongoing industry-wide investigations into
the interbank short-term money market and its impact on the
setting of the bank bill swap reference rate (BBSW), on
5 April 2016, ASIC commenced civil proceedings against
Westpac in the Federal Court of Australia, alleging certain
misconduct including market manipulation and
unconscionable conduct. The conduct that is the subject of
the proceedings is alleged to have occurred between
6 April 2010 and 6 June 2012. Westpac is defending these
proceedings. ASIC is seeking from the court declarations
that Westpac breached various provisions of the
Corporations Act 2001 (Cth) and the Australian Securities
and Investments Commission Act 2001 (Cth), pecuniary
penalties of unspecified amounts and orders requiring
Westpac to implement a comprehensive compliance
program for persons involved in Westpac’s trading in the
relevant market.
In August 2016, a class action was filed in the United States
District Court for the Southern District of New York against
Westpac and a large number of other Australian and
international banks alleging misconduct in relation to BBSW.
These proceedings are at an early stage and the level of
damages sought has not been specified. Westpac is
defending these proceedings.
Exception fees
Between 2011 and 2014, Westpac was served with three
class action proceedings seeking refunds of certain
exception fees paid by customers. In September 2016, the
law firm representing the class members notified Westpac
that it intends to discontinue all of those class actions. One
of the class actions, in the Supreme Court of
New South Wales, was formally discontinued in
October 2016. The other two class actions, in the Federal
Court of Australia, will be discontinued in the near future
once certain procedural formalities have been completed.
Issue of Additional Tier 1 capital securities
On 30 June 2016, Westpac issued approximately $1.7 billion
of securities known as Westpac Capital Notes 4, which
qualify as Additional Tier 1 capital under APRA’s capital
adequacy framework.
Redemption of Additional Tier 1 capital securities
On 31 March 2016, all outstanding Trust Preferred
Securities (US$525 million) of Westpac Capital Trust IV
(TPS 2004) were redeemed.
On 30 June 2016, all outstanding Westpac Trust Preferred
Securities (Westpac TPS) ($763 million) were redeemed by
Westpac RE Limited, the responsible entity of the Westpac
TPS Trust.
TPS 2004 and Westpac TPS qualified for transitional
treatment as Additional Tier 1 capital.
Australian Bankers’ Association (ABA) action plan and
industry reviews
On 21 April 2016, the ABA announced an action plan to
protect consumer interests, increase transparency and
accountability and build trust and confidence in banks.
The plan includes a number of industry-led initiatives
including:
a review of product-based sales commissions;
a review of the Code of Banking Practice;
implementation of an industry register which would
extend existing identification of rogue advisers to any
bank employees, including customer-facing and non-
customer facing roles; and
an evaluation of the establishment of an industry wide,
mandatory last resort compensation scheme covering
financial advisers.
Westpac is currently participating in these ongoing
initiatives, which may lead to further reform in these areas.
House of Representatives Standing Committee on
Economics Review of the Four Major Banks and other
industry reviews
On 16 September 2016, the Chairman of the House of
Representatives Standing Committee on Economics
18
2016 Westpac Group Annual Report
announced that the committee had commenced its Review
of the Four Major Banks (Parliamentary Review). The terms
of reference for the Parliamentary Review are wide-ranging,
with one area of focus being how individual banks and the
industry as a whole are responding to issues identified
through other inquiries, including through the ABA action
plan. Westpac attended a public hearing of the
Parliamentary Review on 6 October 2016.
In addition, there are a number of other reviews underway
that may impact upon Westpac and the financial services
sector, including:
an inquiry into business lending to be conducted by the
Australian Small Business and Family Enterprise
Ombudsman; and
a review into external dispute resolution schemes,
which will also consider the design, operation and
powers of a proposed banking tribunal.
Professional standards for financial advisers
On 17 October 2016, the Federal Government announced
that it would introduce legislation mandating professional
standards for financial advisers. The new legislation may
include reforms such as:
compulsory education requirements for new and
existing advisers;
supervision requirements for new advisers;
the introduction of a code of ethics; and
the establishment of an industry-funded independent
body charged with governing the professional standing
of the financial advice industry.
The Government is expected to introduce this legislation
before the end of 2016 following final consultations with
industry and consumer groups. The new regime is
scheduled to commence on 1 January 2019 with a
transitional compliance period applying to existing financial
advisers.
Financial benchmarks reform
In October 2016, the Federal Government announced a
package of measures designed to strengthen the regulation
of financial benchmarks. The measures were recommended
to the Government by the Council of Financial Regulators,
who recently concluded a consultation process on financial
benchmark reform.
The key measures announced include:
ASIC will be empowered to develop enforceable rules
for administrators and entities that make submissions to
significant benchmarks (such as Westpac), including the
power to compel submissions to benchmarks in the
case that other calculation mechanisms fail;
administrators of significant benchmarks will be required
to hold a new ‘benchmark administration’ licence issued
by ASIC (unless granted an exemption); and
the manipulation of any financial benchmark or financial
product used to determine a financial benchmark (such
as Negotiable Certificates of Deposit) will be made a
specific criminal and civil offence.
Information on Westpac
These measures are expected to be introduced over the
next 18 months.
Brexit
On 23 June 2016, the United Kingdom European Union
membership referendum was held, which saw UK citizens
vote to leave the European Union (EU). The UK Government
subsequently confirmed that it will invoke Article 50 of the
Lisbon Treaty, which triggers a two year negotiation period
under which the UK and EU will negotiate the terms of the
UK’s departure. A recent UK High Court decision, which may
be appealed by the UK Government, has indicated that any
decision to invoke Article 50 must be made by Parliament. At
this stage, it is difficult to predict the timing and full impact of
Brexit on Westpac and the broader global financial services
industry.
Proposed reduction to the corporate tax rate
On 1 September 2016, the Australian Government
introduced legislation to reduce the corporate tax rate
progressively from 30% to 25% over the next 10 years. If the
legislation is passed in its current form, the benefit of the
reduced corporate tax rate for Westpac will begin to take
effect from the 2023-24 financial year. Accordingly, the
proposed reduction to the corporate tax rate will not
significantly impact Westpac in the short term. A reduction to
the corporate tax rate will reduce the value of imputation
credits attached to franked dividends and distributions to
security holders.
Taxation of cross-border financing arrangements
The Australian Government has decided to implement the
Organisation for Economic Co-operation and Development’s
(OECD) proposals relating to the taxation treatment of cross-
border financing arrangements. These proposals may affect
the taxation arrangements for ‘hybrid’ regulatory capital
instruments issued by Westpac. The Board of Taxation has
been asked to make recommendations to the Government
about implementing the OECD proposals. If implemented
without grandfathering, the potential effect of the OECD
proposals is to increase the after-tax cost of certain
previously issued hybrid capital securities.
The New Zealand Government has also commenced a
public consultation process to consider whether the OECD
proposals could be implemented in New Zealand.
Sale of Westpac’s operations in five Pacific Island nations
On 1 July 2016, Westpac completed the sale of its banking
business in Vanuatu to Bank of South Pacific Limited (BSP).
This was the fifth and final banking business to be sold to
BSP, after the previous sale of Westpac’s operations in the
Cook Islands, Samoa, Tonga and Solomon Islands.
Regulatory significant developments
FSI’s recommendations on bank capital
The Australian Government’s response to the FSI has
endorsed APRA’s actions in implementing the FSI’s capital-
related recommendations, and has confirmed APRA’s
responsibility for implementing the remaining capital
proposals.
2016 Westpac Group Annual Report
19
1 To date, APRA has formally responded to two of the FSI’s
recommendations:
Capital levels
On 4 July 2016, APRA released a comparison of
Australian banks’ capital ratios relative to internationally-
active banks using a common method of calculation.
The comparison was based on a quantitative impact
study (QIS) published by the Basel Committee on
Banking Supervision (BCBS). The QIS included the
capital ratios of internationally-active banks as of
30 June 2015, with APRA using capital ratios as of
31 December 2015 for the Australian banks. APRA
concluded that the relative positioning of the major
Australian banks’ Common Equity Tier 1 ratios was
broadly in line with the benchmark suggested by the FSI
of capital ratios in the top quartile of internationally-
active banks.
Narrow mortgage risk weight differences
On 20 July 2015, APRA announced an interim change
to how risk weighted assets (RWA) would 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. This change led to the
ratio of mortgage RWA to mortgage exposures for the
Group increasing to approximately 24% on 1 July 2016.
In August 2016, APRA reaffirmed its objective of a risk
weight for Australian residential mortgages of an
average of at least 25%, measured across all Advanced
IRB banks.
Further changes to regulatory capital requirements for
Australian banks were also proposed by the FSI – these are
likely to result from current international regulatory reviews
being undertaken by the 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 in the context
of Australia’s circumstances and their final impact on
Westpac will depend on APRA’s implementation.
Macro-prudential regulation
From December 2014, APRA has made use of macro
prudential measures targeting a number of segments of
mortgage lending that continue to impact lending practices in
Australia. The measures include constraining growth in
investment property lending within a benchmark of 10% and
imposing additional levels of conservatism in serviceability
assessments.
Basel Committee on Banking Supervision
Regulatory reforms and significant developments arising in
relation to changes initiated by the BCBS and the FSB
include:
Increased loss absorbency
In November 2015, the FSB issued a final paper for
enhancing the TLAC for G-SIBs to operate alongside the
Basel III capital requirements. At the same time, a
consultation paper on TLAC holdings was issued by the
BCBS. These proposals form part of the G20’s initiatives
aimed at ‘ending too-big-to-fail’ and ensuring that the
resolution of a failing Global Systemically Important
Financial Institution can be carried out without causing
systemic disruption or resorting to taxpayer support.
In October 2016, the BCBS issued a final standard for TLAC
holdings of G-SIBs. This standard will take effect from
1 January 2019 for most G-SIBs.
The FSI 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 implementation of the
recommendation by APRA 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.
Since then, the BCBS has released two further consultation
papers related to the risk based capital framework. The first
was released in December 2015, which put forward possible
amendments to the Standardised Approach for Credit Risk
and the second was released in March 2016, which
proposed constraints on the use of internal models for the
calculation of risk weighted assets. In March 2016, the
BCBS also released a consultation paper covering the
Standardised Measurement Approach for Operational Risk.
This paper proposed the removal of the use of internal
model approaches to measure operational risk capital and
replacement of these with a revised framework based on the
proposed Standardised Measurement Approach. The
revised standards for the Minimum Capital Requirements for
Market Risk were released by the BCBS in January 2016.
In combination, these reform measures are intended to
improve the consistency and comparability of bank capital
ratios. However, finalisation of the remaining BCBS changes
is not expected before the end of 2016, 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.
In April 2016, the BCBS published a consultation paper
requiring a minimum leverage ratio of 3% as a Pillar 1
requirement from January 2018.
Further details of Westpac’s other regulatory disclosures
required in accordance with prudential standard APS 330
can be accessed at
www.westpac.com.au/aboutwestpac/investor-
centre/financial-information/regulatorydisclosures.
20
2016 Westpac Group Annual Report
Other regulatory developments
Liquidity
APRA released a revised draft of the prudential standard on
liquidity (APS 210) on 29 September 2016. This draft
prudential standard included the Net Stable Funding Ratio
(NSFR) requirement, a measure designed to encourage
longer-term funding resilience. APRA has indicated that the
final APS 210, inclusive of the NSFR, will commence from
1 January 2018 in line with the BCBS’s effective date.
Westpac is taking steps to comply with the NSFR from
1 January 2018.
Committed Liquidity Facility (CLF) annual revision
The Reserve Bank of Australia makes available to ADIs a
CLF that, subject to qualifying conditions, can be accessed
to meet Liquidity Coverage Ratio requirements under APS
210. This amount is reviewed annually. Westpac has
received approval for a CLF of $49.1 billion for the 2017
calendar year (2016 calendar year: $58.6 billion).
OECD Common Reporting Standard
The OECD has developed Common Reporting Standard
(CRS) rules for the automatic exchange of customer tax
residency and financial account information amongst
participating CRS countries.
CRS will require the Westpac Group to identify the tax
residency of all customers and to report the tax residency
and financial account details of non-resident customers to
the relevant authorities in jurisdictions with which Australia
has entered into an exchange of information agreement.
Australian financial institutions will have to collect customer
tax residency information from 1 July 2017 and will have to
report these details and associated financial account
information from July 2018. Implementation of the rules will
impose additional costs and operational burdens on
Westpac.
Certain countries (such as the UK and India) have
implemented the rules with effect from 1 January 2016.
Westpac has implemented changes to its business
operations to comply with the CRS requirements in these
countries from 1 January 2016.
OTC derivatives reform
International regulatory reforms relating to over-the-counter
(OTC) derivatives continue to be implemented by financial
regulators across the globe, with the focus moving to
implementing margin requirements for non-centrally cleared
derivatives.
Globally, there has been significant progress developing
requirements to implement the final policy framework for the
margining of uncleared OTC derivatives as published by the
BCBS and the International Organization of Securities
Commissions (IOSCO) in September 2013. Requirements
for variation and initial margin commenced on
1 September 2016 in the US, Canada and Japan, while
authorities in Asia and the EU are currently developing
proposals. On 17 October 2016, APRA published prudential
standard CPS 226, containing its final rules for margining
and risk mitigation for non-centrally cleared derivatives.
APRA did not, however, publish a commencement date for
these obligations.
Information on Westpac
Westpac is now taking steps to ensure that it is in a position
to comply with these global margin reforms.
In addition, Westpac continues to work with ASIC and
industry associations in relation to the reporting and clearing
of OTC derivative trades and the implementation of various
rules.
Westpac has been implementing OTC derivatives trade
reporting regulations imposed by the Monetary Authority of
Singapore, Hong Kong Monetary Authority and various
provincial financial regulators in Canada. Certain aspects of
trade reporting have commenced in these jurisdictions and
continue to be implemented and enhanced in phases.
Westpac has also been implementing clearing requirements
in relation to interest rate derivatives under Australian, US
and European rules and credit default swaps under
European rules.
New Zealand
Regulatory reforms and significant developments in
New Zealand include:
Reserve Bank of New Zealand (RBNZ) – macro prudential
policy framework
Since October 2013, restrictions on high loan-to-value-ratio
(LVR) lending have been part of the RBNZ’s macro-
prudential policy framework. In September 2016, the RBNZ
introduced changes to LVR restrictions that apply to
residential property lending throughout New Zealand. From
October 2016, residential property investment lending where
the LVR is greater than 60% cannot exceed 5% of a bank’s
new residential mortgage lending for that category, carried
out in the three month measurement period which applies to
WNZL. In addition, non-property investment residential
lending where the LVR is greater than 80% cannot comprise
more than 10% of that new residential mortgage lending in
the relevant measurement period. The RBNZ is also
investigating the case for restrictions on the total debt-to-
income ratios of borrowers.
RBNZ – Review of Outsourcing Policy
In August 2015, the RBNZ released a consultation paper
proposing revisions to its Outsourcing Policy that would have
prohibited banks from outsourcing certain key functions to its
related parties. The paper specifically highlighted the
general ledger, SWIFT gateway and licence and regulatory
reporting as three areas where outsourcing would be
prohibited. These revisions were designed to support the
RBNZ’s approach to bank resolution, as set out in its Open
Bank Resolution policy.
In May 2016, the RBNZ released a second consultation
paper that clarified that there may be other bank functions
that are integral to its approach to bank resolution that will
need to be addressed in the Outsourcing Policy. However,
the RBNZ also noted that an outright prohibition on
outsourcing may not be required if a bank has appropriate
standby capability. Submissions on this consultation paper
closed in August 2016 and the RBNZ has indicated it will
release an exposure draft of the new policy towards the end
of 2016 or early in 2017.
RBNZ Regulatory stocktake
The RBNZ is undertaking a stocktake of the regulatory
framework applying to banks with the aim of improving the
efficiency, clarity and consistency of regulatory
2016 Westpac Group Annual Report
21
1 requirements. The RBNZ released its first consultation
document on potential changes to the prudential regime
arising out of the stocktake in July 2015 and published a
summary of submissions and its policy decisions in
December 2015. One of the key issues considered was the
RBNZ’s off-quarter disclosure requirements. The RBNZ
announced that it had decided to recommend to the Minister
of Finance that the requirement for overseas incorporated
registered banks to publish off-quarter disclosure information
should be removed. In September 2016, the RBNZ released
a consultation paper that proposed an option which would
involve the RBNZ publishing a quarterly electronic
“dashboard” of key financial information submitted by
individual locally incorporated banks, which would replace
the existing off-quarter disclosure statement requirements
for these banks. The paper also considered the RBNZ’s less
preferred option which involves locally incorporated banks
publishing a shorter disclosure statement providing essential
information on capital and asset quality plus liquidity.
Changes to the off-quarter disclosure regime are expected
to take effect in 2017.
Financial Advisers Act (FAA)
The New Zealand Government announced plans for
changes to the FAA regime in July 2016. A bill is expected to
be introduced next year after consultation on an exposure
draft of the legislation. The changes to the FAA will simplify
the regime by removing unnecessary complexity and
regulatory boundaries. Other key changes include:
enabling the provision of automated digital advice
without the direct involvement of a human adviser (robo-
advice);
requiring all individuals or robo-advice platforms
providing financial advice to:
– place the interests of the consumer first;
– only provide advice where competent to do so;
– be licensed; and
making disclosure requirements more meaningful to
improve consumer understanding and transparency.
Supervision and regulation
Australia
Within Australia, we are subject to supervision and
regulation by six principal agencies: the Australian
Prudential Regulation Authority (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, re-insurance, life insurance and
private health 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 auditor also has 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 Commonwealth 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 (Cth)
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
(Shareholdings) Act 1998 (Cth), the Australian
22
2016 Westpac Group Annual Report
Government’s Treasurer must approve an entity acquiring a
stake of more than 15% in a particular financial sector
company.
acceptances, but excluding accrued expenses, and amounts
due and other liabilities to other branches, agencies and
subsidiaries of the foreign bank).
Information on Westpac
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 (Cth). 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 (Cth) and the Financial Transaction
Reports Act 1988 (Cth). 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 Reserve Bank of New Zealand (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 RBNZ is currently considering
changes to the requirements applying to off-quarter
disclosure statements.
The Financial Markets Authority (FMA) is a financial conduct
regulator whose 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.
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
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.
As of 22 June 2016, we elected to be treated as a financial
holding company in the US pursuant to the Bank Holding
Company Act of 1956 and Federal Reserve Board
Regulation Y. Our election will remain effective so long as
we meet certain capital and management standards
prescribed by the US Federal Reserve.
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 and
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 (Cth). 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
Westpac Capital Markets LLC maintain an anti-money
laundering compliance program designed to address US
legal requirements.
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
Westpac Capital Markets LLC maintain compliance
programs designed to comply with OFAC sanctions
programs, and Westpac has a Group-wide program to
ensure adequate compliance.
2016 Westpac Group Annual Report
23
1 Legal proceedings
Our entities are defendants from time to time in legal
proceedings arising from the conduct of our business.
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 we see 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 (third edition) published by the ASX
Limited’s Corporate Governance Council.
Westpac’s 2016 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 this
Westpac Annual Report 2016, Annual Review and
Sustainability Report, 2016 Sustainability Performance
Report and investor discussion packs and presentations can
be accessed at www.westpac.com.au/investorcentre
24
2016 Westpac Group Annual Report
Directors’ report
Our Directors present their report together with the financial statements of the Group for the financial year ended
30 September 2016.
1. Directors
The names of the persons who have been Directors, or appointed as Directors, during the period since 1 October 2015 and up
to the date of this report are: Lindsay Philip Maxsted, Brian Charles Hartzer, Elizabeth Blomfield Bryan, Ewen Graham
Wolseley Crouch, Catriona Alison Deans (Alison Deans), Craig William Dunn, Robert George Elstone, Peter John Oswin
Hawkins and Peter Ralph Marriott.
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 2016 and the period for which each directorship has been held, are set out below.
Name: Lindsay Maxsted,
DipBus (Gordon), FCA, FAICD
Age: 62
Term of office: Director since
March 2008 and Chairman since
December 2011.
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 principal directorships:
Managing Director of Align Capital
Pty Ltd and Director of Baker IDI
Heart and Diabetes Institute
Holdings Limited.
Other interests: Nil.
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 2001 to 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: 49
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
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.
2016 Westpac Group Annual Report
25
1 Name: Elizabeth Bryan AM,
BA (Econ.), MA (Econ.)
Other principal directorships:
Nil.
Age: 70
Term of office: Director since
November 2006.
Date of next scheduled
re-election: Not applicable.
Elizabeth Bryan will retire
following the 2016 AGM.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Insurance Australia Group
Limited (Chairman since
March 2016 and previously
Deputy Chairman from
June 2015 to March 2016) and
Virgin Australia Holdings Limited
(Chairman since May 2015).
Name: Ewen Crouch AM,
BEc (Hons.), LLB, FAICD
Age: 60
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 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,
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Ewen was a Partner
at Allens from 1988 to 2013,
where he was one of Australia’s
most accomplished mergers and
acquisitions lawyers. He served
as a member of the firm’s board
for 11 years, including four years
as Chairman of Partners. His
other roles at Allens included Co-
Head Mergers and Acquisitions
and Equity Capital Markets,
Executive Partner, Asian offices
and Deputy Managing Partner.
He is now a Consultant to Allens.
From 2010 to 2015, Ewen was a
member of the Takeovers Panel.
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:
Caltex Australia Limited
(July 2002 to December 2015).
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.
26
2016 Westpac Group Annual Report
Directors’ report
Alison was an Independent
Director of Social Ventures
Australia from September 2007
to April 2013.
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.
Name: Alison Deans,
BA, MBA, GAICD
Age: 48
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: Senior Advisor,
McKinsey & Company.
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 consulting
roles focused on e-commerce,
media and financial services in
Australia. During this time, Alison
has held a number of senior
executive roles including as the
CEO of eCorp Limited, Hoyts
Cinemas and eBay, Australia
and New Zealand. She was the
CEO of the technology-based
investment company netus Pty
Ltd, which was acquired by
Fairfax Media Limited in 2012.
Name: Craig Dunn,
BCom, FCA
Age: 53
Term of office: Director since
June 2015.
Date of next scheduled
re-election: December 2018.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Telstra Corporation Limited
(since April 2016).
Other principal directorships:
Financial Literacy Australia
Limited, Chairman of The
Australian Ballet and Chairman
of Stone and Chalk Limited.
Other interests: Member of the
ASIC External Advisory Panel,
Board member of each of the
New South Wales Government’s
Financial Services Knowledge
Hub and Jobs for New South
Wales and Consultant to King &
Wood Mallesons.
Other Westpac related entities
directorships and dates of
office: Nil.
Craig is currently the Chairman
of the Australian Government’s
Fintech Advisory Group.
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).
Skills, experience and
expertise: Craig has more than
20 years’ experience in financial
services, including as CEO of
AMP Limited from 2008 to 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
Forum, the Consumer and
Financial Literacy Taskforce and
a Panel member of the
Australian Government’s
Financial System Inquiry.
2016 Westpac Group Annual Report
27
1 Name: Robert Elstone,
BA (Hons.), MA (Econ.), MCom
Age: 63
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.
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.
Name: Peter Hawkins,
BCA (Hons.), SF Fin, FAIM,
ACA (NZ), FAICD
Age: 62
Term of office: Director since
December 2008.
Date of next scheduled
re-election: December 2017.
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 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.
Name: Peter Marriott,
BEc (Hons.), FCA
Age: 59
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.
Peter has 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.
28
2016 Westpac Group Annual Report
Directors’ report
Company Secretary
Our Company Secretaries as at 30 September 2016 were 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 held 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. John
resigned as Company Secretary of Westpac effective 30 September 2016.1
Tim Hartin (LLB (Hons.)) was appointed Group Company Secretary in November 2011. Before that appointment, Tim was
Head of Legal - Risk Management & Workouts, Counsel & Secretariat and prior to that, he was Counsel, Corporate Core.
Before joining Westpac in 2006, Tim was a Consultant with Gilbert + Tobin, where he provided corporate advisory services to
ASX listed companies. Tim was previously a lawyer at Henderson Boyd Jackson W.S. in Scotland and in London in Herbert
Smith’s corporate and corporate finance division.
2. Executive Team
As at 30 September 2016 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
Alexandra Holcomb Chief Risk Officer
Peter King
David Lindberg
David McLean
Christine Parker
Gary Thursby
Chief Financial Officer
Chief Executive, 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.
1 Rebecca Lim, Westpac’s Group General Counsel & Chief Compliance Officer, was appointed Company Secretary of Westpac effective
1 October 2016.
2016 Westpac Group Annual Report
29
1
Brian Hartzer BA, CFA. Age 49
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 is a Director of the Australian Bankers’ Association and was formerly the Chairman until
December 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 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.
He first joined Westpac in 1996 as Head of Foreign Exchange.
Philip was appointed as a Director of Hastings Management Pty Limited in July 2016.
In April 2014, he was appointed the inaugural Chairman of Westpac Bicentennial Foundation, a
$100 million scholarship fund with an exclusive focus on Australian education and leadership.
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
Stanford University Executive Program.
John Arthur LLB (Hons.). Age 61
Chief Operating Officer
John was appointed Chief Operating Officer in November 2011. He had 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.
John retired as Chief Operating Officer effective 30 September 2016.
30
2016 Westpac Group Annual Report
Directors’ report
Lyn Cobley BEc, SF FIN, GAICD. Age 53
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 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 is a member of both the Australian Financial Markets Association (AFMA) and the Westpac
Foundation. She is also a member of Chief Executive Women.
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.
Brad Cooper DipBM, MBA. Age 54
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 51
Chief Information Officer
Dave was appointed Chief Information Officer in September 2014. Dave has almost 30 years of
experience with proven expertise in IT and financial services and the implementation of large, complex
projects.
Dave has been on the Board of the Westpac Bicentennial Foundation, a $100 million scholarship fund with
exclusive focus on Australian education and leadership since 2015.
Before joining Westpac, Dave 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 52
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.
2016 Westpac Group Annual Report
31
1 Alexandra Holcomb BA, MBA, MA. Age 55
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 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.
Peter King BEc, FCA. Age 46
Chief Financial Officer
Peter was appointed Chief Financial Officer in April 2014, with responsibility for Westpac’s Finance, Group
Audit, Tax 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 41
Chief Executive, Business Bank
David was appointed Chief Executive, 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 in Australia.
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 58
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. 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
‐
32
2016 Westpac Group Annual Report
Directors’ report
Christine Parker BGDipBus (HRM). Age 56
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.
Gary Thursby BEc, DipAcc, FCA. Age 54
Chief Strategy Officer
Gary Thursby has been Chief Strategy Officer since February 2015, with responsibility for the Group’s
strategy and mergers & acquisition portfolios. Prior to this role, Gary was Chief Financial Officer, Australian
Financial Services, where his responsibilities included Westpac’s Australian retail banking and wealth
management businesses.
Before joining Westpac in 2008, Gary held a number of senior finance roles at Commonwealth Bank of
Australia (CBA) including Deputy CFO and CFO Retail Bank. Gary has over 20 years’ experience in
financial services, covering finance, M&A and large scale program delivery. He 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 2016 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, interest rate risk management and foreign exchange
services.
There have been no significant changes in the nature of the principal activities of the Group during 2016.
Operating and financial review
b)
The net profit attributable to equity holders of Westpac for the financial year ended 30 September 2016 was $7,445 million, a
decrease of $567 million or 7% compared to 2015. Key features of this result were:
a 3% decrease in net operating income before operating expenses and impairment charges with:
– net interest income of $15,148 million, an increase of $881 million or 6% compared to 2015, with loan growth of 6%,
customer deposit growth of 9% and a 1 basis point increase in net interest margin to 2.10%; and
– non-interest income of $5,837 million, a decrease of $1,538 million or 21% compared to 2015, primarily due to large
infrequent items in 2015. Infrequent items included the profit on the partial sale of BT Investment Management Limited
(BTIM) and the impact of the move to equity accounting for the remaining BTIM shareholding ($1,316 million), lower
profit on the sale of assets ($102 million) and lower performance fees ($24 million), partly offset by the derivative
methodology adjustment of $122 million. Excluding these items, non-interest income reduced $218 million or 4% with
reduced fees in Westpac Institutional Bank from lower activity and reduced credit cards income in Consumer Bank
which included the impact of lower interchange rates;
operating expenses were $9,217 million, a decrease of $256 million or 3% compared to 2015, which included $505 million
of higher technology expenses related to changes to accounting for technology investment spending. Excluding this item,
operating expenses increased $249 million or 3% primarily from the impact of the Group’s investment programs, higher
compliance and regulatory expenses and higher occupancy expenses relating to operating leases in the auto and
equipment finance businesses, partly offset by productivity benefits and the impact of the partial sale of BTIM; and
impairment charges were $1,124 million, an increase of $371 million or 49% compared to 2015. Overall asset quality
remained sound, with stressed exposures as a percentage of total committed exposures at 1.20% while total impaired
loans to total loans were 0.32%. The increase in impairment charges was primarily due to additional provisioning following
the downgrade of a small number of institutional customers to impaired in First Half of 2016, a rise in write-offs in the auto
finance portfolio and lower write-backs.
2016 Westpac Group Annual Report
33
1 A review of the operations of the Group and its divisions and their results for the financial year ended 30 September 2016 is set
out in Section 2 of the Annual Report under the sections ‘Review of Group operations’, ‘Divisional performance’ and ‘Risk and
risk management’, 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 this
Annual Report, which form part of this report.
Dividends
c)
Since 30 September 2016, Westpac has announced a final ordinary dividend of 94 cents per Westpac ordinary share, totalling
approximately $3,145 million for the year ended 30 September 2016 (2015 final ordinary dividend of 94 cents per Westpac
ordinary share, totalling approximately $2,993 million). The dividend will be fully franked and will be paid on 21 December 2016.
An interim ordinary dividend for the current financial year of 94 cents per Westpac ordinary share for the half year ended
31 March 2016, totalling $3,136 million, was paid as a fully franked dividend on 4 July 2016 (2015 interim ordinary dividend of
93 cents per Westpac ordinary share, totalling $2,902 million).
Significant changes in state of affairs and events during and since the end of the 2016 financial year
d)
Significant changes in the state of affairs of the Group were:
the issuance of $3.5 billion of share capital in October and November 2015;
the issuance of approximately $1.7 billion of securities known as Westpac Capital Notes 4;
the redemption of all outstanding Trust Preferred Securities (USD $525 million) of Westpac Capital Trust IV (TPS 2004);
the redemption of all outstanding Westpac Trust Preferred Securities (Westpac TPS) ($763 million) by Westpac RE
Limited, the responsible entity of the Westpac TPS Trust; 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 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.
Business strategies, developments and expected results
e)
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 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
Directors’ interests in securities
a)
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 2016 and in the tables below:
34
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.
2016 Westpac Group Annual Report
Directors’ interests in Westpac and related bodies corporate as at 7 November 2016
Num ber of Relevant
Interests in Westpac
Ordinary Shares
Num ber of Westpac
Share Rights
Westpac
CPS
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
19,472
53,722 1
27,967
36,431 3
9,392
8,869
11,384
15,880 4
20,870
-
453,162 2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,370
-
1 Brian Hartzer’s interest in Westpac ordinary shares includes 19,745 restricted shares held under the CEO Restricted Share Plan.
2 Share rights issued under the CEO Long Term Incentive Plan and Long Term Incentive 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, 850 Westpac Capital Notes 3 and
882 Westpac Capital Notes 4.
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).
2016 Westpac Group Annual Report
35
1
Indemnities and insurance
b)
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 2016, the Group has insurance cover which, in certain circumstances, will provide
reimbursement for amounts which we 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.
Options and share rights outstanding
c)
As at the date of this report there are 657,112 share options outstanding and 4,930,154 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 $27.18. The latest dates for exercise of the share rights range between 15 December 2016
and 1 October 2030.
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.
Proceedings on behalf of Westpac
d)
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.
36
2016 Westpac Group Annual Report
5. Environmental disclosure
6. Rounding of amounts
Directors’ report
Westpac is an entity to which ASIC Corporations Instrument
2016/191 dated 24 March 2016, relating to the rounding of
amounts in directors’ reports and financial reports, applies.
Pursuant to this Instrument, 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 2016.
In Australia, political expenditure for the financial year ended
30 September 2016 was $196,555. This 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.
There was no expenditure on political activities in New
Zealand for the financial year ended 30 September 2016.
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 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/sustainability.
1 Formerly known as the Carbon Disclosure Project.
2 Westpac implemented energy efficiency opportunities that are
expected to result in estimated energy savings of 580GJ, carbon
savings of 3,847tCO2e and cost savings of $399,564 per year.
2016 Westpac Group Annual Report
37
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 2016:
Notes
Board
Audit Committee
Risk & Compliance
Committee
Nominations
Committee
Remuneration
Committee
Technology
Committee
Number of meetings
held during the year
Director
Lindsay Maxsted
Brian Hartzer
Elizabeth Bryan
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
Peter Marriott
1
2
3
4
5
6
7
8
9
A
9
9
9
9
9
9
9
9
9
B
9
9
9
9
9
9
9
9
9
A
6
-
-
-
-
-
6
6
6
B
5
-
-
-
-
-
6
6
6
C
1
-
-
-
-
-
-
-
-
A
4
-
4
4
4
4
4
4
4
B
4
-
4
4
4
4
4
4
4
A
4
-
4
4
-
-
-
4
4
B
4
-
4
4
-
-
-
4
4
A
-
-
6
6
-
6
6
-
-
B
-
-
6
6
-
6
6
-
-
A
-
3
-
-
3
-
-
3
3
B
-
3
-
-
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 2015.
1 Chairman of the Board Nominations Committee. Member of the Board Audit Committee and the Board Risk & Compliance Committee.
2 Member of the Board Technology Committee.
3 Chairman of the Board Risk & Compliance Committee. Member of the Board Nominations Committee and the Board Remuneration Committee.
4 Chairman of the Board Remuneration Committee. Member of the Board Nominations Committee and the Board Risk & Compliance Committee.
5 Member of the Board Risk & Compliance Committee and the Board Technology Committee.
6 Member of the Board Remuneration Committee and Board Risk & Compliance Committee.
7 Member of the Board Remuneration Committee, the Board Risk & Compliance Committee and the Board Audit Committee.
8 Chairman of the Board Technology Committee. Member of the Board Audit Committee, the Board Nominations Committee and the Board Risk &
Compliance Committee.
9 Chairman of the Board Audit Committee. Member of the Board Risk & Compliance Committee, the Board Technology Committee and the Board
Nominations Committee.
38
2016 Westpac Group Annual Report
Directors’ report
9. Remuneration Report
Introduction from the Chairman of the Board Remuneration Committee
Dear Shareholder,
We are pleased to present Westpac’s 2016 Remuneration Report (Report).
2016 Remuneration outcomes
Each year the Board assesses a number of factors when determining remuneration outcomes. In addition to balanced
scoreboards including financial results, the Committee assesses other elements of performance such as the quality of the
results, key performance drivers, meeting customer needs, the risk and operating environment and effectiveness of
implementation of strategic initiatives to determine if the scoreboard outcomes adequately reflect actual performance and return
to shareholders.
This year the Group performance was sound. Although our cash earnings were flat on last year, we have finished the year with
a stronger balance sheet in terms of both capital and liquidity. The higher capital and associated number of shares on issue
combined with the flat cash earnings result has impacted the earnings per share as well as the Group’s return on equity.
It is against these outcomes that the short and long-term incentives were finalised. Short-term incentive outcomes during the
year for the CEO and the Group Executive team averaged 95% of target, down by an average of 11% on last year, and were
within a range of 85% to 106%. Different incentive outcomes across the Group Executive team reflect the performance of each
division and the quality of the performance delivered.
In 2016, the 2013 Long Term Incentive (LTI) reached the test date. As the minimum performance vesting thresholds were not
met, none of the 2013 LTI will vest.
More specifically:
Westpac’s LTI plan Total Shareholder Return (TSR) over the last three years was 15.2%. While we ranked second
amongst the four major Australian banks over the performance period, this outcome was below the 50th percentile vesting
threshold so none of the 2013 TSR hurdled rights vested. This is the second consecutive year where the TSR hurdle has
not been met.
Westpac’s Cash Earnings per Share (EPS) growth over the last three years was also below the vesting threshold of 12.5%
(4.0% compound annual growth), so none of the 2013 EPS hurdled rights vested. The Committee considered that while
EPS outcomes were negatively impacted by regulatory changes which led Westpac to raise more capital and increase the
number of shares on issue, we did not feel the impact warranted any change in the vesting of rights against this
performance hurdle. The 2013 grant required growth of 19.1% (6% compound annual growth) for all of this tranche to vest.
Remuneration frameworks
The Committee remains focused on assessing whether Westpac’s remuneration frameworks continue to be appropriate in the
context of the competitive market in which we operate, the interests of shareholders and the external environment.
The Board has decided that the growth based Cash EPS LTI hurdle is no longer the appropriate hurdle alongside the TSR
hurdle for assessing the Group’s long-term performance. Accordingly, the Board has determined to replace the Cash EPS LTI
hurdle with a return on equity based performance hurdle for LTI awards commencing in 2017.
The new hurdle is the average cash earnings return on average ordinary equity (average Cash ROE) over the three year
performance period from FY17 to FY19 inclusive. This hurdle aims to reward achievement of returns comfortably above the
Group’s cost of capital while generating shareholder value and further improving how efficiently the Group uses its limited
capital resources within the Group’s risk appetite. This hurdle will provide an appropriate counterbalance to TSR as a market
reference for our share price and dividend performance.
The performance range for the 2017 LTI is an average Cash ROE of between 13.5% and 14.5%. Below 13.5% none of the
grant will vest and between 13.5% and 14.5%, 50% to 100% will vest on a straight line basis.
Full details of this new hurdle are contained within the Report.
2016 Westpac Group Annual Report
39
1 Remuneration Changes
Two new Group Executive (Key Management Personnel – KMP) appointments have been made at starting remuneration levels
lower than that of longer serving KMP: Rebecca Lim as the Group General Counsel & Chief Compliance Officer and Gary
Thursby taking on the role of Group Executive, Strategy & Enterprise Services. As the appointments are effective 1 October
2016 and the roles designated as KMP, the remuneration details will be disclosed in the 2017 Report.
Remuneration increases in 2016 were directed to those newly appointed executives who have demonstrated their capacity to
deliver the required business outcomes. The average adjustment across the executive team in FY16 was below 2%.
We are confident that the recent changes to our remuneration framework will support the delivery of sustainable outcomes in
the best interests of our shareholders.
Ewen Crouch
Chairman – Board Remuneration Committee
40
2016 Westpac Group Annual Report
1. Governance and risk management
This section details the Group’s approach to governance
and risk management as they relate to remuneration.
Governance
1.1.
The Group’s remuneration policies and practices strive to
fairly and responsibly reward employees for achieving high
performance and delivering superior long-term results for
customers and shareholders, having regard to 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 accountability 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 Board
Remuneration Committee 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 March 2016.
Members of the Remuneration Committee during 2016
All members of the Remuneration Committee are
independent Non-executive Directors. During 2016, the
members were:
Ewen Crouch (Chairman);
Elizabeth Bryan;
Craig Dunn; and
Robert Elstone.
Independent remuneration consultant
In 2016, the Board retained Guerdon Associates as its
independent consultant to provide specialist information on
executive remuneration and other remuneration matters.
These services are provided directly to the Remuneration
Committee independent of management. The Chairman of
the Remuneration Committee oversees the engagement and
costs of the independent consultant.
Work undertaken by Guerdon Associates during 2016
included information relating to the benchmarking of Non-
executive Director and CEO remuneration and analysis of
the Group’s Earnings per Share (EPS) long term incentive
(LTI) performance hurdle. No remuneration
recommendations, as prescribed under the Corporations
Act, were made by Guerdon Associates in 2016.
Directors’ report
Internal governance structure
The Westpac governance structure includes three levels of
Remuneration Oversight Committees (ROCs) which focus
on the appropriateness and consistency of remuneration
arrangements and outcomes within 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.
Risk management
1.2.
The Group aims to integrate effective risk management into
the remuneration framework throughout the organisation.
The Chairman of the Board Risk and Compliance Committee
is also a member of the Remuneration Committee, and
members of the Remuneration Committee are also members
of the Board Risk and 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 the Group
operates. The performance of each division is reviewed and
measured with reference to how risk is managed and the
results influence remuneration outcomes.
The Executive Total Reward Framework (outlined in Section
3 of this Report) 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 while retaining
sufficient capital for growth. The primary financial indicator
used is economic profit, which measures cash earnings
adjusted for a capital charge. A range of other metrics are
also considered including cash earnings, return on equity
(ROE), cash EPS and dividends.
Short-term incentive (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 outcomes for
economic profit, core earnings growth and ROE accounted
for 40% of the CEO’s scoreboard for 2016. Similarly, Group
Executive scoreboards had 45% of their STI determined
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.
2016 Westpac Group Annual Report
41
1 Approval of remuneration decisions
The Group follows 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 required 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 remuneration. For Group Executives, the expected minimum
shareholding 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 awards. 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.
42
2016 Westpac Group Annual Report
Directors’ report
2. Key Management Personnel remuneration disclosed in this Report
The remuneration of Key Management Personnel (KMP) for the Group is disclosed in this Report. In 2016, 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
Term as KMP
Brian Hartzer
Managing Director & Chief Executive Officer
Full Year
Group Executives
Philip Coffey
John Arthur1
Deputy Chief Executive Officer
Chief Operating Officer
Lyn Cobley
Chief Executive, Westpac Institutional Bank
Brad Cooper
Chief Executive Officer, BT Financial Group
David Curran
Chief Information Officer
George Frazis
Chief Executive, Consumer Bank
Alexandra Holcomb Chief Risk Officer
Peter King
Chief Financial Officer
David Lindberg
Chief Executive, Business Bank
David McLean
Chief Executive Officer, Westpac New Zealand Limited
Christine Parker
Group Executive, Human Resources, Corporate Affairs &
Sustainability
Non-executive Directors
Name
Position
Lindsay Maxsted
Chairman
Elizabeth Bryan
Director
Ewen Crouch
Alison Deans
Craig Dunn
Director
Director
Director
Robert Elstone
Director
Peter Hawkins
Director
Peter Marriott
1
John Arthur ceased to be a KMP effective 1 October 2016.
Director
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Term as KMP
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
2016 Westpac Group Annual Report
43
1 3. Remuneration snapshot 2016
This section provides an overview of the Group’s remuneration arrangements during the 2016 financial year.
Remuneration strategy, principles and framework
3.1.
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
At Risk Remuneration (Variable Reward)
(66%)
Short-term Incentive (STI)
34%
Long-term Incentive (LTI)
32%
Fixed Remuneration
(34%)
Comprises:
cash salary;
salary sacrificed items; and
employer superannuation
Maximum opportunity = 150% of Target STI
contributions in line with statutory
obligations.
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.
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 in 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 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
Remuneration structure and policy
4.1.
a)
Fixed remuneration comprises cash salary, salary sacrificed items and employer superannuation contributions.
Fixed remuneration
The Group provides superannuation contributions in line with statutory obligations. Fixed remuneration is reviewed annually
taking into consideration:
44
role and accountabilities;
relevant market benchmarks within the financial services industry; and
the attraction, motivation and retention of key executives.
2016 Westpac Group Annual Report
Directors’ report
Short-term incentive (STI)
b)
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 strategy.
STI targets
Brian Hartzer’s STI target for 2016 was $2,686,000, unchanged from 2015.
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 2016 performance year did not increase for those Group Executives whose fixed remuneration was unchanged in 2016.
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 the 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 2016
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
Cash STI
Deferred STI
Deferred STI Equity Delivered
50% of the
2016 STI
outcome will be
paid as cash in
December 2016.
50% of the 2016 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 2017.
Half of
deferred STI
will vest in
October 2018.
Executive
Type of Equity1
Equity Plan
CEO
Westpac ordinary
shares2
CEO Restricted
Share Plan
Group
Executives in
Australia
Group
Executives
outside
Australia
Westpac share
rights3
Restricted
Share Plan
Westpac
Performance
Plan
1
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 the on-market purchase of shares.
2
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.
3
Rights to ordinary shares entitle the holder to Westpac ordinary shares at the time of vesting.
2016 Westpac Group Annual Report
45
1 By deferring a portion of the STI as restricted equity, incentive payments are better aligned with the interests of shareholders as
the ultimate value of the deferred portion is tied to the share price at the end of the restriction period. The deferred STI awards
recognise past performance and are not subject to further performance conditions and receive dividends over the vesting
period.
If an executive resigns or retires, or otherwise leaves the Group before their securities vest, the Board has discretion as to how
those securities are treated. If the executive leaves to join another organisation, or is terminated for cause, their securities are
generally forfeited. In other circumstances, the Board may 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 and exercised during the year ended 30 September 2016 are included
in Section 6.4 of this Report.
Long-Term Incentive (LTI)
c)
The CEO and Group Executives are also eligible for an LTI award.
LTI structure 2016
The following diagram and table set out the key features of the 2016 LTI awards made in December 2015 to the CEO under the
CEO LTI Plan and to Group Executives under the Westpac LTI Plan:
LTI Structure 2016
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 as
at 30 September 2019, and any rights capable of vesting
will vest on 30 September 2019.
Cash EPS Compound Annual Growth Rate (CAGR) –
measured as at 30 September 2018, and any rights
capable of vesting will vest on 30 September 2019.
Composite TSR index and vesting profile
At the end of the performance period, 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%
TSR index vesting
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
46
2016 Westpac Group Annual Report
Directors’ report
LTI structure 2017 - ROE to replace Cash EPS CAGR
Commencing in 2017, a Return on Equity (ROE) based hurdle will replace Cash EPS CAGR for 50% of the allocation.
Participants will continue to receive performance share rights (share rights) which, if they qualify for vesting, will convert to
ordinary shares on a 1:1 basis at the vesting date. Share rights which do not qualify for vesting at the single test date will lapse.
The ROE performance hurdle measures the average cash return on average ordinary equity (average Cash ROE) over the
three year performance period. Share rights that qualify for vesting will have a one year holding lock applied and will vest at the
completion of the four year term from the commencement date.
For the 2017 grant, the share rights will be tested against the performance hurdles on 30 September 2019. If Westpac’s
average Cash ROE for the three years (FY17 to FY19 inclusive) is equal to 13.5%, 50% of the share rights will qualify for
vesting. If Westpac’s average Cash ROE is at or above 14.5%, 100% of the share rights will qualify for vesting. If Westpac’s
average ROE is between 13.5% and 14.5%, the number of share rights eligible for vesting will increase on a straight line basis
from 50% to 100% of the share rights awarded. Share rights that qualify for vesting will have a one year holding lock applied
and will vest on 30 September 2020.
LTI award opportunities
The CEO was granted an LTI award of $2,528,000 in the form of share rights for 2016 under the CEO LTI 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.
CEO LTI Plan and Westpac LTI Plan – Granted after 1 October 2015
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 Committee applies a maximum discount of
60% (including the impact of dividends forgone) to the market price of Westpac shares when determining the
value of share rights. The value of a TSR hurdled share right may be different to an EPS hurdled share right.
Performance
hurdles
The CEO and Group Executives generally only receive value from their LTI awards where performance
hurdles are achieved. The two hurdles for the December 2015 grants were Westpac’s relative TSR and
Cash EPS CAGR 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.
2016 Westpac Group Annual Report
47
1 Performance
hurdles
(cont.)
CEO LTI Plan and Westpac LTI Plan – Granted after 1 October 2015
2016 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 companies in the 2016 peer groups for the
Westpac Reward Plan are:
AMP Limited;
Australia and New Zealand Banking Group
Limited;
Bank of Queensland;
Bendigo and Adelaide Bank Limited;
Challenger Limited;
Commonwealth Bank of Australia;
Macquarie Group Limited;
National Australia Bank Limited;
Perpetual Limited; and
Suncorp Group Limited.
Targets are
set for stretch
performance
The Board considers the vesting profile appropriate
as 100% vesting will only occur where Westpac’s
TSR equals or exceeds the growth of the composite
index plus 21.55.
Who
measures the
performance
hurdle
outcomes?
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.
The Cash EPS CAGR measure focuses on growth
in cash earnings over a three year performance
period. 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.
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 earnings
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.
The expensed value of the December 2014, 2015
and 2016 grants in Table 6.2 of this Report have
been reduced 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 has been no re-testing on LTI awards made since 2011. No award currently on foot is subject to re-
testing. Accordingly, securities that have not vested after the measurement period lapse immediately.
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2016 Westpac Group Annual Report
Directors’ report
Treatment of
securities
CEO LTI Plan and Westpac LTI Plan – Granted after 1 October 2015
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 their obligations under the
relevant equity plan, unexercised performance share rights (whether vested or unvested) will lapse unless
the Board determines otherwise.
2016 Westpac Group Annual Report
49
1 Linking reward and performance
4.2.
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 the Group’s
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 2016 financial year, with commentary on key highlights are provided below:
Category
Weighting Measure1
Performance Highlights
Performance
disciplines
30%
Economic profit
10%
Core earnings growth
10%
Capital management
10%
Adherence to Group Risk
Appetite Statement (RAS)
10%
Service revolution
Driving
strategic
change
10%
Building growth highways
Delivered economic profit (EP) of $3,774 million, down on
2015. EP was impacted by the increased capital charge as a
result of a 13% increase in average ordinary equity.
Cash Earnings remain unchanged.
Return on Equity was a solid 14%, with all divisions
achieving returns above their cost of capital despite difficult
operating conditions and increased capital requirements.
Core earnings increased 3.4%.
Revenues grew 3% underpinned by 6% growth in lending,
and 9% growth in customer deposits. Costs rose 3% due to
increased investment and higher regulatory and compliance
costs.
Strengthened the balanced sheet ahead of regulatory
change and managed the raising of capital well.
Led the market in ensuring lending rates partly reflected
higher capital requirements.
Common equity tier 1 ratio of 9.48% above preferred range.
Proactive in tightening credit standards in commercial
property market.
Further improvements in credit, operational, and compliance
risk management.
Cyber risk control a focus with a new security incident and
event monitoring system in place monitoring 1.9 billion
events per day.
An ongoing focus on strengthening the compliance and
control environment and doing the right thing by our
customers including in relation to product governance and
an overall conduct risk framework.
Substantial work has been undertaken on conduct, focused
on creating a common understanding and approach to
managing conduct across the Group.
Launched the Group-wide Service Promise to build a
stronger culture of service leadership. This program has
seen substantial support from employees and contributing to
rising compliments and falling complaints.
Customer complaints down 30% over the year.
Enhanced the value of the customer franchise, customer
numbers increasing by 350,000 in Australia.
Continued sound growth in Wealth and SME.
In Wealth, funds under administration up 7%, funds under
management up 9%. Insurance premiums also higher.
SME business lending up 8%.
Market conditions in Asia leading us to wind back investment
ambitions for that region.
Actively managed growth and return outcomes which saw
margins higher over the year.
Home lending increased just above target and system while
managing margins well.
Growth in household deposits exceeded expectations (and
system).
50
2016 Westpac Group Annual Report
Weighting Measure1
Performance Highlights
Directors’ report
10%
Digital transformation
Category
Driving
strategic
change
(cont.)
Further improvement in digital capabilities improving the
customer experience, employee productivity and risk
management.
Updates to Westpac’s online banking saw the platform rated
No.1 globally by Forrester Global Mobile Banking
Functionality Benchmark, in which 46 global banks were
reviewed. Launched a new business banking platform for
St.George customers, and upgraded the Group’s business
loan origination platform (LOLA).
Digitised 7 of the top 10 manual transactions improving the
experience for customers and time spend by employees.
These included credit card activation and blocking and
unblocking credit cards.
Significant enhancements to technology infrastructure with
the Customer Service Hub now in development, the upgrade
of the St.George deposit and transaction platform and major
releases to the Group’s wealth platform Panorama, with
digital sales increasing by 30%.
Retained the Group’s position as the most sustainable bank
globally in the 2016 Dow Jones Sustainability Indices (DJSI)
Review with highest score ever.
The number of women in leadership grew to 48% on track to
meet our 2017 target of 50%.
Further reduction in the Lost Time Injury Frequency Rate,
ahead of targets. Total recordable injuries have now fallen
17% since 2014.
We have made good progress on the Workforce Revolution
program focused on transforming our culture and improving
the quality and capability of our leaders to deliver on our
Service Revolution strategy.
People
10%
People and sustainability
1
Individual measures will differ for each Group Executive.
2016 Westpac Group Annual Report
51
1 The Group’s 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 2016 reflects the Board’s view of
performance across all balanced scoreboard measures relative to planned outcomes, and the value the Group has delivered
for shareholders.
Aligning pay with performance and shareholder return
Graph 1 shows the CEO STI payments 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
150
5,200
)
m
$
(
t
i
f
o
r
i
P
c
m
o
n
o
c
E
4,700
4,200
3,700
3,200
2,700
2,200
1,700
)
%
(
O
E
C
r
o
f
d
r
a
w
A
I
T
S
140
130
120
110
100
90
80
70
60
50
2013
2014
2015
Economic Profit ($m)
2016
STI Award for CEO
Graph 2: Return on Equity (ROE) 2013 to 2016
)
%
(
y
t
i
u
q
E
n
o
n
r
u
t
e
R
17
16
15
14
13
12
11
10
)
m
(
t
n
u
o
C
e
r
a
h
S
e
g
a
r
e
v
A
3,300
3,100
2,900
2,700
2,500
2013
2014
2015
2016
Return on Equity
Average Share Count (m)
Graph 3: Total Shareholder Return (TSR) 2012 to 2016
Graph 4: Cash Earnings per Share (EPS) 2013 to 2016
90
80
70
60
50
40
30
20
10
)
%
(
n
r
u
t
e
R
l
r
e
d
o
h
e
r
a
h
S
l
a
t
o
T
0
Oct 12
Oct 13
Oct 14
Oct 15
WBC
Peer 1
Peer 2
Oct 16
Peer 3
e
r
a
h
S
r
e
p
s
t
n
e
C
255
250
245
240
235
230
225
220
215
8
.
7
2
2
2013
4
.
5
4
2
2
.
8
4
2
5
.
5
3
2
3,300
3,100
2,900
2,700
2,500
2015
2014
Cash Earnings per Share (cents per share)
Average Share Count (m)
2016
)
m
(
t
n
u
o
C
e
r
a
h
S
e
g
a
r
e
v
A
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 relevant 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
52
any other relevant under or over performance or other matter not captured.
2016 Westpac Group Annual Report
Directors’ report
The process ensures that financial measures such as economic profit 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 impacts future earnings.
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.
LTI performance outcomes
The following table provides the Group’s TSR, dividends per share, cash earnings per share and share price performance each
year from 2012 to 2016:
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
2016
15.24%
100.72%
188
$2.35
$33.74
$27.57
$29.51
Years Ended 30 Septem ber
2015
62.30%
92.78%
187
$2.48
$40.07
$29.10
$29.70
2014
102.03%
103.74%
182
$2.45
$35.99
$30.00
$32.14
2013
66.09%
90.91%
174
$2.29
$34.79
$24.23
$32.73
2012
25.61%
20.03%
166
$2.15
$24.99
$19.00
$24.85
1
Does not include $0.20 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
Equity Instrum ent
CEO Performance Plan2
Westpac Long Term Incentive Plan Performance share rights
Performance share rights
Type of Equity
Com mencement
Date 1
Test Date
1 October 2013 1 October 20163
1 October 2013 1 October 20163
1
Commencement date refers to the commencement of the performance period.
2
CEO Performance Plan refers to awards made to Gail Kelly.
3
There is no re-testing and any unvested share rights lapse.
TSR Percentile in Vested Lapsed
%
Ranking Group
%
20th percentile
20th percentile
-
-
100
100
Cash EPS CAGR hurdle vesting outcomes
Equity Instrum ent
CEO Performance Plan2
Performance share rights
Westpac Long Term Incentive Plan Performance share rights
Type of Equity
Com mencement
Date 1
Test Date
Cash EPS CAGR Vested Lapsed
%
Perform ance
%
1 October 2013
1 October 2013
1 October 2016
1 October 2016
1.10%
1.10%
-
-
100
100
1
Commencement date refers to the commencement of the performance period.
2
CEO Performance Plan refers to awards made to Gail Kelly.
2013 Cash EPS CAGR hurdle
The Cash EPS CAGR hurdle and vesting profile over the three year vesting period for the 2013 LTI grant was:
a minimum of 4% CAGR for 50% to vest;
6% CAGR for 100% to vest; and
straight-line vesting between 4% and 6% CAGR.
The Cash EPS CAGR range was developed prior to the allocation in December 2013, 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 2013.
2016 Westpac Group Annual Report
53
1 Remuneration outcomes for the CEO and Group Executives – Linking reward and performance
4.3.
The following table has been prepared to provide shareholders with an outline of the remuneration which has been received for
the 2016 performance year either as cash or in the case of prior equity awards, the value which has vested in 2016 (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 (unaudited) received by executives and is not prepared in accordance with AAS.
Fixe d
Re mune ra tion 1
2 0 16 S TI Ca sh
P a yme nt 2
2 0 16 Tota l Ca sh
P a yme nts 3
P rior Y e a r Equity
Awa rds 4 V e ste d during
2 0 16
P rior Y e a r Equity
Awa rds 4 Forfe ite d
during 2 0 16
$
$
$
$
$
Managing Director & Chief Executive Officer
Brian Hartzer
2,811,402
1,302,710
4,114,112
1,003,809
625,247
Group Executives
John Arthur
Lyn Cobley
Philip Coffey
Brad Cooper
David Curran
George Frazis
Alexandra Holcomb
Peter King
David Lindberg
David McLean
Christine Parker
1,222,005
1,124,889
1,331,293
1,097,162
940,826
1,168,631
986,607
1,072,417
903,399
836,941
873,835
585,000
492,500
597,500
735,000
467,500
815,000
492,500
545,000
477,500
363,050
450,000
1,807,005
1,617,389
1,928,793
1,832,162
1,408,326
1,983,631
1,479,107
1,617,417
1,380,899
1,199,991
1,323,835
1,275,467
553,866
1,392,992
1,336,930
-
1,150,603
662,184
458,612
326,656
259,469
703,239
1,559,657
-
1,479,487
1,348,357
-
979,045
366,806
269,630
-
154,014
583,476
1
Fixed remuneration includes cash salary, annual leave accrual and salary sacrificed items plus employer superannuation contributions.
2
The cash STI payment represents 50% of the 2016 STI outcome and will be paid in December 2016. The remaining 50% is deferred in the form of
equity granted in December 2016 which will vest in equal tranches in October 2017 and 2018.
3
This is the addition of the first and second columns.
4
Prior year equity awards include both deferred STI and LTI allocations subject to performance hurdles which have vested in 2016. The equity value
has been calculated as the number of securities that vested or were forfeited during the year ended 30 September 2016, 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.
5. Non-executive Director remuneration
Structure and policy
5.1.
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 performance and the creation of shareholder value, fees for Non-
executive Directors are not related to the Group’s short-term results and Non-executive Directors do not receive performance-
based remuneration.
54
2016 Westpac Group Annual Report
Directors’ report
Non-executive Director remuneration consists of the following components:
Remuneration Component
Paid as
Detail
Base fee
Committee fees
Cash
Cash
Employer superannuation
contributions
Superannuation
This fee is for service on the Westpac Banking Corporation Board.
The base fee for the Chairman covers all responsibilities, including all
Board Committees.
Additional fees are paid to other 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.
Non-executive Director remuneration in 2016
Non-executive Director fee review – Effective 1 October 2015
The Board reviewed the Non-executive Director fee framework in late 2015. On the basis of market data provided by Guerdon
Associates, the Board approved an increase to the Board Chairman fee and an increase to the Chairman and member fees
across the Board Committees recognising the workload associated with these key roles. The Non-executive Director base fee
was unchanged.
Changes to Board and Committee composition
No changes were made to Board or Committee composition during the 2016 remuneration period.
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 2016, $3.16 million (70%) 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
Com m ittee Chairm an Fees
Audit Committee
Risk & Compliance Committee
Remuneration Committee
Technology Committee
Com m ittee Mem bership Fees
Audit Committee
Risk & Compliance Committee
Remuneration Committee
Technology Committee
Annual Rate
$
810,000
225,000
70,400
70,400
63,800
35,200
32,000
32,000
29,000
16,000
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
During the reporting period, additional fees of $35,000 were paid to Peter Hawkins as a member of the Bank of Melbourne
Advisory Board.
2016 Westpac Group Annual Report
55
1 Equity participation
Non-executive Directors have 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. Required remuneration disclosures
Details of Non-executive Director remuneration
6.1.
Details of Non-executive Director remuneration are set out in the table below:
Na me
Current Non-executive Directors
Lindsay Maxsted, Chairman
2016
2015
Elizabeth Bryan
2016
2015
Ewen Crouch
2016
2015
Alison Deans
2016
2015
Craig Dunn
2016
2015
Robert Elstone
2016
2015
Peter Hawkins
2016
2015
Peter Marriott
2016
2015
Total fees
2016
20152
S hort- Te rm Be ne fits
P ost- Employme nt Be ne fits
We stpa c Ba nking
Corpora tion Boa rd
Fe e s 1
$
S ubsidia ry a nd
Advisory Boa rd
Fe e s
$
S upe ra nnua tion
$
Tota l
$
810,000
795,000
324,400
313,000
320,800
311,000
273,000
270,000
286,000
94,892
318,000
320,701
324,200
315,000
343,400
322,298
2,999,800
2,799,580
-
-
-
-
-
-
-
-
-
-
-
-
35,000
35,000
-
-
35,000
35,000
19,540
18,989
19,540
18,989
19,540
18,989
19,540
18,989
19,540
6,569
19,540
18,989
19,465
18,916
19,540
18,989
829,540
813,989
343,940
331,989
340,340
329,989
292,540
288,989
305,540
101,461
337,540
339,690
378,665
368,916
362,940
341,287
156,245
143,279
3,191,045
2,977,859
1
Includes fees paid to the Chairman and members of Board Committees.
2
The total fees for 2015 reflect the prior year remuneration for the 2015 reported Non-executive Directors.
56
2016 Westpac Group Annual Report
Remuneration details – CEO and Group Executives
6.2.
This section sets out details of remuneration for the CEO and Group Executives for the 2016 financial year, calculated in
accordance with AAS.
Directors’ report
P ost-
O th e r
Lon g-
Emplo yme nt
Be ne fits
Te rm
Be ne fits
S ha re - Ba se d P a yme n ts
O the r
S ho rt- Te rm
Be ne fits 4
S upe ra nn-
u a tion
Be n e fits 5
Lo ng
S e rvic e
Le a ve
Re stric te d
S ha re s 6
O ptions 7
S ha re
Rights 7
$
$
$
$
$
Tota l 8
$
$
-
-
-
-
-
S hort- Te rm Be ne fits
Non-
Fixe d
Re mu -
ne ra tion 1 S TI (Ca sh) 2
Mone ta ry
Be ne fits 3
Na me
$
$
$
Ma n a ging Dire c tor & Chie f Exe c utive O ffic e r
Brian Hartzer
2016
2015
2,774,879
1,302,710
2,413,205
1,245,960
21,349
66,063
G ro up Exe c utive s
John Arthur, Chief Operating Offic er
2016
2015
1,197,909
1,126,050
585,000
728,000
15,651
14,971
Lyn Cobley, Chief Exec utive, Westpac Institutional Bank
1,097,409
492,500
1,850
2016
20159
71,006
-
-
1,100,000
Philip Coffey, Deputy Chief Exec utive Offic er
2016
2015
1,289,796
1,299,272
597,500
734,400
4,105
3,425
Brad Cooper, Chief Exec utive Offic er, BT Financ ial Group
2016
2015
1,060,435
1,060,577
735,000
816,000
David Curran, Chief Information Offic er
2016
2015
914,905
961,663
467,500
547,400
4,089
3,374
4,089
2,359
George Frazis, Chief Exec utive, Consumer Bank
2016
2015
1,131,541
1,125,527
815,000
928,000
3,039
15,266
Alexandra Holc omb, Chief Risk Offic er
2016
2015
949,671
946,104
492,500
499,800
Peter King, Chief Financ ial Offic er
2016
2015
1,041,344
938,722
545,000
522,580
3,039
2,359
4,089
2,359
David Lindberg, Chief Exec utive, Business Bank
2016
20159
880,296
264,138
477,500
151,725
17,070
2,610
David Mc Lean, Chief Exec utive Offic er, Westpac New Zealand Limited
2016
20159
760,848
712,605
363,050
430,580
33,753
75,392
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,522
29,418
40,722
57,016
1,128,139
782,501
24,096
24,185
27,480
6,713
41,497
36,253
36,727
35,682
25,921
22,429
37,090
36,022
36,936
35,460
31,072
29,789
23,103
8,277
76,093
69,559
18,271
18,265
731,628
647,634
17,005
-
977,182
75,256
20,678
20,628
766,988
792,211
16,730
16,679
14,424
14,420
831,388
803,641
428,244
-
17,451
22,909
925,520
797,145
16,199
(2,240)
587,415
525,239
48,728
14,960
499,345
372,877
15,069
5,961
403,624
129,810
-
-
14,322
35,687
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,447,696
1,143,466
6,752,017
5,737,629
659,272
1,153,998
3,231,827
3,713,103
307,514
-
2,920,940
1,252,975
913,187
1,262,936
3,633,751
4,149,125
800,145
1,130,678
3,484,514
3,866,631
461,898
216,485
2,316,981
1,764,756
591,094
770,797
3,520,735
3,695,666
566,909
496,155
2,652,699
2,502,877
661,789
504,705
2,831,367
2,385,992
464,140
83,045
2,280,802
645,566
932,957
264,417
558,680
641,184
2,181,023
1,588,240
2,400,526
2,500,322
Christine Parker, Group Exec utive, Human Resourc es, Corporate Affairs & Sustainability
2016
2015
849,556
830,035
450,000
508,500
4,650
2,649
-
-
24,279
23,144
(5,013)
16,025
518,374
478,785
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
2016 STI figures reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2016.
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 on cessation of employment or other contracted amounts. The payment to Lyn Cobley in 2015 reflects annual incentive forgone
from her previous employer.
5
The CEO and Group Executives are provided with life 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 2016 reporting
year (and 2015 year as comparison). Restricted shares held by Lyn Cobley represent an allocation made in substitution for forgone unvested equity
on joining the Westpac Group. The restricted shares replicate the vesting periods of the equity forgone.
2016 Westpac Group Annual Report
57
1
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 2016. Details of prior years’ grants have
been disclosed in previous Annual Reports. The value for David McLean includes 65% 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 57%, John
Arthur 61%, Lyn Cobley 61%, Philip Coffey 63%, Brad Cooper 68%, David Curran 59%, George Frazis 66%, Alexandra Holcomb 62%, Peter King
60%, David Lindberg 59%, David McLean 60% and Christine Parker 64%. The percentage of total remuneration delivered in the form of share rights
was: Brian Hartzer 21%, John Arthur 20%, Lyn Cobley 11%, Philip Coffey 25%, Brad Cooper 23%, David Curran 20%, George Frazis 17%,
Alexandra Holcomb 21%, Peter King 23%, David Lindberg 20%, David McLean 43% and Christine Parker 23%.
9
2015 remuneration details are from the date of appointment.
58
2016 Westpac Group Annual Report
Directors’ report
STI outcomes for the CEO and Group Executives1
6.3.
This section sets out details of STI awards for the CEO and Group Executives for the 2016 financial year:
S TI Ta rge t
Ma ximum S TI 2
S TI P ortion P a id in Ca sh 3
S TI P ortion De fe rre d 4
Managing Director & Chief Executive Officer
Brian Hartzer
2,686,000
$
Group Executives
John Arthur
Lyn Cobley
Philip Coffey
Brad Cooper
David Curran
George Frazis
Alexandra Holcomb
Peter King
David Lindberg
David McLean
Christine Parker
1,300,000
1,122,000
1,360,000
1,600,000
952,000
1,600,000
1,003,000
1,088,000
901,000
854,565
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
$
1,302,710
585,000
492,500
597,500
735,000
467,500
815,000
492,500
545,000
477,500
363,050
450,000
%
50
50
50
50
50
50
50
50
50
50
50
50
$
1,302,710
585,000
492,500
597,500
735,000
467,500
815,000
492,500
545,000
477,500
363,050
450,000
1
STI outcomes during the year for the CEO and Group Executives averaged 95% of target, and ranged between 85% and 106%.
2
The maximum STI potential is 150% of the individual STI target.
3
50% of the STI outcome for the year is paid as cash in December 2016.
4
50% of the actual STI outcome is deferred in the form of restricted shares or share rights, half vesting on 1 October 2017 and the remainder vesting
on 1 October 2018.
2016 Westpac Group Annual Report
59
1 Movement in equity-settled instruments during the year
6.4.
This table shows the details of movements during 2016 in the number and value of equity instruments for the CEO and
Group Executives under the relevant plans:
Na me
T ype o f Equ ity- Ba se d Instru me nt
Managing Director & Chief Executive Officer
Numbe r
G ra nte d 1
Numbe r
V e ste d 2
Numbe r
Exe rc ise d 3
V a lue
G ra nte d 4
$
V a lue
Exe rc ise d 5
$
V a lue
Forfe ite d or
La pse d 5 , 6
$
Brian Hartzer
CEO Performance share rights
323,615
-
-
6,048,804
-
-
Performance share rights
-
9,824
9,824
-
311,746
625,247
CEO Restricted Share Plan
39,491
-
Shares under Restricted Share Plan
-
23,820
-
-
1,235,349
-
-
-
-
-
Group Executives
John Arthur
Performance share rights
Shares under Restricted Share Plan
Lyn Cobley
Performance share rights
72,702
23,074
90,914
22,673
20,076
-
Shares under Restricted Share Plan
-
19,200
Philip Coffey
Performance share rights
Shares under Restricted Share Plan
Brad Cooper
Performance share rights
Shares under Restricted Share Plan
David Curran
Performance share rights
Shares under Restricted Share Plan
George Frazis
Performance share rights
Shares under Restricted Share Plan
Alexandra Holcomb Performance share rights
Shares under Restricted Share Plan
Peter King
Performance share rights
Shares under Restricted Share Plan
David Lindberg
Performance share rights
Shares under Restricted Share Plan
David McLean
Performance share rights
Unhurdled share rights
Shares under Restricted Share Plan
Christine Parker
Performance share rights
Shares under Restricted Share Plan
103,400
23,277
84,820
25,863
72,379
17,350
80,781
29,413
76,257
15,841
82,720
16,563
68,502
11,391
64,798
18,935
-
60,585
16,117
21,414
25,274
18,894
25,915
-
-
13,856
24,708
5,290
17,119
3,779
11,592
-
10,915
2,148
5,147
1,327
8,817
14,753
22,673
1,446,839
719,484
1,559,657
-
-
-
721,796
1,809,275
-
-
-
-
-
-
-
21,414
2,057,759
679,532
1,479,487
-
728,146
-
-
18,894
1,687,993
599,565
1,348,357
-
-
-
809,041
1,440,408
542,739
-
-
-
-
-
-
13,856
1,607,613
439,694
979,045
-
920,091
-
-
5,290
1,517,591
167,868
366,806
-
495,535
-
-
3,779
1,646,205
119,919
269,630
-
-
-
-
-
-
518,120
1,363,250
356,331
1,289,544
574,542
-
-
-
-
-
-
-
-
-
-
154,014
-
-
8,817
1,205,700
279,791
583,476
-
504,169
-
-
1
No performance options were granted in 2016.
2
36% of hurdled share rights granted in 2012 vested in October 2015 as assessed against the TSR and EPS performance hurdles.
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. 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 2016, do not reconcile
with the amount shown in the table in Section 6.2 of this Report, which shows the amount amortised in the current year 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.
60
2016 Westpac Group Annual Report
Directors’ report
Fair value of LTI grants made during the year
The table below provides a summary of the fair value of LTI awards granted to the CEO and Group Executives during 2016
calculated in accordance with 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 Instrume nt
G ra nte d to
CEO Long Term
Incentive Plan
Brian Hartzer
P e rforma nc e
Hurdle
Relative TSR
Cash EPS CAGR
Relative TSR
Cash EPS CAGR
G ra nt Da te
Comme nc e me nt
Da te 1
Te st Da te
Expiry
11 December 2015
11 December 2015
11 December 2015
11 December 2015
1 October 2014 1 October 2018 1 October 2029
1 October 2014 1 October 2017 1 October 2029
1 October 2015 1 October 2019 1 October 2030
1 October 2015 1 October 2018 1 October 2030
Westpac Long Term
Incentive Plan
All Group
Executives
Relative TSR
Cash EPS CAGR
2 December 2015
2 December 2015
1 October 2015 1 October 2019 1 October 2030
1 October 2015 1 October 2018 1 October 2030
Fa ir
V a lue 2 pe r
Instrume nt
$11.17
$26.70
$12.93
$25.20
$13.75
$26.51
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 $26.51 is four years to the 1 October 2019 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
Duration of agreement
CEO and Group Executives
Notice to be provided by the executive
or the Group to terminate the
employment agreement1
Termination payments to be made on
termination without cause2
CEO and Group Executives (excluding
Philip Coffey)
Philip Coffey
CEO and all Group Executives
Termination for cause
CEO and Group Executives (excluding
Brad Cooper and Philip Coffey)
Brad Cooper and Philip Coffey
Post-employment restraints
CEO and all Group Executives
Conditions
Ongoing until notice given by either party
12 months
6 months
Deferred STI and LTI awards vest
according to the applicable equity plan
rules
Immediately for misconduct
3 months’ notice for poor performance
Immediately for misconduct
Contractual notice period for poor
performance
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.
2
The maximum liability for termination benefits for the CEO and KMP at 30 September 2016 was $13 million (2015: $15 million).
2016 Westpac Group Annual Report
61
1 8. Non-executive Directors, CEO and Group Executives – Additional disclosures
Details of Westpac ordinary shares held by Non-executive Directors
8.1.
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 20161:
Na me
Current Non-executive Directors
Lindsay Maxsted
Elizabeth Bryan
Ewen Crouch2
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins 3
Peter Marriott
Numb e r He ld a t
S ta rt of th e Y e a r
O the r Cha n ge s
Du ring the Y e a r
Nu mbe r He ld a t
En d o f the Y e a r
17,877
26,801
38,496
9,000
8,500
10,291
15,218
20,000
1,673
1,166
1,749
392
369
1,093
662
870
19,550
27,967
40,245
9,392
8,869
11,384
15,880
20,870
1
None of these share interests include non-beneficially held shares.
2
3
In addition to holdings of ordinary shares, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2 at year end.
In addition to holdings of ordinary shares, Peter Hawkins and his related parties held interests in 1,370 Convertible Preference Shares, 850 Westpac
Capital Notes 3 and 882 Westpac Capital Notes 4 at year end.
62
2016 Westpac Group Annual Report
Directors’ report
Details of Westpac equity holdings of Key Management Personnel
8.2.
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 20161:
Na me
Type of Equity- ba se d
In strume nt
Managing Director & Chief Executive Officer
Brian Hartzer
Ordinary shares
CEO Performance share rights
Performance share rights
Group Executives
John Arthur3
Lyn Cobley
Philip Coffey4
Brad Cooper
David Curran
George Frazis
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Alexandra Holcomb Ordinary shares
Peter King
David Lindberg
David McLean
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
Numbe r
He ld a t
S ta rt of
the Y e a r 2
Nu mbe r
G ra nte d During
the Y e a r a s
Re mune ra tion
Re c e ive d
on
Exe rc ise
a nd/ or
Exe rc ise d
During the
Y e a r
Numbe r
La pse d
Du ring
the Y e a r
O the r
Cha nge s
During
the Y e a r
Numbe r
He ld a t
End of
the Y e a r
Numbe r
V e ste d a nd
Exe rc isa ble
a t End o f
the Y e a r
49,571
-
246,155
264,156
251,163
57,011
-
305,555
282,039
37,582
251,914
-
63,519
162,062
173,597
46,708
38,847
120,060
73,894
122,900
38,811
64,984
9,212
42,972
11,569
22,044
144,970
39,491
323,615
-
23,074
72,702
-
90,914
23,277
103,400
25,863
84,820
17,350
72,379
29,413
80,781
15,841
-
76,257
16,563
82,720
11,391
68,502
-
64,798
18,935
16,117
60,585
9,824
-
(9,824)
-
-
(20,956)
(45,164)
-
-
53,722
323,615
215,375
22,673
(22,673)
-
(52,274)
15,383
-
325,286
248,918
-
-
-
-
(651)
-
56,360
90,914
21,414
(21,414)
18,894
(18,894)
-
(49,587)
-
(45,192)
-
-
-
-
7
-
1,634
-
-
-
13,856
(13,856)
-
(32,814)
(69,064)
-
5,290
-
(5,290)
3,779
(3,779)
-
-
(12,294)
(40,651)
-
-
-
(9,037)
(32,913)
-
-
-
-
-
-
-
-
(9,000)
-
-
(5,162)
-
401
-
-
8,817
(8,817)
-
(19,556)
(23,570)
-
350,253
314,438
83,973
272,648
17,350
135,898
136,267
207,708
27,188
38,847
178,733
61,323
192,804
41,202
133,486
9,613
102,608
30,504
23,408
177,182
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38,847
-
-
-
-
-
-
2,148
5,147
-
-
1
The highest number of shares held by an individual in the table is 0.0105% of total Westpac ordinary shares outstanding as at 30 September 2016.
2
Some opening balances in relation to ordinary shares have been restated to include additional individual and related party shares.
3
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.
In addition to holdings of ordinary shares, Philip Coffey and his related parties held interests in 2,000 Westpac Capital Notes 2, 3,000 Westpac
Capital Notes 3 and 3,407 Westpac Capital Notes 4 at year end.
4
2016 Westpac Group Annual Report
63
1
Loans to Non-executive Directors and other Key Management Personnel disclosures
8.3.
All financial instrument transactions that 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:
Directors
Other KMP
Ba la nc e a t S ta rt
of the Y e a r 1
$
Inte re st P a id
a nd P a ya ble
for the Y e a r
$
4,663,312
10,799,188
15,462,500
194,311
514,927
709,238
Inte re st Not
Cha rge d
During the
Y e a r
$
-
-
-
Ba la nc e a t
End of the
Y e a r
$
3,932,987
12,290,415
16,223,402
Numbe r in
G roup a t End of
the Y e a r
2
7
9
Individuals (including their related parties) with loans above $100,000 during the 2016 financial year:
Directors
Lindsay Maxsted
Ewen Crouch
Other KMP
John Arthur
Philip Coffey
Brad Cooper
Alexandra Holcomb
David McLean
Christine Parker
Ba la nc e a t S ta rt
of the Y e a r 1
$
Inte re st P a id
a nd P a ya ble
for the Y e a r
$
In te re st No t
Cha rge d
During the
Y e a r
$
Ba la nc e a t
End of the
Y e a r
$
Hig he st
In de b te d ne ss
du rin g th e Y e a r
$
3,248,220
1,415,092
1,463,544
2,394,000
266,534
3,964,352
49,087
2,598,608
127,718
66,593
70,296
117,882
15,164
188,063
12,065
109,070
-
-
-
-
-
-
-
-
2,598,160
1,334,827
2,327,105
2,394,000
766,060
3,665,374
475,551
2,619,094
3,248,220
1,804,687
3,179,717
2,394,000
766,060
3,964,632
478,372
2,801,835
1
Some opening balances have been restated to include additional individual loans.
64
2016 Westpac Group Annual Report
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 2016, 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
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.
Michael Codling
Partner
PricewaterhouseCoopers
Sydney
7 November 2016
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
2016 Westpac Group Annual Report
65
1 Non-audit services
b)
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 2015 and 2016
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 $8.1 million in total (2015 $9.9 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 2016 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
based on Board quarterly independence declarations made by PwC to the Board Audit Committee, none of the services
undermine the general principles relating to auditor independence including reviewing or auditing PwC’s own work, acting
in a management or a decision-making capacity for the company, acting as advocate for the company or jointly sharing
economic risk and rewards.
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 2016, 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
7 November 2016
Brian Hartzer
Managing Director & Chief Executive Officer
7 November 2016
66
2016 Westpac Group Annual Report
02
Five year summary
Reading this report
Review of Group operations
Divisional performance
Risk and risk management
Westpac’s approach to sustainability
Other Westpac business information
2 Five year summary1
(in $m unless otherwise indicated)
Income statements for the years ended 30 September2
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
Balance sheet as at 30 September2
Loans
Other assets
Total assets
Deposits and other borrowings
Debt issues
Loan capital
Other liabilities
Total liabilities
Total shareholders’ equity and non-controlling interests
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)3
Return on average ordinary equity (%)
Basic earnings per share (cents)4
Net tangible assets per ordinary share ($)5
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 (%)6
Tier 1 ratio (%)7
Total capital ratio (%)7
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)
Other information
Full-time equivalent employees (number at financial year end)8
2016
2015
2014
2013
2012
15,148
5,837
20,985
(9,217)
(1,124)
10,644
(3,184)
(15)
7,445
661,926
177,276
839,202
513,071
169,902
15,805
82,243
781,021
58,181
188
-
84.2
13.3
224.6
13.96
33.74
27.57
29.51
43.9
2.10
6.9
6.9
9.5
11.2
13.1
1.8
54
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
255.0
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
242.5
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
217.2
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
193.7
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
32,190
32,620
33,586
33,045
33,418
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
and may differ from results previously reported.
2 The above income statement extracts for 2016, 2015 and 2014 and balance sheet extracts for 2016 and 2015 are derived from the consolidated
financial statements included in this Annual Report. The above income statement extracts for 2013 and 2012 and balance sheet extracts for 2014,
2013 and 2012 are derived from financial statements previously published.
3 Excludes special dividends and adjusted for Treasury shares.
4 Comparative information has been restated to incorporate the bonus element of the share entitlement offer in the weighted average number of
shares.
5 Total equity attributable to owners of Westpac Banking Corporation, after deducting intangible assets divided by the number of ordinary shares
outstanding, less Treasury shares held.
6 Basel III was not effective in Australia until 1 January 2013. The 2012 ratio has been presented on a proforma Basel III basis. For further information,
refer to Capital resources and Note 33 to the financial statements.
7 Basel III was not effective in Australia until 1 January 2013. The 2012 ratio has been presented on a Basel II basis. For further information, refer to
Capital resources and Note 33 to the financial statements.
8 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.
68
2016 Westpac Group Annual Report
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 Westpac’s intent, belief or current expectations with
respect to its business and operations, market conditions, results of operations and financial condition, including, without
limitation, future loan loss provisions and financial support to certain borrowers. Words such as ‘will’, ‘may’, ‘expect’, ‘intend’,
‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’ or other similar words
are used to identify forward-looking statements. These forward-looking statements reflect Westpac’s current views with respect
to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond
Westpac’s control, and have been made based upon management’s expectations and beliefs concerning future developments
and their potential effect upon Westpac. There can be no assurance that future developments will be in accordance with
Westpac’s expectations or that the effect of future developments on Westpac will be those anticipated. Actual results could
differ materially from those expected, depending on the outcome of various factors, including, but not limited to:
the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy,
particularly changes to liquidity, leverage and capital requirements;
regulatory investigations, litigation, fines, penalties, restrictions or other regulator imposed conditions;
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;
changes in investment preferences of businesses and consumers away from bank deposits towards other assets or
investment classes;
changes to Westpac’s credit ratings or to the methodology used by credit rating agencies;
levels of inflation, interest rates, exchange rates and market and monetary fluctuations;
market liquidity and investor confidence;
changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand, Asia and in
other countries and regions in which Westpac or its customers or counterparties conduct their operations and Westpac’s
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 conduct, behaviour or practices of Westpac or its staff;
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 internal processes, systems and employees;
the occurrence of environmental change or external events in countries in which Westpac or its customers or
counterparties conduct their operations;
the incidence or severity of Westpac insured events;
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 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.
2016 Westpac Group Annual Report
69
2
Significant developments
For a discussion of significant developments impacting the Group, refer to ‘Significant developments’ under ‘Information on
Westpac’ in Section 1.
Currency of presentation, exchange rates and certain definitions
In this Annual Report, ‘financial statements’ means our audited consolidated balance sheets as at 30 September 2016 and
30 September 2015 and income statements, statements of comprehensive income, changes in equity and cash flows for each
of the years ended 30 September 2016, 2015 and 2014 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 2016
is referred to as 2016 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$0.7667, 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 Friday, 30 September 2016. The Australian dollar equivalent of New Zealand
dollars at 30 September 2016 was A$1.00 = NZ$1.049, 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 2012 to 30 September 2016.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to rounding.
70
2016 Westpac Group Annual Report
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 2016,
2015, 2014, 2013 and 2012 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(b) includes details of the areas of our critical accounting assumptions and
estimates and a reference to the relevant note in the financial statements providing further information. Each of the
assumptions and estimates have been discussed at our Board Audit Committee (BAC). The following is a summary of the
areas involving 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, judgements and estimation may be required.
As at 30 September 2016, the fair value of trading securities and financial assets designated at fair value through profit or loss,
available-for-sale securities, loans designated at fair value, life insurance assets and regulatory deposits with central banks
overseas was $102,595 million (2015: $103,400 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 $67,643 million
(2015: $76,342 million). The fair value of outstanding derivatives was a net liability of $3,849 million (2015: $131 million net
liability). The fair value of financial assets and financial liabilities determined by valuation models that use unobservable market
prices was $1,587 million (2015: $1,969 million) and $17 million (2015: $57 million), respectively. The fair value of 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 judgements and estimates used are reasonable in the current market. However, a change in these
judgements 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).
IAPs are raised where loans exceeding specified thresholds are assessed as impaired. 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 judgements 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.
CAPs are raised for impaired loans below specified thresholds and for all loans which are not individually identified as impaired.
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 2016, gross loans to customers were $665,256 million (2015: $626,344 million) and the provision for
impairment on loans was $3,330 million (2015: $3,028 million).
2016 Westpac Group Annual Report
71
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 judgement. 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 2016, the carrying value of goodwill was $8,829 million (2015: $8,809 million).
Superannuation obligations
The actuarial valuation of our defined benefit plan obligations are dependent upon a series of assumptions, the key ones being
price inflation, salary growth, mortality, morbidity, discount rate and investment returns. Different assumptions could
significantly alter the amount of the difference between plan assets and defined benefit obligations and the amount recognised
directly in retained profits.
The aggregate superannuation deficits across all our plans as at 30 September 2016 were $282 million (2015: $192 million).
One plan had a superannuation surplus as at 30 September 2016 of $32 million (2015: $18 million).
Provisions (other than loan impairment charges)
Provisions are held in respect of a range of obligations such as employee entitlements, restructuring costs, litigation provisions,
non-lending losses, impairment charges on credit commitments and surplus lease space. Some of the provisions involve
significant judgement 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 judgement 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 administering the contracts, mortality and morbidity experience, discontinuance experience and the rate
at which projected future cash flows are discounted.
72
2016 Westpac Group Annual Report
Income statement review
Consolidated income statement
1
For the years ended 30 September
(in $m unless otherwise indicated)
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
Review of Group operations
2016
US$2
24,398
(12,784)
11,614
4,475
16,089
(7,066)
(862)
8,161
(2,441)
5,720
(12)
2016
2015
2014
2013
2012
A$
31,822
(16,674)
15,148
5,837
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
20,985
(9,217)
(1,124)
10,644
(3,184)
7,460
(15)
21,642
(9,473)
(753)
11,416
(3,348)
8,068
(56)
19,937
(8,547)
(650)
10,740
(3,115)
7,625
(64)
18,595
(7,976)
(847)
9,772
(2,947)
6,825
(74)
17,983
(7,957)
(1,212)
8,814
(2,812)
6,002
(66)
5,936
Net profit attributable to owners of Westpac Banking Corporation
Weighted average number of ordinary shares (millions)5
3,059
Basic earnings per ordinary share (cents)5
193.7
Diluted earnings per share (cents)3,5
188.5
166
Dividends per ordinary share (cents)
-
Special dividends per ordinary share (cents)
Dividend payout ratio (%)4
85.3
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
5,708
3,313
172.2
167.0
144
-
7,445
3,313
224.6
217.8
188
-
8,012
3,140
255.0
248.2
187
-
7,561
3,114
242.5
237.6
182
-
6,751
3,103
217.2
212.5
174
20
84.2
73.4
74.7
79.7
84.2
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$0.7667, the noon
buying rate in New York City on 30 September 2016.
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 Excludes special dividends and adjusted for Treasury shares.
5 Comparative information has been restated to incorporate the bonus element of the share entitlement offer in the weighted average number of
shares.
Overview of performance – 2016 v 2015
Net profit attributable to owners for 2016 was $7,445 million, a decrease of $567 million or 7% compared to 2015. The 7%
reduction reflected higher impairment charges in 2016 compared to 2015 and a number of significant infrequent items1 in 2015
which in aggregate added $347 million to Net profit attributable to owners which were not repeated in 2016.
Net interest income increased $881 million or 6% compared to 2015, with total loan growth of 6% and customer deposit growth
of 9%. Net interest margin increased 1 basis point to 2.10%, with repricing of mortgages including for increased regulatory
capital requirements, improved customer deposit spreads and higher Treasury income, partly offset by higher wholesale
funding costs, economic hedge volatility and broad based lending competition.
Non-interest income decreased $1,538 million or 21% compared to 2015 primarily due to large infrequent items in the prior
year. Infrequent items included the profit on the partial sale of BTIM and the impact of the move to equity accounting the
remaining BTIM shareholding ($1,316 million), lower profit on the sale of assets ($102 million) and lower performance fees ($24
million), partly offset by the derivative valuation methodology adjustment of $122 million. Excluding these items, non-interest
income declined $218 million or 4% with reduced fees in Westpac Institutional Bank (WIB) from lower activity and reduced
credit cards income in Consumer Bank (CB) which included the impact of lower interchange rates.
Operating expenses reduced $256 million or 3% compared to 2015. 2015 included $505 million of higher technology expenses
related to changes to accounting treatment for technology investment spending. Excluding this item, operating expenses
increased $249 million or 3% primarily from the impact of the Group’s investment programs, higher compliance and regulatory
expenses and higher occupancy expenses relating to operating leases in the auto and equipment finance businesses, partly
offset by productivity benefits and the impact of the partial sale of BTIM.
1 2015 included the profit on the partial sale of the Group’s shareholding in BT Investment Management Limited (BTIM) of $665 million and several tax
recoveries of $121 million, partially offset by higher technology expenses of $354 million and a charge of $85 million for derivative valuation
methodology changes.
2016 Westpac Group Annual Report
73
2
Impairment charges increased $371 million or 49% compared to 2015. Overall asset quality remained sound, with stressed
exposures as a percentage of total committed exposures (TCE) at 1.20% while total impaired loans to total loans were 0.32%.
The increase in impairment charges was primarily due to additional provisioning following the downgrade of a small number of
institutional customers to impaired in first half of 2016, a rise in write-offs in the auto finance portfolio and lower write-backs.
The effective tax rate of 29.9% in 2016 was higher than the 29.3% recorded in 2015.
2016 basic earnings per share were 224.6 cents per share compared to 255.0 cents per share in 2015.
The Board has determined a final dividend of 94 cents per ordinary share. The full year ordinary dividends of 188 cents
represent an increase of 1% over ordinary dividends declared in 2015 and a pay-out ratio of 84.2%. The full year ordinary
dividend is fully franked.
Income statement review – 2016 v 2015
Net interest income – 2016 v 2015
$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
2016
31,822
(16,674)
15,148
1,313
(432)
881
2015
32,295
(18,028)
14,267
878
(153)
725
2014
32,248
(18,706)
13,542
802
(81)
721
Net interest income increased $881 million or 6% compared to 2015. Key features include:
6% increase in average interest-earning assets, primarily from growth in Australian housing.
Group net interest margin increased 1 basis point primarily due to improved deposit spreads and Australian mortgage
repricing, including for additional regulatory capital requirements, partly offset by higher wholesale funding costs, economic
hedge volatility and the impact of lower interest rates.
Total loans increased $38.6 billion or 6% compared to 2015. Excluding foreign exchange translation impacts, total loans
increased $36.7 billion or 6%.
Key features of total loan growth were:
Australian housing loans increased $28.3 billion or 8%, with new lending volumes up 7% and run-off increasing 3%.
Following the introduction of regulatory caps on the growth in investor property lending and the introduction of differential
pricing, there was some switching of mortgage loans to more appropriately reflect their current purpose. Adjusting for these
movements, owner occupied lending grew a little faster than investor property lending;
Australian business loans increased $4.7 billion or 3%, primarily in the Business Bank (BB), with growth in SME and
diversified industries and lower growth in the property segment;
New Zealand lending increased $8.7 billion or 14%, with business lending increasing 17% largely due to growth in property,
electricity and gas and financial services. Housing increased 12% largely in facilities with a loan to value ratio (LVR) of less
than 80%; and
Other overseas loans decreased $3.4 billion or 20% mainly from a decline in trade finance in Asia as the institutional division
sought to reduce lower returning assets.
Total customer deposits increased $39.5 billion or 9% compared to 2015, fully funding lending growth during the year.
Excluding foreign exchange translation impacts, customer deposits increased $38.9 billion or 9%.
Key features of customer deposits growth were:
Australian customer deposits increased $32.2 billion or 9%, with above system1 growth in household deposits (term deposits
up 22%) and institutional deposits largely from the State Government sector. In addition, customers continued to direct funds
to mortgage offset accounts, leading to a 14% growth in Australian non-interest bearing deposits; and
New Zealand customer deposits increased $7.6 billion or 16%. Term deposits grew 27%, as customers moved funds to
higher rate fixed term products in a falling interest rate environment.
Certificates of deposits declined $1.7 billion or 4%, reflecting reduced reliance on wholesale funding in this form.
1 Source: Australian Prudential Regulation Authority (APRA)
74
2016 Westpac Group Annual Report
Interest spread and margin – 2016 v 2015
Review of Group operations
2.09%
2015
2016
2014
2.10%
2.09%
0.19%
1.91%
0.18%
1.91%
0.19%
1.90%
13,542
647,362
606,553
40,809
14,267
683,814
640,628
43,186
15,148
721,843
667,276
54,567
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
Impairment charges increased $371 million or 49% compared to 2015. Overall asset quality remained sound, with stressed
exposures as a percentage of total committed exposures (TCE) at 1.20% while total impaired loans to total loans were 0.32%.
The increase in impairment charges was primarily due to additional provisioning following the downgrade of a small number of
institutional customers to impaired in first half of 2016, a rise in write-offs in the auto finance portfolio and lower write-backs.
The effective tax rate of 29.9% in 2016 was higher than the 29.3% recorded in 2015.
2016 basic earnings per share were 224.6 cents per share compared to 255.0 cents per share in 2015.
The Board has determined a final dividend of 94 cents per ordinary share. The full year ordinary dividends of 188 cents
represent an increase of 1% over ordinary dividends declared in 2015 and a pay-out ratio of 84.2%. The full year ordinary
dividend is fully franked.
Income statement review – 2016 v 2015
Net interest income – 2016 v 2015
$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
2016
31,822
(16,674)
15,148
1,313
(432)
881
2015
32,295
(18,028)
14,267
878
(153)
725
2014
32,248
(18,706)
13,542
802
(81)
721
Net interest income increased $881 million or 6% compared to 2015. Key features include:
6% increase in average interest-earning assets, primarily from growth in Australian housing.
Group net interest margin increased 1 basis point primarily due to improved deposit spreads and Australian mortgage
repricing, including for additional regulatory capital requirements, partly offset by higher wholesale funding costs, economic
hedge volatility and the impact of lower interest rates.
Total loans increased $38.6 billion or 6% compared to 2015. Excluding foreign exchange translation impacts, total loans
increased $36.7 billion or 6%.
Key features of total loan growth were:
Australian housing loans increased $28.3 billion or 8%, with new lending volumes up 7% and run-off increasing 3%.
Following the introduction of regulatory caps on the growth in investor property lending and the introduction of differential
pricing, there was some switching of mortgage loans to more appropriately reflect their current purpose. Adjusting for these
movements, owner occupied lending grew a little faster than investor property lending;
Australian business loans increased $4.7 billion or 3%, primarily in the Business Bank (BB), with growth in SME and
diversified industries and lower growth in the property segment;
New Zealand lending increased $8.7 billion or 14%, with business lending increasing 17% largely due to growth in property,
electricity and gas and financial services. Housing increased 12% largely in facilities with a loan to value ratio (LVR) of less
Other overseas loans decreased $3.4 billion or 20% mainly from a decline in trade finance in Asia as the institutional division
than 80%; and
sought to reduce lower returning assets.
Total customer deposits increased $39.5 billion or 9% compared to 2015, fully funding lending growth during the year.
Excluding foreign exchange translation impacts, customer deposits increased $38.9 billion or 9%.
Key features of customer deposits growth were:
Australian customer deposits increased $32.2 billion or 9%, with above system1 growth in household deposits (term deposits
up 22%) and institutional deposits largely from the State Government sector. In addition, customers continued to direct funds
to mortgage offset accounts, leading to a 14% growth in Australian non-interest bearing deposits; and
New Zealand customer deposits increased $7.6 billion or 16%. Term deposits grew 27%, as customers moved funds to
higher rate fixed term products in a falling interest rate environment.
Certificates of deposits declined $1.7 billion or 4%, reflecting reduced reliance on 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 2.10% in 2016, up 1 basis point compared to 2015. Key drivers of the margin increase were:
a 4 basis point increase from higher customer deposit spreads across term deposits, online accounts and savings deposits,
partly offset by the impact of lower interest rates on transactional deposit spreads;
a 2 basis point increase from asset spreads. Australian mortgage repricing, including for additional regulatory capital
requirements and business lending repricing were partly offset by broad based lending competition, including continued
elevated levels of global liquidity impacting institutional margins and higher short term funding costs; partly offset by
a 3 basis point decline from term wholesale funding spreads reflecting the lengthening of the average tenor in preparation for
the implementation of the Net Stable Funding Ratio (NSFR) and investors requiring increased spreads for new issuance.
This saw new issuance spreads above maturing deals; and
a 2 basis point decline from Treasury and Markets mainly due to economic hedge volatility partly offset by improved results
relating to Treasury’s interest rate risk management and increased earnings from higher capital balances held centrally.
Non-interest income – 2016 v 2015
$m
Fees and commissions
Wealth management and insurance income
Trading income
Other income
Non-interest income
2016
2,755
1,899
1,124
59
5,837
2015
2,942
2,228
964
1,241
7,375
2014
2,926
2,254
1,017
198
6,395
Non-interest income was $5,837 million in 2016, a decrease of $1,538 million or 21% compared to 2015 with infrequent items
having a large impact. Infrequent items included the profit on the partial sale of BTIM and the impact of the move to equity
accounting ($1,316 million), lower profit on the sale of assets ($102 million) and lower performance fees ($24 million), partly
offset by the derivative valuation methodology adjustment of $122 million1.
Excluding these items, non-interest income decreased $218 million or 4% as underlying growth was more than offset by
reduced fees in WIB from lower activity and reduced Australian credit cards income in CB related to regulatory changes to
interchange rates.
Fees and commissions decreased $187 million or 6% compared to 2015, largely due to:
lower institutional fees ($92 million) from subdued lending activity and reduced debt market issuance;
lower Australian credit card income ($70 million), including regulation impacts on interchange rates effective 1 November
2015; and
lower BT Financial Group (Australia) (BTFG) fees from reduced activity; partly offset by
higher business lending fees and transactional deposit fees from balance sheet growth.
Wealth management and insurance income decreased $329 million or 15% compared to 2015 mainly due to the impact of the
partial sale of BTIM ($310 million) in 2015.
1 Source: Australian Prudential Regulation Authority (APRA)
1
In 2015 changes were made to derivative valuation methodologies, which included 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 reduction in non-interest income.
74
2016 Westpac Group Annual Report
2016 Westpac Group Annual Report
75
2
Excluding this item, wealth management and insurance income was little changed:
lower contribution from Ascalon ($42 million) as both lower asset markets and foreign currency translation impacted returns
from overseas funds managed by this business;
lower Hastings performance fees ($24 million); and
life insurance income was flat, as net earned premium growth and repricing was offset by a rise in the number of claims
which increased the claims ratio by 2% to 36%. Lapses were also higher; partly offset by
Funds under management (FUM)/funds under administration (FUA) income increased $21 million, or 3% from positive flows;
General insurance income grew 15% primarily from lower insurance claims related to weather events and was supported by
a 2% increase in gross written premiums from growth in home and contents sales; and
Lenders Mortgage Insurance (LMI) income increased $17 million related to the transitional arrangements with Arch Capital
for the insurance of mortgages where the loan to value ratio (LVR) is above 90%.
Trading income increased $160 million or 17% compared to 2015, with the $122 million impact from methodology changes to
derivative valuation adjustments in 2015 not repeated1. Excluding this item, trading income was up $38 million, primarily in WIB
markets.
Other income was $59 million in 2016, a decrease of $1,182 million or 95% compared to 2015. This decrease reflected gains
from the partial sale of BTIM ($1,036 million) in 2015 that did not repeat, lower income from asset sales ($102 million) and the
impact of hedging New Zealand future earnings.
Operating expenses – 2016 v 2015
$m
Staff expenses
Occupancy expenses
Technology expenses
Other expenses
Total operating expenses
Total operating expenses to net operating income ratio
2016
4,601
1,032
1,929
1,655
9,217
43.9%
2015
4,704
954
2,288
1,527
9,473
43.8%
2014
4,571
904
1,574
1,498
8,547
42.9%
Operating expenses decreased $256 million or 3% compared to 2015. 2015 included $505 million of higher technology
expenses related to changes to accounting treatment for technology investment spending not repeated in 2016. Excluding this
item, operating expenses increased $249 million or 3%.The key factors of the result were:
higher investment related expenses of $143 million primarily due to a 20% increase in spend on Group’s investment
programs; and
growth in regulation and compliance expenses of $90 million;
higher occupancy expenses of $73 million relating to operating leases in the auto and equipment finance businesses;
partly offset by
lower BTIM expenses associated with the partial sale and move to equity accounting2; and
delivery of productivity benefits of $263 million.
Staff expenses were $4,601 million, a decrease of $103 million or 2% compared to 2015. A reduction in average FTE from
productivity initiatives related to digitising processes and simplifying the organisation and the removal of BTIM salary expenses
were partly offset by higher restructuring costs ($18 million) and annual salary increases.
Occupancy expenses increased $78 million or 8% compared to 2015 due to higher occupancy expenses of $73 million relating
to operating leases in the auto and equipment finance businesses and rental expenses related to the relocation of various
Sydney locations to new premises at Barangaroo. This was partly offset by the benefit of corporate property consolidation and
branch network optimisation.
Technology expense decreased $359 million or 16% compared to 2015. 2015 included $505 million related to changes to
accounting treatment for technology investment spending not repeated in 2016. Excluding this item, technology expense
increased $146 million or 8% due to higher investment spending, and directly expensing a higher proportion of that spending,
which drove an increase to technology services expenses of $97 million. Software maintenance and licence costs were higher
($56 million) from volume increases and investment related licenses following delivery of enhancements to Westpac Live, BT
Panorama and other digital innovations.
In 2015 changes were made to derivative valuation methodologies, which included the first time adoption of a FVA to the fair value of derivatives.
1
2 Refer to divisional results of BTFG for more detail.
76
2016 Westpac Group Annual Report
Other expenses increased $128 million or 8% compared to 2015 largely from an increase in professional and processing
services costs ($126 million) related to the Group’s investment programs, higher outsourced operational costs from increased
volumes and increased regulation and compliance related expenses.
Review of Group operations
Impairment charges – 2016 v 2015
$m
Impairment charges
Impairment charges to average gross loans (basis points)
2016
1,124
17
2015
753
12
2014
650
12
Asset quality was sound in 2016 with stressed assets to TCE increasing to 1.20%, but still remaining relatively low. The rise in
stress mostly reflects the impact from a slowdown in mining investment, along with a weakening of global milk prices impacting
the New Zealand dairy portfolio. Total impaired loans to total loans also remained low at 0.32%, up 2 basis points over the year.
The higher impaired assets principally reflect the downgrade of a small number of institutional customers in the first half of the
year. These trends were reflected in impairment charges, which increased to 17 basis points of average gross loans, but still
low by historical experience.
Impairment charges of $1,124 million were up by $371 million or 49% compared to 2015.
Key movements included:
total new IAPs less write-backs and recoveries were $242 million higher than 2015. New IAPs increased $161 million
primarily from the downgrade of a small number of institutional customers, partially offset by lower new impairments in
Business Bank and in Westpac New Zealand. 2015 also benefited from a larger number of write-backs and recoveries,
which were $81 million higher than 2016; and
total new CAPs were $129 million higher due to a $109 million increase in write-offs, principally for the auto finance
portfolio. The impact from other changes in CAPs was also lower, adding $20 million to the impairment charge. Total
economic overlays were $1 million higher compared to 2015 with a balance of $389 million.
Income tax expense – 2016 v 2015
$m
Income tax expense
Tax as a percentage of profit before income tax expense (effective tax rate)
2016
3,184
29.9%
2015
3,348
29.3%
2014
3,115
29.0%
The effective tax rate of 29.9% in 2016 was marginally higher than the 2015 effective tax rate of 29.3%. This increase was
largely due to lower benefits following the finalisation of prior period taxation matters in 2016.
2016 Westpac Group Annual Report
77
2
Balance sheet review
Selected consolidated balance sheet data1
The detailed components of the balance sheet are set out in the notes to the financial statements.
As at 30 September
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at
fair value and available-for-sale securities
Derivative financial instruments
Loans
Life insurance assets
All other assets
Total assets
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
Total liabilities excluding loan capital
Total loan capital
Total liabilities
Net assets
Total equity attributable to owners of Westpac Banking Corporation
Non-controlling interests
2016
US$m2
13,045
7,629
62,741
24,709
507,499
10,881
16,912
643,416
13,961
393,372
3,643
27,659
130,264
9,477
8,315
586,691
2016
A$m
17,015
9,951
81,833
32,227
661,926
14,192
22,058
839,202
18,209
513,071
4,752
36,076
169,902
12,361
10,845
765,216
2015
A$m
14,770
9,583
82,287
48,173
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$m
25,760
7,424
81,933
41,404
580,343
11,007
22,971
770,842
18,636
460,822
19,236
39,539
152,251
9,637
10,526
710,647
2013
A$m
11,699
11,210
79,100
28,356
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
71,739
35,489
514,445
11,907
22,281
678,612
7,564
394,991
9,964
38,935
147,847
10,875
12,634
622,810
12,118
15,805
13,840
10,858
9,330
9,537
598,809
44,607
44,560
47
781,021
58,181
58,120
61
58,181
758,241
53,915
53,098
817
53,915
721,505
49,337
48,456
881
653,560
47,537
46,674
863
632,347
46,265
44,295
1,970
Total shareholders’ equity and non-controlling interests
Average balances
Total assets
Loans and other receivables3
42,605
Total equity attributable to owners of Westpac Banking Corporation
1,964
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
843,555
629,159
46,477
862
55,896
575
49,361
854
42,855
441
44,350
1,972
559,789
688,295
482,376
646,754
737,124
516,482
665,804
501,118
44,607
49,337
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$0.7667, the noon
buying rate in New York City on 30 September 2016.
3 Other receivables include cash and balances with central banks and other interest earning assets.
78
2016 Westpac Group Annual Report
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
Common equity Tier 1 (%)6
Tier 1 ratio7
Total capital ratio7
Earnings ratios
Basic earnings per ordinary share (cents)8,10
Diluted earnings per ordinary share (cents)9,10
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Review of Group operations
2016
US$1
2016
A$
2015
A$
2014
A$
2013
A$
2012
A$
2.10
0.88
13.3
13.2
6.7
9.5
11.2
13.1
172.2
167.0
144
-
2.10
0.88
13.3
13.2
6.7
9.5
11.2
13.1
224.6
217.8
188
-
2.09
1.00
16.2
16.0
6.3
9.5
11.4
13.3
255.0
248.2
187
-
2.09
1.03
16.3
16.0
6.4
9.0
10.6
12.3
242.5
237.6
182
-
2.14
0.98
15.2
14.6
6.7
9.1
10.7
12.3
217.2
212.5
174
20
2.16
0.89
13.9
13.3
6.7
8.2
10.3
11.7
193.7
188.5
166
-
Dividend payout ratio (%)
Credit quality ratios
Impairment charges on loans written off (net of recoveries)
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$0.7667, the noon
1,107
1,302
1,052
1,323
84.2
79.7
74.7
73.4
84.2
807
16
16
25
23
18
1,604
85.3
32
buying rate in New York City on 30 September 2016.
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 2013. The 2012 ratio has been presented on a proforma Basel III basis. For further information,
refer to Capital resources and Note 33 to the financial statements.
7 Basel III was not effective in Australia until 1 January 2013. The 2012 ratio has been presented on a Basel II basis. For further information, refer to
Capital resources and Note 33 to the financial statements.
8 Based on the weighted average number of fully paid ordinary shares.
9 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.
10 Comparative information has been restated to incorporate the bonus element of the share entitlement offer in the weighted average number of
shares.
Balance sheet review
Assets – 2016 v 2015
Total assets as at 30 September 2016 were $839.2 billion, an increase of $27.0 billion or 3% compared to 30 September 2015.
Significant movements during the year included:
cash and balances with central banks increased $2.2 billion or 15% reflecting higher liquid assets held in this form;
receivables due from other financial institutions increased $0.4 billion or 4% due to higher interbank lending, partly offset by
lower 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 decreased $0.5 billion or
1%. Trading securities and other financial assets designated at fair value decreased $6.3 billion, partially offset by an
increase of $5.8 billion in available-for-sale high quality liquid assets for Liquidity Coverage Ratio (LCR) requirements;
derivative assets decreased $15.9 billion or 33% mainly due to foreign currency translation impacts on cross currency swaps
and forward contracts;
loans grew $38.6 billion or 6%, mainly due to an increase in Australian housing and New Zealand lending. Refer to Loan
Quality – 2016 v 2015 below for further information; and
life insurance assets increased by $1.1 billion or 8% as a result of net fund inflows and higher equity markets.
2016 Westpac Group Annual Report
79
2
Liabilities and equity – 2016 v 2015
Total liabilities as at 30 September 2016 were $781.0 billion, an increase of $22.8 billion or 3% compared to
30 September 2015. Significant movements during the year included:
payables due to other financial institutions decreased $0.5 billion or 3% reflecting a reduction in collateral received from
derivative counterparties, partly offset by higher offshore central bank deposits and interbank borrowing;
deposits and other borrowings increased $37.7 billion or 8%, largely from growth in household and non-financial corporation
segments;
other financial liabilities at fair value through the income statement decreased $4.5 billion or 48% due to reduced funding of
securities through repurchase agreements;
derivative liabilities decreased $12.2 billion or 25% mainly due to foreign currency translation impacts on cross currency
swaps and forward contracts;
debt issues decreased $1.2 billion or 1% ($5.4 billion or 3% increase excluding foreign currency translation impacts);
life insurance liabilities increased by $0.8 billion or 7% as a result of net fund inflows and higher equity markets; and
loan capital increased $2.0 billion or 14% reflecting the issue of Westpac Capital Notes 4 (Additional Tier 1 capital) of $1.7
billion and growth in subordinated debt outstandings of $0.3 billion including foreign currency translation impacts.
Equity attributable to owners increased $5.0 billion or 9% reflecting shares issued under the Share Entitlement Offer, 2015 final
dividend reinvestment plan (DRP), 2016 interim DRP and retained profits, less dividends paid during the year.
Loan quality – 2016 v 2015
$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
2016
2015
2014
665,256
626,344
583,516
562,633
67,686
15,112
645,431
526,378
62,508
15,906
604,792
492,670
58,428
13,125
564,223
Total gross loans represented 79% of the total assets of the Group as at 30 September 2016, compared to 77% in 2015.
Australia average gross loans were $562.6 billion, an increase of $36.3 billion or 7% from $526.4 million. This increase was
primarily due to growth in housing and business lending.
New Zealand average gross loans were $67.7 billion, an increase of $5.2 billion or 8% from $62.5 billion in 2015. This increase
was primarily due to growth in housing lending.
Other overseas average loans were $15.1 billion in 2016, a decrease of $0.8 billion or 5% from $15.9 billion in 2015. This was
primarily due to a decline in trade finance in Asia, as WIB sought to reduce lower returning assets.
Approximately 13.6% of the loans at 30 September 2016 mature within one year and 21.8% mature between one year and five
years. Retail lending comprises the majority of the loan portfolio maturing after five years.
80
2016 Westpac Group Annual Report
$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
Review of Group operations
As at 30 September
2016
2015
2014
2013
2012
3,249
(1,363)
1,886
4,034
(1,463)
2,571
1,851
(885)
966
31
(16)
15
277
(166)
111
1,092
869
2,733
3,602
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
49.4%
0.32%
0.54%
46.3%
0.30%
0.53%
44.8%
0.40%
0.60%
43.2%
0.67%
0.73%
175.8%
1.2%
148.8%
1.3%
109.7%
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%
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
166.8%
1.2%
Impairment provisions relating to impaired loans include IAP plus the proportion of the CAP that relate to impaired loans. The proportion of the CAP
that relates to impaired loans was $198 million as at 30 September 2016 (2015: $208 million, 2014: $180 million, 2013: $190 million, 2012: $171
million). This sum is compared to the total gross impaired loans to determine this ratio.
The credit quality of the portfolio continued to be sound over 2016, with total stressed exposures to TCE remaining low. Total
impaired loans as a percentage of total gross loans were 0.32% at 30 September 2016, an increase of 0.02% from 0.30% at 30
September 2015.
At 30 September 2016, we had 4 impaired counterparties with exposure greater than $50 million, collectively accounting for
30% of total impaired loans. This compares to 3 impaired counterparties with exposure greater than $50 million in 2015
accounting for 15% of total impaired loans. There were 7 impaired exposures at 30 September 2016 that were less than
$50 million and greater than $20 million (2015: 9 impaired exposures).
At 30 September 2016, 78% of our exposure was to either investment grade or secured consumer mortgage segment (2015:
77%, 2014: 77%, 2013: 77%) and 96% of our exposure as at 30 September 2016 was in Australia, New Zealand and the
Pacific region (2015: 95%, 2014: 95%, 2013: 97%).
We believe that Westpac remains appropriately provisioned. Total impairment provisions for impaired loans to total impaired
loans coverage at 49.4% at 30 September 2016 compared to 46.3% at 30 September 2015. Total provisions for impairment on
loans and credit commitments to total impaired loans represented 166.8% of total impaired loans as at 30 September 2016,
down from 175.8% at 30 September 2015. Total provisions for impairments on loans and credit commitments to total loans
were 0.54% at 30 September 2016, up from 0.53% at 30 September 2015 (2014: 0.60%).
Group mortgage loans 90 days past due at 30 September 2016 were 0.61% of outstandings, up from 0.42% of outstandings at
30 September 2015 (2014: 0.45%).
Group other consumer loan delinquencies (including credit card and personal loan products) were 1.11% of outstandings as at
30 September 2016, an increase of 4 basis points from 1.07% of outstandings as at 30 September 2015 (2014: 0.99%).
Potential problem loans as at 30 September 2016 amounted to $1,436 million, an increase of 56% from $923 million at
30 September 2015. The increase in potential problem loans was mainly due to the downgrade of loans that were impacted by
the downturn in the New Zealand dairy portfolio.
2016 Westpac Group Annual Report
81
2
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
problem loans are identified using established credit frameworks and policies, which include the ongoing monitoring of facilities
through the use of watchlists.
Capital resources
Under APRA’s implementation of Basel III, Australian banks are required to maintain a minimum Common Equity Tier 1 (CET1)
ratio of at least 4.5%, Tier 1 ratio of 6.0% and Total Regulatory Capital of 8.0%. In addition, a capital conservation buffer (CCB)
requirement of 3.5% applies which is to be wholly met with CET1 capital. Should the CET1 capital ratio fall within the CCB,
restrictions on distributions apply. Distributions for this purpose are defined as payment of dividends, discretionary bonuses and
Additional Tier 1 capital distributions. Subject to certain limitations, Common Equity Tier 1 capital consists of paid-up share
capital, retained profits and certain reserves, less certain intangible assets, capitalised expenses and retained profits 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.
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 Authorised Deposit-taking Institution (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. Westpac’s preferred range for
its CET1 capital ratio is 8.75% – 9.25%.
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 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.
The application of these discretions acts to reduce reported capital ratios relative to those reported in other jurisdictions.
82
2016 Westpac Group Annual Report
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
2016
57,235
(18,360)
38,875
6,910
45,785
8,201
(218)
7,983
53,768
358,812
7,861
33,363
5,373
4,644
410,053
9.5%
1.7%
11.2%
1.9%
13.1%
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%
Refer to ‘Significant developments’ in Section 1 for a discussion on future regulatory developments that may impact upon
capital requirements.
2016 Westpac Group Annual Report
83
2
Divisional performance
Divisional performance – 2016 v 2015
In June 2015, Westpac announced a new operating structure to better align the Group’s divisional structure to customer-facing
segments. The new structure has seen the Group’s Australian retail and business banking operation reorganised under two
divisions, Consumer Bank and Business Bank. A key rationale for the change has been to improve accountability for the end-
to-end customer experience while maintaining the Group’s unique portfolio of brands. In 2015, Westpac commenced the sale of
certain Pacific island operations which was completed in 2016. In light of this change, Westpac Pacific is no longer reported
under Group Businesses (previously called Other Divisions). Its results are now included under Westpac Institutional Bank
consistent with its line of reporting.
In addition to the operating structure change, the Group has adjusted its expense allocation methodology and cost of funds
transfer pricing. As a result of these changes, comparatives have been restated (refer to Note 2 to the financial statements for
the disclosure of the Group’s reportable operating segments and revisions to expense allocation and cost of funds transfer
pricing).
Westpac now reports under the new structure, comprising the following five primary customer-facing business divisions:
Consumer Bank, which we refer to as CB: responsible for all Australian consumer relationships across all brands;
Business Bank, which we refer to as BB: responsible for all Australian business and commercial consumer relationships
across all brands;
BT Financial Group (Australia), which we refer to as BTFG: responsible for the Group's wealth management, insurance
and private banking businesses;
Westpac Institutional Bank, which we refer to as WIB: 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.
Group Businesses include 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 considered in assessing distributions. 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 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:
84
partial sale of BTIM – During 2015 the Group recognised a significant gain following the partial sale 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 were introduced in 2015, including
moving to an accelerated amortisation methodology for most existing assets with a useful life of greater than three 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 to reduce the carrying value of impacted assets was 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 select Australian businesses of Lloyds Banking Group (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
2016 Westpac Group Annual Report
Divisional performance
items are amortised over their useful lives, ranging between four and 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 unrealised (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 previously 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 year 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 in
2014 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 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 (ASIC) Regulatory Guide 230 has been followed
when presenting this information.
2016 Westpac Group Annual Report
85
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 2016, 2015 and 2014. 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
Consumer Bank
Business Bank
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Group Businesses
Total cash earnings
Total assets by business division
$bn
Consumer Bank
Business Bank
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Group Businesses
Total assets
2016
2,981
1,999
876
1,098
812
56
7,822
2016
351.5
156.8
38.2
110.4
82.1
100.2
839.2
2015
2,620
1,979
914
1,343
841
123
7,820
2015
328.6
149.3
35.8
127.3
71.5
99.7
812.2
2014
2,392
1,881
910
1,519
779
147
7,628
2014
308.5
141.3
31.8
122.2
65.9
101.1
770.8
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.
86
2016 Westpac Group Annual Report
Consumer Bank
Consumer Bank (CB) is responsible for sales and service to consumer customers in Australia under the Westpac, St.George,
BankSA, Bank of Melbourne and RAMS brands. Activities are conducted through a dedicated team of specialist consumer
relationship managers along with an extensive network of branches, call centres and ATMs. Customers are also supported by a
range of internet and mobile banking solutions. CB also works in an integrated way with BTFG and WIB in the sales and
service of select financial services and products including in wealth and foreign exchange. The revenue from these products is
mostly retained by the product originators.
Divisional performance
Performance of Consumer Bank
$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
Net loans
Total assets
Total operating expenses to net operating income ratio
2016 v 2015
CB increased cash earnings by $361 million or 14%.
2016
7,171
850
8,021
(3,270)
(492)
4,259
(1,278)
2,981
(116)
2,865
$bn
180.6
344.8
351.5
40.8%
2015
6,396
940
7,336
(3,113)
(478)
3,745
(1,125)
2,620
(116)
2,504
$bn
168.2
320.7
328.6
42.4%
2014
5,917
934
6,851
(3,007)
(424)
3,420
(1,028)
2,392
(116)
2,276
$bn
153.6
301.0
308.5
43.9%
Net interest income increased $775 million or 12% due to a 6% rise in average interest-earning assets and a 12 basis point
improvement in net interest margin:
the rise in net interest margin was predominantly due to higher asset spreads from mortgage repricing including for
increased regulatory capital requirements, along with higher rates on investor property lending. Partly offsetting these
benefits were higher wholesale funding costs and intense competition across both lending and deposits;
mortgages increased 8%, with growth higher in the first half of 2016. Other lending (mostly credit cards) grew 4%; and
deposits increased $12.4 billion or 7%, primarily from term deposits growth. The rise can be traced back to a preference for
growing deposits with a higher LCR value and from customers looking for higher relative yields in a low interest rate
environment.
Non-interest income decreased $90 million or 10%, mostly from reduced credit cards revenue, including regulation changes to
interchange rates following the scheduled three year review by the RBA that reset average and maximum interchange rates.
Renegotiation and modification of the reward program introduced in the second half of 2016 partly offset these impacts.
Operating expenses increased $157 million or 5% mostly from higher investment related expenses including increased
depreciation and software amortisation. Investment spending has been directed to transforming the customer experience
including completing the digitisation of the top 7 manual service transactions. This contributed to productivity savings of $119
million.
Impairment charges increased $14 million or 3% due to higher mortgage delinquencies including from changes in the
measurement and reporting of customers in hardship arrangements and a deterioration in those states and regions impacted
by the slowing mining investment cycle.
2016 Westpac Group Annual Report
87
2
Business Bank
Business Bank (BB) is responsible for sales and service to micro, SME and commercial business customers for facilities up to
approximately $150 million. The division operates under the Westpac, St.George, BankSA and Bank of Melbourne brands.
Customers are provided with a wide range of banking and financial products and services to support their lending, payments
and transaction needs. In addition, specialist services are provided for cash flow finance, trade finance, automotive and
equipment finance, property finance and treasury services. The division is also responsible for certain consumer customers
with auto finance loans. BB works in an integrated way with BTFG and WIB in the sales and service of select financial services
and products including corporate superannuation, foreign exchange and interest rate hedging. The revenue from these
products is mostly retained by the product originators.
Performance of Business Bank
$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
Net loans
Total assets
Total operating expenses to net operating income ratio
2016 v 2015
BB cash earnings increased by $20 million or 1%.
2016
3,959
1,104
5,063
(1,796)
(410)
2,857
(858)
1,999
(10)
1,989
$bn
110.6
153.4
156.8
35.5%
2015
3,767
1,068
4,835
(1,731)
(273)
2,831
(852)
1,979
(10)
1,969
$bn
101.8
146.4
149.3
35.8%
2014
3,567
1,022
4,589
(1,653)
(248)
2,688
(807)
1,881
(9)
1,872
$bn
102.4
138.0
141.3
36.0%
Net interest income increased by $192 million or 5% due to a 6% rise in average interest-earning assets, partly offset by a 2
basis point decline in net interest margin:
BB has continued to focus on returns and as a result margin contraction was limited to 2 basis points. Increased funding
costs and compression in lending spreads were partly offset by pricing changes across the portfolio;
net loans increased $7 billion or 5%:
– mortgages increased $3.4 billion or 6%;
– business lending increased $3.5 billion or 4%, diversified across the health, professional services and agriculture
segments; and
– other lending increased 2% primarily from growth in auto finance; and
deposits increased $8.8 billion or 9%, more than funding the growth in lending and contributing to a 256 basis point
increase in the deposit to loan ratio to 72.1%. Most of the growth in deposits was in term deposits (up $7 billion) with the
remainder in transaction accounts.
Non-interest income increased by $36 million or 3% mainly due to higher facility fees in business lending.
Operating expenses increased by $65 million or 4% due to technology costs and investments to transform BB's capability. This
growth was partly offset by productivity benefits including changes to the operating model to better align bankers and
customers.
Asset quality was broadly stable over the year, however a reduction in write-backs combined with the lift in auto finance
delinquencies in the first half of 2016 led to impairment charges increasing $137 million.
88
2016 Westpac Group Annual Report
Divisional performance
BT Financial Group (Australia)
BT Financial Group (Australia) is the wealth management and insurance arm of the Westpac Group providing a broad range of
associated services. BTFG’s funds management operations include the manufacturing and distribution of investment,
superannuation, retirement products, wealth administration platforms, private banking, margin lending and equities broking.
BTFG’s insurance business covers the manufacturing and distribution of life, general and lenders mortgage insurance. The
division also uses third parties for the manufacture of certain general insurance products as well as actively reinsuring its risk
using external providers across all insurance classes. BTFG operates a range of wealth, funds management (including Ascalon
which is a boutique incubator of emerging fund managers), and financial advice brands and operates under the banking brands
of Westpac, St.George, Bank of Melbourne and BankSA for Private Wealth and Insurance.
BT Investment Management Limited (BTIM) is 29.5% owned by BTFG (following a partial sale in 2015) with the business being
equity accounted from July 2015. BTFG works in an integrated way with all the Group’s Australian divisions in supporting the
insurance and wealth needs of customers.
Performance of BTFG
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment 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
Net 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
2016
498
1,908
2,406
(1,160)
-
1,246
(370)
-
876
(32)
844
$bn
25.5
18.6
38.2
48.4
130.8
48.2%
2016
520
309
47
876
2015
445
2,192
2,637
(1,286)
4
1,355
(409)
(32)
914
(23)
891
$bn
23.4
17.2
35.8
46.3
121.9
48.8%
2015
560
291
63
914
2014
403
2,257
2,660
(1,305)
2
1,357
(408)
(39)
910
(22)
888
$bn
22.4
15.9
31.8
89.0
112.7
49.1%
2014
524
333
53
910
2016 v 2015
BTFG cash earnings decreased by $38 million or 4% due to a decline in funds management income mostly attributed to the
partial sale of BTIM ($24 million), along with higher regulatory and compliance expenses. These were partly offset by growth in
lending, FUA and insurance premiums:
Funds management business cash earnings decreased by $40 million or 7%. Excluding the impact from the partial sale of
BTIM, the Funds management business cash earnings decreased by $16 million or 3%. Private Wealth income was higher
and average FUM and FUA were up 2% and 4%, respectively, although these increases were more than offset by lower
advice income and a reduction in the value of investments in Ascalon funds due to weaker markets and rise in the
Australian dollar. Regulatory and compliance costs also increased significantly during the year;
Insurance cash earnings increased by $18 million or 6% with growth in premiums and lower general insurance claims
partially offset by higher life insurance benefits paid to customers. Revenue growth was supported by a higher LMI
contribution mostly due to transitional arrangements with Arch Capital. Life insurance in-force premiums were up 9% and
general insurance gross written premiums rose 2%; and
Capital and other cash earnings decreased by $16 million reflecting lower returns on invested capital and higher regulatory
and compliance costs.
2016 Westpac Group Annual Report
89
2
Funds management business
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment 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
2016
474
1,334
1,808
(1,067)
-
741
(221)
-
520
(32)
488
59.0%
2015
416
1,663
2,079
(1,219)
4
864
(272)
(32)
560
(23)
537
58.6%
2014
378
1,691
2,069
(1,238)
2
833
(270)
(39)
524
(22)
502
59.8%
The partial sale of BTIM in June 2015 reduced the Group’s ownership to 31% at that time. 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.
Cash earnings decreased by $40 million or 7%.
Net interest income was up $58 million or 14% primarily due to an 8% increase in lending, a 9% rise in deposits and improved
margins in Private Wealth.
Non-interest income decreased $329 million or 20%. Excluding the impact of the partial sale of BTIM and move to equity
accounting, non-interest income was down by $49 million with the key drivers being:
the contribution from Ascalon was $42 million lower due to the revaluation of investments from weaker markets and a rise
in the Australian dollar; partly offset by
advice income was down $33 million from a reduction in activity;
increased FUA revenues from higher net flows and good management of margins.
Operating expenses decreased by $152 million or 12%. Excluding the partial sale of BTIM and the move to equity accounting,
expenses were $32 million or 3% higher. The increase was due to higher regulatory related costs associated with remediation
and compliance programs, and increased investment costs including higher software amortisation as new modules of the
Panorama platform went live.
Tax and non-controlling interests decreased by $83 million or 27% associated with the lower earnings and the move to equity
accounting for BTIM reducing the value of non-controlling interests.
Insurance business
The insurance business result includes the Westpac and St.George Life Insurance, General Insurance and LMI businesses.
$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
2016
5
525
530
(88)
442
(133)
309
-
309
16.6%
2015
6
488
494
(79)
415
(124)
291
-
291
16.0%
2014
9
535
544
(68)
476
(143)
333
-
333
12.5%
Cash earnings increased by $18 million or 6%, with lower general insurance claims and increased LMI revenue, partly offset by
higher life insurance claims.
Net operating income increased by $36 million or 7%:
general insurance net earned premiums increased $17 million with gross written premiums rising 2% from growth in home
and contents sales. Net claims decreased $22 million, mostly from a reduction in significant weather events during the
year;
90
2016 Westpac Group Annual Report
Divisional performance
LMI income increased $18 million related to the transitional arrangements with Arch Capital for the insurance for
mortgages where the LVR is above 90%; and
life insurance net earned premiums increased $70 million, with in-force premiums rising 9%, offset by a rise in the number
of benefits paid to customers, which increased the claims ratio to 36% and a 22% increase in lapses resulting in deferred
acquisition costs being written off during the year.
Operating expenses increased $9 million or 11% due to an increase in volumes and higher employee costs to support the
larger portfolio and costs of linking systems with Allianz following the establishment of a strategic partnership last year.
Westpac Institutional Bank
Westpac Institutional Bank (WIB) delivers a broad range of financial products and services to 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 throughout Australia as well as
branches and subsidiaries located in New Zealand, the US, UK and Asia. WIB is also responsible for Westpac Pacific currently
providing a range of banking services in Fiji and PNG. WIB works in an integrated way with all the Group’s divisions in the
provision of more complex financial needs including across foreign exchange and fixed interest solutions.
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
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
Net 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.
2016
1,562
1,536
3,098
(1,347)
(177)
1,574
(469)
(7)
1,098
-
1,098
$bn
88.4
73.8
110.4
43.5%
2015
1,638
1,578
3,216
(1,319)
38
1,935
(584)
(8)
1,343
-
1,343
$bn
80.3
76.3
127.3
41.0%
2014
1,624
1,626
3,250
(1,202)
126
2,174
(646)
(9)
1,519
-
1,519
$bn
80.8
68.0
122.2
37.0%
2016 v 2015
WIB cash earnings decreased by $245 million or 18% due to a $215 million increase in impairment charges and a 7 basis point
decline in net interest margin.
net loans decreased 3% mostly from lower trade finance balances, predominantly in Asia;
Net interest income decreased by $76 million or 5% from a $0.4 billion decrease in average interest-earning assets and a 7
basis point decline in net interest margin:
institutional margins continue to be impacted by higher levels of global liquidity. This has contributed to tightening asset
spreads for new lending.
deposits increased 10% mainly in term deposits; and
Non-interest income decreased $42 million or 3%. 2015 included a $122 million negative impact from methodology changes to
derivative valuations. Excluding this impact, non-interest income was down $164 million from a decline in fee income due to
lower corporate and institutional activity and lower fees from Hastings.
Operating expenses increased $28 million or 2% mostly from further investment to meet additional regulatory and compliance
requirements. This increase was partially offset by disciplined expense management, including benefits from changes to the
WIB operating model and the sale of certain Pacific Island operations.
Asset quality remains sound and the business has maintained its focus on origination standards and portfolio diversification.
Impairments have moved to a charge of $177 million in 2016 compared to an impairment benefit of $38 million in 2015,
predominantly due to increased provisions associated with the deterioration of a small number of individual names which were
downgraded in first half of 2016.
2016 Westpac Group Annual Report
91
2
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 (NZ
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. Westpac 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
Net 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.
2016 v 2015
Cash earnings decreased by $29 million or 3%.
2016
1,588
449
2,037
(856)
(54)
1,127
(315)
-
812
2
814
$bn
54.9
71.7
82.1
7.1
2.0
42.0%
2015
1,552
457
2,009
(808)
(44)
1,157
(313)
(3)
841
-
841
$bn
47.3
62.8
71.5
5.9
1.8
40.2%
2014
1,420
438
1,858
(756)
(24)
1,078
(296)
(3)
779
-
779
$bn
44.1
57.7
65.9
4.9
1.5
40.7%
Net interest income increased by $36 million or 2% due to a 9% rise in average interest-earning assets, partly offset by a 12
basis point decline in net interest margin:
the decline in net interest margin was principally due to:
–
lower asset spreads due to heightened competition for mortgages and a further customer preference for lower spread
fixed rate loans which now represent 77% of portfolio, up 3% from 2015;
–
lower Treasury income;
– higher wholesale funding costs included increased term issuance costs and the higher costs of shorter term funding;
partially offset by
–
improved spread on deposits principally from changed interest rates on online savings accounts;
lending increased $8.9 billion or 14%:
– mortgages increased $4.8 billion or 12%. This growth was a little lower than the system1 as the division was more
prioritised on return over growth especially in the second half of 2016; and
– business lending increased $4.0 billion or 18% with the key sectors of agriculture, energy and financial services
contributing to the growth; and
deposits increased $7.6 billion or 16%, with growth broadly spread across the portfolio. Term deposits dominated growth
as customers sought fixed returns in a falling interest rate environment and online savings deposits were repriced.
Non-interest income decreased $8 million or 2%. The decline was principally due to lower asset sales which contributed $21
million to income in 2015. This was partly offset by higher wealth and insurance income. Customers with a wealth product
increased 27 basis points to 28.4%. This is reflected in FUM balances which rose 20% over the year.
1 Source: RBNZ.
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2016 Westpac Group Annual Report
Operating expenses increased $48 million or 6% mostly due to investment in the division’s transformation program, costs of
relaunching the brand and higher depreciation and software amortisation.
Overall asset quality metrics remain sound, although stressed assets to TCE increased 94 basis points to 2.54% mostly
reflecting additional stress in the dairy sector. Impairment charges increased $10 million due to higher stress in the dairy
portfolio and a lower level of write-backs and recoveries.
Divisional performance
Group Businesses
This segment comprises:
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 the Group’s operating segments, earnings from non-core asset sales
and certain other head office items such as centrally raised provisions;
Treasury is responsible for the management of the Group’s balance sheet including wholesale funding, capital and
management of liquidity. Treasury also manages the interest rate risk and foreign exchange risks inherent in the balance
sheet, including managing the mismatch between Group assets and liabilities. Treasury’s earnings are primarily sourced
from managing the Group’s balance sheet and interest rate risk, within set risk limits;
Group Technology1 which comprises functions responsible for technology strategy and architecture, infrastructure and
operations, applications development and business integration; and
Core Support1 which comprises functions performed centrally, including Australian banking operations, property services,
strategy, finance, risk, compliance, legal and human resources.
Performance of Group Businesses
$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)/benefit
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
2016 v 2015
Group Businesses cash earnings decreased by $67 million or 54%.
2016
570
8
578
(469)
9
118
(54)
(8)
56
(221)
(165)
2015
441
66
507
(378)
-
129
9
(15)
123
341
464
2014
565
47
612
(323)
(82)
207
(45)
(15)
147
80
227
Net interest income increased $129 million or 29% due to improved Treasury performance related to interest rate risk
management and increased earnings from higher capital balances held centrally. This was partially offset by additional funding
costs incurred to further strengthen the balance sheet in preparation for NSFR and lower interest rates.
Non-interest income decreased $58 million or 88% reflecting a gain on asset sale in 2015 that did not repeat.
Operating expenses increased $91 million or 24% due to an increase in restructuring costs, higher regulation and compliance
costs and an increase in employee provisions.
Impairment benefit of $9 million is primarily due to a reduction in the centrally held economic overlay provision.
The effective tax rate of 46% is higher than the Group average primarily due to the impact of hybrid distributions that are non-
deductible for taxation purposes.
1 Costs are partially allocated to other divisions in the Group, with costs attributed to enterprise activity retained in Group Businesses.
2016 Westpac Group Annual Report
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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 various jurisdictions in 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 or financial or reputational loss, arising from our failure to abide by the
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 (Cth) 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 may result in litigation, fines, penalties, revocation, suspension or variation of conditions of relevant regulatory
licences or other administrative action by regulators. For example, in April 2016, ASIC commenced civil proceedings against
Westpac in the Federal Court of Australia, alleging certain misconduct in relation to the setting of the BBSW in the period April
2010 to June 2012, including market manipulation and unconscionable conduct. Westpac is defending the proceedings. During
the year ended 30 September 2016, Westpac has received other notices and requests for information from its regulators.
Regulatory investigations, litigation, fines, penalties, 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 economic 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, increased the required quality and quantity of capital held by banks and
introduced new standards for the management of liquidity risk. The BCBS continues to refine this framework and APRA is
expected to incorporate the majority of these changes 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 2016, 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. Other areas
of proposed or potential change that could impact us include changes to accounting and reporting standards, derivatives
reform, tax legislation including dividend imputation, 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. For example, since
the Financial System Inquiry (FSI) handed down its final report, the Australian Government has consulted on the detailed
implementation of a number of the FSI’s recommendations. The Australian Government or other regulators may also initiate
further reviews (such as the House of Representatives Standing Committee on Economics ‘Review of Australia’s Four Major
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2016 Westpac Group Annual Report
Risk and risk management
Banks’), or commissions of inquiry, which could lead to additional regulatory change. The final impact of the FSI, and the
impact of any additional reviews or inquiries is difficult to predict, but may result in further substantial regulatory changes which
could have a material impact on our business, prospects, financial performance or financial condition.
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. The powers exercisable by our regulators
may also be expanded in the future. For example, on 20 April 2016, the Australian Government announced that it would
accelerate the implementation of certain recommendations made by the FSI, including the recommendation that ASIC be
granted a product intervention power. Further details on the Australian Government’s reform package are set out in ‘Significant
developments’ in Section 1.
Regulatory changes and the timing of their introduction continue to evolve and we 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 are an important part of our planning processes. 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 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 and funding 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 or depositor preferences may significantly affect our ability to meet
funding and liquidity needs and may increase our cost of funding
We rely on deposits and 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 remains 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 2016, approximately 31% of our total funding originated from domestic and international wholesale
markets. Of this, around 61% was sourced outside Australia and New Zealand. Customer deposits provide around 61% of total
funding. Customer deposits held by Westpac are comprised of both term deposits which can be withdrawn after a certain
period of time and at call deposits which can be withdrawn at any time.
A shift in investment preferences could result in deposit withdrawals by customers which 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, there may also be a loss of confidence in
bank deposits and we could experience unexpected deposit withdrawals. In this situation 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, 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.
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2
For a more detailed description of liquidity risk, refer to ‘Funding and liquidity risk management’ 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.
Sovereign defaults could negatively impact the value of our holdings of high quality liquid assets. There may also 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 can 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 a downgrade of the Australian Government, 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. Credit ratings agencies Standard & Poor’s and Moody’s both revised their outlook on Australia’s major banks
(including Westpac) from ‘stable’ to ‘negative’ during the year ended 30 September 2016.
Failure to maintain our high 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 competitors 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, global economic conditions and political developments (such as Brexit). 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.
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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 adverse changes in taxation or buyer concerns
about decreases in values.
Adverse changes to 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 economic
relationship between Australia and China, particularly in the mining and resources sectors, a slowdown in China’s economic
growth could negatively impact the Australian economy. Changes in commodity prices and broader 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 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, clearing and settlement 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, commodity prices, equity prices and interest rates including the potential for negative
interest rates. 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.
2016 Westpac Group Annual Report
97
2
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.
We could incur losses from fraudulent applications for loans or 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 losses 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 attackers (including organised crime and state-sponsored actors)
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 (such as 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 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.
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We could suffer losses due to conduct risk
Conduct risk is the risk that our provision of services and products results in unsuitable or unfair outcomes for our stakeholders
or undermines market integrity. 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 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 risks including liquidity risk, credit risk, market risk (such as interest 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 and Note 22 to the financial
statements.
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 of loss of reputation, stakeholder confidence, 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, economic and 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.
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, civil unrest 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.
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.
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2
In the life insurance business, insurance risk arises primarily through mortality (death) and morbidity (illness and injury) risks,
and the costs of claims relating to those risks, being greater than was anticipated when pricing those risks.
In the general insurance business, insurance risk arises mainly through environmental factors (including storms, 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 above.
In the lenders mortgage insurance business, insurance risk arises primarily from unexpected downturn in economic conditions
leading to higher levels of mortgage defaults from unemployment or other economic factors.
If our reinsurance arrangements are not effective, this could also lead to greater risks, and more losses than anticipated.
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 2016,
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 its value has been reduced or that its estimated useful life has
declined, 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 including a sound risk culture is one of the keys to achieving our vision as it influences our
customers’ experiences, the public’s perceptions, our financial performance, our reputation and our shareholders’ expectations.
It is critical to our future success. We regard managing risk as a core function performed at all levels of the Group.
The Risk Management Strategy is approved by the Board and reviewed by the Board Risk & 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 (CEO).
For further information regarding the role and responsibilities of the BRCC and other Board committees in managing risk, refer
to Westpac’s 2016 Corporate Governance Statement available at www.westpac.com.au/corpgov.
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’ in
which 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 2016
Corporate Governance Statement and Note 22 to the financial statements.
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2016 Westpac Group Annual Report
Risk and risk management
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,
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 14 to the financial statements.
Credit risk concentrations
We monitor our credit portfolio to manage risk concentrations. At 30 September 2016, our exposure to consumers comprised
72% (2015: 71%, 2014: 71%) of our on-balance sheet loans and 58% (2015: 57%, 2014: 57%) of total credit commitments. At
30 September 2016, 91% (2015: 90%, 2014: 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 cash flows 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 which seeks to meet 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 LCR.
Refer to Note 22 to the financial statements for a more detailed discussion of our liquidity risk management policies.
2016 Westpac Group Annual Report
101
2
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 2016:
Program Limit
Issuer(s)
Program/Issuing Shelf Type
Australia
No limit
Euro Market
USD 2.5 billion
USD 20 billion
USD 70 billion
USD 10 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 Medium Term Note Program
USD 15 billion
WBC (NY Branch) US Medium Term Deposit Note 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 or 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.
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.
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2016 Westpac Group Annual Report
The table below depicts the aggregate Value at Risk (VaR), by risk type, for traded risk for the year ended 30 September:
Risk and risk management
Consolidated and Parent Entity
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
1
2
2016
2015
2014
High
14.0
12.2
2.9
4.5
6.0
n/a
18.7
Low Average
8.8
5.1
0.3
4.6
1.4
0.1
1.4
2.6
n/a
7.7
2.7
3.6
(8.0)
12.5
High
18.1
11.8
0.6
5.7
6.7
n/a
23.5
Low Average
11.4
3.6
0.3
7.0
0.5
0.1
1.7
2.9
n/a
9.0
3.1
4.6
(7.2)
15.8
High
30.7
7.6
0.7
2.9
11.3
n/a
40.2
Low Average
15.6
3.0
0.3
6.3
1.2
0.1
1.3
5.4
n/a
9.5
2.0
9.2
(8.2)
22.0
Includes electricity risk.
Include prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
The graph below compares the actual profit and loss from trading activities on a daily basis to VaR1 over the reporting period:
Traded Risk: Actual Profit and Loss vs. VaR
01 October 2015 to 30 September 2016
Actual Profit
and Loss ($m)
20
15
10
5
-
(5)
(10)
(15)
(20)
-
5
10
15
20
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. This definition is aligned to regulatory (Basel II) definition, including legal and regulatory 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.
For information on our management of operational and compliance risk, refer to Westpac’s 2016 Corporate Governance
Statement, available at www.westpac.com.au/corpgov.
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.
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103
2
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 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 that our provision of services and products results in unsuitable or unfair outcomes for our stakeholders or undermines
market integrity.
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 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.
The Group has in place a Sustainability Risk Management Framework that is supported by a suite of key policies and position
statements. These include the Principles for Doing Business, Principles for Responsible Lending, Responsible Investment
Position Statement, Environmental, Social and Governance (ESG) Credit Risk Policy, Climate Change and Environment
Position Statement and Action Plan, Human Rights 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 2016.
Westpac is also a signatory to a number of voluntary principles-based frameworks that guide the integration of ESG-related
issues into banking, lending and investment analysis. These include the Equator Principles, covering project finance activities
and the Principles for Responsible Investments, 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 the administration of equity investments on behalf of other parties where fee income is based on the
value of funds under management.
Our contingent equity risk arises from normal lending activities secured by, or with recourse to, listed and/or unlisted equities or
to another equity-like source of risk protection. This 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 which seek to manage these risks and the conflicts of interest that
can potentially arise.
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.
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 reinsurance
arrangements in place to reduce risk, including from 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.
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,
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2016 Westpac Group Annual Report
Risk and risk management
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 of the loss of reputation, stakeholder confidence, 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. The Reputation Risk Management Framework
was reviewed and updated in 2016.
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 is 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
transaction documents.
As at 30 September 2016, the carrying value of assets pledged for the covered bond programs for the Group was $45.4 billion
(2015: $40.3 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, unless 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 2016, our assets securitised through a combination of privately or publicly placed issues to Australian, New
Zealand, European and United States investors was $9.5 billion (2015: $12.1 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.
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 2016, we administered one significant conduit (2015: one), that
2016 Westpac Group Annual Report
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2
was created prior to 1 February 2003, with commercial paper outstanding of $0.9 billion (2015: $0.8 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 $97 million as at 30 September 2016 (2015: $86 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 loans, 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 2016.
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 2016.
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 2016 that has been identified and that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
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2016 Westpac Group Annual Report
Westpac’s approach to sustainability
Sustainability performance
Westpac’s approach to sustainability
The Group’s approach to operating sustainably is designed to anticipate, respond to and shape the most pressing emerging
topics (issues and opportunities) that have the potential to materially impact customers, employees, suppliers, shareholders
and communities, where the Group has the skills and experience to make a meaningful, positive impact. This view is
embedded within our core business activities, and aligns with the priorities set out in the Group’s strategy.
Guiding our approach
Accountability for the Group’s Sustainability Strategy starts with the Board and flows through to all employees. The Board has
responsibility for considering the social, ethical and environmental impact of the Group’s activities, setting standards and
monitoring compliance with sustainability policies and practices. The Westpac Sustainability Council, comprising senior leaders
from across the business and meeting four times a year, oversees strategic progress and guides the Group’s approach.
Progress against the sustainability strategy is reported to and discussed with the Executive Team and Board twice each year,
with other items discussed on an as needs basis.
Westpac’s 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 identifying topics and developing our strategy – Inclusivity;
Evaluating all topics 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
topics identified – Responsiveness.
Frameworks and policies
Westpac responds to enduring and emerging material topics through frameworks and policies that are complementary to the
business strategy and form part of the Group’s overall approach to risk management. Collectively, they help to guide decisions,
manage risk and drive action. Key frameworks and policies include:
Our Principles for Doing Business – which sets out the behaviours the Group expects to be judged against in pursuit of the
vision, and the framework to embed sustainable practices throughout the business in the areas of: governance and ethics;
customer practices; employee practices; care for the environment; community involvement; and supply chain
management;
Our Sustainability and Reputation Risk Management Frameworks – which set out how the Group manages these risks – in
operations, lending and investment decisions, and the supply chain – provides a clear guide on roles and responsibilities
within the organisation, reflecting the Group’s ‘three lines of defence’ risk management approach; and
A suite of policies that embed the principles and management requirements into day to day operations. These include
internal and external sensitive sector position statements, as well as Group-wide issue-based positions.
Sustainability leadership
Leadership in sustainability is regularly acknowledged and validated by a number of third party ratings and awards. During
2016, these included:
Assessed as the most sustainable bank globally in the 2016 Dow Jones Sustainability Indices (DJSI) achieving the Group’s
highest ever score of 95. Westpac has been among the global banking sector leaders annually for 15 years in a row,
including being the top ranked bank nine times, most recently for three consecutive years from 2014 to 2016;
Ranked as one of the 2016 Global 100 Most Sustainable Corporations in the World by Corporate Knights, announced at
the World Economic Forum in January 2016. Westpac has featured in the Global 100 for 10 of the last 11 years; and
Recognised in the 2016 CDP1 Climate A list, reflecting the Group’s achievement of the highest possible CDP score for its
response to climate change. This puts Westpac among the top 9% of companies globally to receive this recognition.
1 Formerly the Carbon Disclosure Project.
2016 Westpac Group Annual Report
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2
Material sustainability topics
Westpac identifies the most material sustainability topics through regular assessments of industry trends, internal reports,
information from stakeholder engagement and independent research. The table below outlines those topics considered material
for the Group and its stakeholders, as further detailed in Westpac’s 2016 Sustainability Performance Report. Prioritisation of
material topics continues to be subject to annual independent external assurance by Ernst & Young.
Material sustainability topic
Customer
experience,
support and
access
Customers’ needs are becoming
more complex, and at the same
time they want banking to be
simpler and more efficient.
Information
security and
data privacy
Digital product
and service
transformation
Maintaining customer
confidentiality and the security of
our systems is paramount, and
the potential inherent exposure
to cyberattacks remains high
due to the evolving nature of
technology and Westpac’s
prominence within the industry.
Digitisation offers opportunities
to improve efficiency and deliver
services in new ways, including
new fintech business models
which we are embracing to
better meet changing customer
expectations.
Changing
regulatory
landscape
Conduct and
culture
Supervision and regulation in
jurisdictions Westpac operates
continues to evolve, creating
uncertainty in the operating
environment.
Conduct and culture are vital for
maintaining the trust of
customers, shareholders and
regulators.
Full year responses and achievements
Launched ‘Our Service Promise', an enhanced customer service and culture
program to help employees deliver the Group’s service revolution;
Reduced customer complaints in Australia by more than 30% by addressing
customer pain points and, in the second half of the year, our branch network
received three times as many compliments as complaints;
Invested in innovative product design, for example a new ‘One Click’ opening of
saving accounts for existing customers via digital channels; and
Launched a new credit card reminder service in St.George where customers
can receive and pay directly from an email, SMS and/or push notification 5 days
out from a payment date, making it easy to stay on top of due dates and avoid
late fees.
Invested in additional dedicated resources to counter new and emerging
threats;
Enhanced the resilience and security of systems to protect the confidentiality,
integrity and availability of customer information and sensitive commercial data;
and
Recorded a significant decline in the number of customers becoming victims of
cybercrime in 2016, reflecting the effectiveness of these controls.
Westpac’s mobile banking platform, Westpac Live, ranked as number one by
global research house, Forrester, in its 2016 Global Mobile Banking
Functionality Benchmark;
Introduced 188 new features and enhancements across our digital banking
platforms, including the ability to activate cards using a smartphone camera,
change card pin, put a card temporarily on hold, obtain proof of balance and
statements as well as management of term deposits online with ability to renew
at maturity (via internet banking);
Continued to help incubate and partner with a number of fintech startups to
offer new services for customers now and in the future; and
Launched a new facility across St.George, Bank of Melbourne and BankSA,
that allows customers to contact the call centre directly from their mobile
banking app, reducing average call times by around one minute.
Invested over $278 million during the year to enhance existing and implement
new processes to comply with recent regulatory changes; and
For further detail, see Section 1 ‘Information on Westpac’.
Developed a Group-wide conduct operating principles and key framework
elements, to ensure the consistent management of conduct across the Group;
Reviewed Westpac branch teller incentives to ensure that they align with our
customer-focused strategy, including incentives only for service, not sales;
Finalised and commenced operationalising a revised Group-wide Product and
Service Lifecycle Policy, which includes customer fairness and suitability
criteria;
Established Product Governance Committees to actively review the design and
communication of our products and services for fairness and suitability, fixing
issues where they are identified; and
Actively participated in industry initiatives, in particular through our commitment
to the ABA 6 Point Plan.
108
2016 Westpac Group Annual Report
Material sustainability topic
Governance,
risk and
remuneration
Clear governance practices,
active management of risk,
commitment to compliance,
and fair remuneration in our
operations, supplier and
partner relationships is critical
to the longevity and financial
wellbeing of the Group.
Financial and
economic
performance
Maintaining a healthy financial
performance and strong
balance sheet is vital to the
Group’s long term
sustainability.
Climate change
transition and
opportunities
As a major financial institution,
Westpac has an important role
to play in supporting the
transition to a sustainable
economy model aligned to a
two degree economy.
Value chain
sustainability
risks
Inclusion and
diversity
Talent
attraction and
retention
Responsible banking,
investment and insurance
require a risk-driven approach
that considers the range of
sustainability risks (including
climate change and human
rights), and our suppliers have
an important role in helping us
manage them effectively.
As the population ages and
becomes more culturally
diverse, Westpac needs to
think creatively about how to
find, develop and retain the
right employees and tailor
services that consider diverse
customer needs.
Attracting, retaining and
developing the right people
requires innovative recruitment
strategies and working
conditions to match changing
employee expectations.
Westpac’s approach to sustainability
Full year responses and achievements
For further detail, see Westpac’s 2016 Corporate Governance Statement
available at www.westpac.com.au/corpgov, our Remuneration report in Section 1
and ‘Risk and risk management’ in Section 2.
Delivered another sound performance with a cash return on equity of 14%
supported by good business growth and well managed margins;
Strengthened the balance sheet with an additional $3.5 billion in 2016 in ordinary
equity raised, increasing capital ratios to the upper end of peers globally. Other
elements of balance sheet remain similarly strong; and
Maintained relatively stable asset quality but increased provisions for some
companies, sectors and regions showing signs of stress.
Published an updated position statement, Financing a Sustainable Energy
System, which reaffirms the bank's commitment to support an economy, through
its financing activities in the energy system, in a manner consistent with limiting
global warming to below two degrees Celsius above pre-industrial levels;
Undertook scenario analysis to understand the longer term impacts, including
risks and opportunities for Westpac, of limiting global warming to below two
degrees Celsius, meaning the Australian economy reaches net zero emissions by
2050; and
Continued to report climate related disclosures in our annual Sustainability
Performance Report.
Continued to apply the Group’s Sustainability Risk Management Framework to
the identification, assessment and management of sustainability risks across our
organisation – including to decisions related to our customers and suppliers;
Released the BTFG Responsible Investment Position Statement, articulating
BTFG’s approach to responsible investing and providing a framework for
understanding and managing environmental, social and corporate governance
(ESG) impacts, risks and opportunities across the portfolios within BTFG; and
After releasing portfolio carbon footprints for the first time in 2015, BTFG
deepened its analysis to give greater clarity for our stakeholders.
Made it standard operating procedure to recognise a customer’s paid parental
leave and return to work income in their borrowing capacity for home lending;
Introduced an Inclusion Index, measured through our employee engagement
survey, to better track the effectiveness of our Inclusion and Diversity action
plans; and
Recorded a proportion of Australian-based employees who identify as Indigenous
Australian larger than that in the broader Australian population.
Retained the Employer of Choice for Gender Equality citation awarded by the
Workplace Gender Equality Agency;
Launched Personal Leader Journey for top 100 leaders, a leadership
development program designed to positively influence organisational culture and
deepen our focus on creating a world class service experience;
Increased the number of people accessing our new learning and development
approach, LearningBank, to approximately 14,000 employees during the year;
and
Conducted a Group-wide survey of our employees’ level of engagement during
the year, which resulted in a number of specific enterprise-wide actions identified
to address feedback, with a strong emphasis on empowering employees to
deliver exceptional service.
For further detail, please see our Annual Review and Sustainability Report and Sustainability Performance Report at
www.westpac.com.au/sustainability.
2016 Westpac Group Annual Report
109
2 Sustainability objectives
Our 2013-2017 Sustainability Strategy sets measureable objectives against the following three priority areas:
Embracing societal change: helping improve the way people work and live, as our society changes;
Environmental solutions: helping find solutions to environmental challenges; and
Better financial futures: helping customers to have a better relationship with money, for a better life.
Performance against sustainability objectives1
Priority
Objectives
Full year 2016 performance
Help improve
the way
people work
and live, as
our society
changes
Ensure our workforce is
representative of the
community
Proportion of leadership roles held by women moved closer to our 2017 target
of 50%, increasing to 48%, up from 46% last year.
Recruited an additional 140 people who identify as Aboriginal and Torres Strait
Islander, bringing to 290 those recruited against our goal of 500 by 2017.
Financial wellbeing of 40+ women improved during 2016 in comparison with the
total Australian retail banking population.
Participation of mature aged workers (50+) is 21.5%, up from 20.8% a year ago.
Extend length and
quality of working lives
Mean employee retirement age was 60.5 years, down compared to a year ago.
Workplace wellbeing, as measured by the WorkAbility Index, improved in 2016.
Anticipate the future
product and service
needs of ageing and
culturally diverse
customers
Launched Ruby Connection’s financial education social media campaign to
engage women over 35 in relation to their evolving product and service needs.
Increased convenience for multi-cultural customers by enabling foreign
currency accounts in core currencies to be opened via Westpac Live online
banking.
Provide products and
services to help
customers adapt to
environmental
challenges
Since 2013 launched six unique products/services, including the May 2016
issuance of the Westpac Climate Bond and introduction of our Energy
Efficiency Financing Program for commercial banking customers.
Increase lending and
investment in CleanTech
and environmental
services
Increased committed exposure to the CleanTech and environmental services
sector relative to FY15, taking total committed exposure to $6.2 billion, 3%
ahead of the 2017 target.
Reduce our
environmental footprint
Maintained carbon neutral status and reduction of more than 15% in office
paper consumption.
Help find
solutions to
environmental
challenges
Received highest Green Star rating (6 Star) for the Sydney Kent Street office
and St.George retail branch at Barangaroo, reflecting leading eco-efficient
practices.
Achieved 2017 power usage effectiveness target of 1.6 and surpassed the 2017
energy efficiency target with 180 kWh/m2.
Recycling rates and water consumption in Sydney head offices improved to
73% and 140,708 kL respectively, ahead of 2016 targets.
1 All results as at 30 September 2016 except environmental footprint which is as at 30 June 2016. Refer to www.westpac.com.au/sustainability for
glossary of terms and metric definitions.
110
2016 Westpac Group Annual Report
Westpac’s approach to sustainability
Priority
Objectives
Full year 2016 performance
Help
customers to
have a better
relationship
with money,
for a better life
Ensure all our
customers have access
to the right advice to
achieve a secure
retirement
Revised metrics in 2016 to more accurately reflect key activities driving
customer access to the right advice.
BT Advice customer satisfaction rating was 4.89 for 2016, compared to a target
of 4.9 out of 5.
Help our customers
meet their financial
goals in retirement
Increase access to
financial services in the
Pacific
The proportion of Group customers with Group superannuation decreased to
7.8% from 8.1% in 2015.
Wealth Review tool launched as an engagement and retention initiative to
assist customers in better understanding their current and future financial
position.
Revised 2016 and 2017 in-store transaction volume targets in Westpac Pacific
following the sale of operations in five Pacific countries that were key users of
the in-store channel. In-store transactional volumes were over 220,000.
Met the Group’s 2016 targets with over 290,000 customers brought into the
banking system and over 100,000 mobile banking activations.
Help people gain access
to social and affordable
housing and services
Lent over $1.05 billion to the social and affordable housing sector, up from
$1.02 billion as at 30 September 2015.
2016 Westpac Group Annual Report
111
2
Five year non-financial summary1
Key trends across a range of non-financial areas of performance are provided in the following five year non-financial summary,
with a more detailed account of sustainability performance included in our Annual Review and Sustainability Report and
Sustainability Performance Report.
Customer
Total customers (millions)2
Digitally active customers (millions)3
Branches
Branches with 24/7 capability (%)4
ATMs
Smart ATMs (%)5
Change in consumer complaints (%) - Australia
Change in consumer complaints (%) - NZ6
Wealth customer penetration (%)7
Employees
Total core (permanent) full-time equivalent staff
Employee voluntary attrition (%)8
New starter retention (%)9
High performer retention (%)10
Employee engagement index (%)11
Lost Time Injury Frequency Rate (LTIFR)12
Women as a percentage of the total workforce (%)
Women in leadership (%)13
Environment
Total Scope 1 and 2 emissions - Aust and NZ (tonnes CO2-e)14
Total Scope 3 emissions - Aust and NZ (tonnes CO2-e)15
Paper consumption - Aust and NZ (tonnes)16
Sustainable lending and investment
Proportion of electricity generation financing in renewables including hydro - Aust and NZ (%)17
Electricity generation portfolio emissions intensity (tonnes CO2-e/MWh)18
Finance assessed under the Equator Principles - Group ($m)19
Responsible investment funds under management ($m)20
Social impact
Community investment ($m)21, 22
Community investment as a percentage of pre-tax profits - Group (%)22
Community investment as a percentage of pre-tax operating profit (cash earnings basis)22
Financial education (participants)23, 24
Supply chain
Top suppliers self-assessed - Australia (%)25
Spend with indigenous Australian suppliers - Australia ($ million)26
2016
2015
2014
2013
2012
13.4
4.9
1,309
27
3,757
37
(31)
(7)
19.1
13.1
4.9
1,429
22
3,850
31
(31)
(18)
19.7
12.8
4.7
1,534
15
3,890
24
(27)
(16)
20.0
12.2
4.2
1,544
-
11.8
4.0
1,538
-
3,814
3,639
17
(15)
19
18.7
-
-
-
18.4
32,190
32,620
33,586
33,045
33,418
10.6
85.5
94.8
69
0.8
58
48
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
154,339
173,437
175,855
180,862
183,937
63,016
3,304
67,899
4,857
73,871
5,334
85,013
5,762
91,855
-
59
0.38
617
18,723
148
1.39
1.32
61
0.38
1,065
15,017
149
1.30
1.33
59
0.41
851
-
217
2.02
1.99
55
0.44
268
-
131
1.33
1.28
52
-
1,140
-
133
1.50
1.41
59,596
65,538
49,812
32,577
36,182
100
1.6
100
1.2
100
-
98
-
94
-
112
2016 Westpac Group Annual Report
Westpac’s approach to sustainability
1 All data represents Group performance as at 30 September unless otherwise stated.
2 All customers with an active relationship (excludes channel only and potential relationships).
3 Unique customers who have successfully authenticated (including Quickzone) into the digital banking platforms within 90 days. Figures
prior to 2016 are not comparable.
4 Branches that allow customers to self-serve 24/7 via a range of devices that allow them to withdraw and deposit cash, coin exchange etc.
(not all these services would be available at every 24/7 zone). Access determined by individual location (i.e. shopping centre opening hours
may prevent 24/7 access).
5 ATMs with deposit taking functionality. Excludes old style envelope deposit machines.
6 Prior years’ figures restated to align with Australian calculation methodology.
7 Data based on Roy Morgan Research, respondents aged 14+; 12 month average to September. Wealth customer penetration is defined as
the proportion of Australians who have a Deposit or Transaction Account, Mortgage, Personal Lending or Major Card with the Group and
also have Managed Investments, Superannuation or Insurance with the Group.
8 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). Westpac Pacific figures included since FY15.
9 Voluntary new starter retention over the 12 month rolling new starter headcount for the period (includes full time and part time permanent
employees). Westpac Pacific figures included since FY15.
10 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). Westpac Pacific figures included since FY15.
11 New employee engagement survey conducted in 2016 and prior data not included due to change in survey methodology.
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. Westpac Pacific figures included since FY16.
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. Westpac Pacific figures included since FY15.
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 by 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. 2015 restated.
16 Total copy paper purchased (in tonnes) by the Group as reported by its suppliers.
17 Measured as the percentage of indirect and direct financing (total committed exposure) 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 emissions intensity is calculated
by weighting each loan (total committed exposures) by the emissions intensity of each company.
19 The Equator Principles is a voluntary set of standards for determining, assessing and managing social and environmental risk in project
financing.
20 BTFG funds applying an 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 2015 figure restated to reflect updates in calculation methodology.
23 Total number of employees, customers and general public attending financial education courses offered by the Westpac Group during the
year (including online webinars). In Australia financial education covers personal, business and social sector content inclusive of modules
on financial basics, owning your home, building wealth, retirement planning, starting and growing a business and financials for non-profit
organisations. New Zealand and Pacific businesses deliver locally tailored programs.
24 Number of financial education participants in 2015 restated.
25 Refers to top 80 suppliers to Westpac Australia by spend.
26 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.
2016 Westpac Group Annual Report
113
2
Other Westpac business information
Employees
The number of employees in each area of business as at 30 September:
Consumer Bank
Business Bank
BTFG
WIB
Westpac New Zealand
Other
Total employees1
1 Total employees include full-time, pro-rata part-time, overtime, temporary and contract staff.
2 Prior comparative periods have been restated to reflect business structure changes in 2016.
2016
9,207
3,186
4,153
2,693
4,145
11,896
35,280
20142
9,785
3,217
4,062
2,932
4,342
12,035
36,373
20152
9,240
3,060
4,045
2,846
4,375
11,675
35,241
2016 v 2015
Total employees increased by 39 compared to 30 September 2015 from higher resourcing to support higher investment in
growth and productivity initiatives and regulation and compliance programs and additional Bank of Melbourne employees (30).
These were partially offset by productivity initiatives across the Group and the sale of operations in the Solomon Islands and
Vanuatu (138).
Property
We occupy premises primarily in Australia, New Zealand and the Pacific Islands including 1,309 branches (2015: 1,429) as at
30 September 2016. As at 30 September 2016, we owned approximately 1.6% (2015: 2.0%) of the premises we occupied in
Australia, none (2015: none) in New Zealand and 40% (2015: 38%) in the Pacific Islands. The remainder of premises are held
under commercial lease with terms generally averaging three to five years. As at 30 September 2016, the carrying value of our
directly owned premises and sites was approximately $102 million (2015: $113 million).
Westpac Place in the Sydney CBD is the Group’s head office. In December 2015, an Agreement for Lease was executed for
275 Kent Street, allowing for Westpac’s continued occupation of levels 1-23 until 2030, and for an earlier exit of levels 24-32.
This site currently has capacity for over 6,000 staff which will reduce to 5,700 once the upper levels are vacated and the
refurbishment to provide an agile work environment is completed.
We continue a corporate presence in Kogarah, in the Sydney metro area. The Kogarah office has a 2,650 seat capacity and is
home to ‘The Hive’, our innovation centre. A lease commitment at this site extends to 2034 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 International Towers
Sydney (Barangaroo) occupying levels 1-28. Relocation to this site began in August 2015 and now has the capacity for over
6,000 personnel in an agile environment. The lease term extends until 2030 with three five-year options.
‘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.
114
2016 Westpac Group Annual Report
Other Westpac business information
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.
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 they 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.
Auditor’s remuneration
Auditor’s remuneration, including goods and services tax, to the external auditor for the years ended 30 September 2016 and
2015 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 2016, 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.
2016 Westpac Group Annual Report
115
2
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116
2016 Westpac Group Annual Report
03
Note 24 Offsetting financial assets and financial liabilities
Note 25 Securitisation, covered bonds and other
transferred assets
Intangible assets
Other assets, other liabilities, commitments and
contingencies
Note 26
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
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
Financial performance
Segment reporting
Note 2
Net interest income
Note 3
Note 4
Non-interest income
Note 5 Operating expenses
Impairment charges
Note 6
Income tax
Note 7
Earnings per share
Note 8
Average balance sheet and interest rates
Note 9
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
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
2016
2015
2014
2016
2015
3
3
4
5
6
7
8
8
31,822
32,295
32,248
31,803
32,043
(16,674)
(18,028)
(18,706)
(19,182)
(20,502)
15,148
14,267
13,542
12,621
11,541
5,837
7,375
6,395
4,617
5,722
20,985
21,642
19,937
17,238
17,263
(9,217)
(1,124)
(9,473)
(8,547)
(7,572)
(7,773)
(753)
(650)
(922)
(622)
10,644
11,416
10,740
8,744
8,868
(3,184)
(3,348)
(3,115)
(2,437)
(2,121)
7,460
8,068
7,625
6,307
6,747
(15)
(56)
(64)
-
-
7,445
8,012
7,561
6,307
6,747
224.6
217.8
255.0
248.2
242.5
237.6
The above income statements should be read in conjunction with the accompanying notes.
118
2016 Westpac Group Annual Report
Statements of comprehensive income for the years ended 30 September
Westpac Banking Corporation
$m
Net profit for the year
Other comprehensive income
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
Share of associates' other comprehensive income (net of tax)
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
2016
2015
2014
2016
2015
7,460
8,068
7,625
6,307
6,747
56
(8)
(304)
21
(238)
(13)
85
(17)
(54)
(47)
(519)
(148)
(73)
(59)
(131)
15
67
54
5
160
111
1
263
(94)
41
(197)
61
71
(1)
(193)
(106)
(105)
(52)
(19)
47
-
11
(47)
33
90
-
(54)
(42)
(359)
(152)
(21)
140
(167)
33
53
8
-
160
115
169
6,941
8,069
7,658
5,948
6,916
6,926
8,013
7,594
5,948
6,916
15
56
64
-
-
6,941
8,069
7,658
5,948
6,916
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
2016 Westpac Group Annual Report
119
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
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
Note
2016
2015
2016
2015
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
17,015
9,951
21,168
32,227
60,665
14,770
9,583
27,454
48,173
54,833
15,186
8,325
18,562
32,090
56,161
13,372
8,741
24,896
47,540
50,344
661,926
623,316
579,739
546,075
14,192
1,390
-
-
726
1,737
1,552
11,520
5,133
13,125
1,309
-
-
756
1,592
1,377
11,574
4,294
-
1,269
-
1,152
143,549
145,560
4,622
-
1,458
1,590
9,114
4,055
4,585
-
1,354
1,463
9,180
3,294
839,202
812,156
875,720
857,556
18,209
18,731
18,141
18,133
513,071
475,328
455,742
425,509
4,752
36,076
9,226
48,304
4,371
35,209
9,226
48,050
169,902
171,054
145,576
144,715
385
12,361
-
1,420
36
9,004
765,216
15,805
781,021
58,181
539
11,559
314
-
518
-
-
142,808
143,885
1,489
55
8,116
744,401
13,840
758,241
53,915
1,267
-
7,286
810,714
15,805
826,519
49,201
1,332
-
6,433
797,801
13,840
811,641
45,915
33,469
29,280
33,469
29,280
(455)
727
24,379
-
58,120
61
58,181
(385)
1,031
23,172
-
53,098
817
53,915
(369)
790
15,311
-
49,201
-
(308)
940
15,248
755
45,915
-
49,201
45,915
The above balance sheets should be read in conjunction with the accompanying notes.
120
2016 Westpac Group Annual Report
Financial statements
Statements of changes in equity for the years ended 30 September
Westpac Banking Corporation
Consolidated
$m
Share
capital
(Note 32)
Reserves
(Note 32)
Retained
profits
Total equity
attributable
to owners
of Westpac
Banking
Corporation
Total
shareholders'
equity and
non-
controlling
interests
Non-
controlling
interests
(Note 32)
47,537
7,625
33
7,658
-
-
-
-
-
-
(310)
(310)
(5,527)
(5,527)
953
-
69
69
863
64
-
64
46,674
7,561
33
7,594
26,768
-
-
-
18,953
7,561
(36)
7,525
-
-
-
-
(46)
(46)
881
56
-
56
156
-
-
-
(2)
154
1,176
-
(270)
(270)
-
49
(127)
(51)
-
(129)
26,639
-
-
-
-
-
-
-
-
(5,837)
20,641
8,012
271
8,283
156
49
(127)
(51)
(2)
(5,812)
48,456
8,012
1
8,013
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
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
Exercise of employee share options and rights
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
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
Share entitlement offer
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
Other3
Total contributions and distributions
Balance at 30 September 2016
1 2016 comprises 2016 interim dividend 94 cents and 2015 final dividend 94 cents per share (2015: 2015 interim dividend 93 cents and 2014 final
-
-
-
-
-
-
(5,752)
23,172
7,445
(101)
7,344
141
16
(91)
(81)
-
(16)
(3,371)
53,098
7,445
(519)
6,926
-
16
(91)
(81)
-
-
2,256
28,895
-
-
-
141
-
-
-
-
(16)
125
1,031
-
(418)
(418)
-
-
-
-
(105)
(15)
(120)
817
15
-
15
(9)
(6,137)
24,379
(11)
(1,904)
58,120
(5,752)
-
-
(5,752)
1,412
1,000
(6,128)
-
-
(6,128)
726
3,510
-
4,119
33,014
116
2
(49)
(70)
-
1,412
1,000
-
726
3,510
-
2
(49)
(70)
(771)
(771)
61
116
-
-
-
(2)
114
727
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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
7,460
(519)
6,941
(6,128)
726
3,510
116
2
(49)
(70)
(782)
(2,675)
58,181
dividend 92 cents, 2014: 2014 interim dividend 90 cents and 2013 final dividend 88 cents), all fully franked at 30%.
2 2016 comprises nil cents per share (2015: nil cents per share, 2014: 10 cents per share) fully franked at 30%.
3 On 30 June 2016 the 2006 TPS were redeemed in full.
The above statements of changes in equity should be read in conjunction with the accompanying notes.
2016 Westpac Group Annual Report
121
3
Statements of changes in equity for the years ended as at 30 September (continued)
Westpac Banking Corporation
Parent Entity
$m
Balance at 1 October 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
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
Share entitlement offer
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
Other2
Share
capital
(Note 32)
26,704
-
-
-
-
1,412
1,000
-
-
16
(91)
(69)
2,268
28,972
-
-
-
-
726
3,510
-
-
2
(49)
(61)
-
Total equity
attributable
to owners
of Westpac
Banking
Corporation
Total
shareholders'
equity and
other equity
instruments
Convertible
debentures
(Note 32)
Reserves
(Note 32)
Retained
profits
14,002
41,627
755
42,382
921
-
(106)
(106)
-
-
-
-
125
-
-
-
125
940
-
(263)
(263)
-
-
-
-
113
-
-
-
-
6,747
275
7,022
6,747
169
6,916
(5,762)
(5,762)
-
-
(14)
-
-
-
-
(5,776)
15,248
6,307
(96)
6,211
1,412
1,000
(14)
125
16
(91)
(69)
(3,383)
45,160
6,307
(359)
5,948
(6,129)
(6,129)
-
-
(11)
-
-
-
-
(8)
726
3,510
(11)
113
2
(49)
(61)
(8)
-
-
-
-
-
-
-
-
-
-
-
-
755
-
-
-
-
-
-
-
-
-
-
-
(755)
(755)
6,747
169
6,916
(5,762)
1,412
1,000
(14)
125
16
(91)
(69)
(3,383)
45,915
6,307
(359)
5,948
(6,129)
726
3,510
(11)
113
2
(49)
(61)
(763)
(2,662)
Total contributions and distributions
4,128
113
(6,148)
(1,907)
Balance at 30 September 2016
1 2016 comprises 2016 interim dividend 94 cents and 2015 final dividend 94 cents per share (2015: 2015 interim dividend 93 cents and 2014 final
15,311
49,201
33,100
790
-
49,201
dividend 92 cents), all fully franked at 30%.
2 On 30 June 2016 the 2006 TPS were redeemed in full.
The above statements of changes in equity should be read in conjunction with the accompanying notes.
122
2016 Westpac Group Annual Report
Cash flow statements 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
Net cash (used in)/provided by operating activities
41
5,497
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
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Issue of loan capital (net of issue costs)
Redemption of loan capital
Net increase/(decrease) in debt issues
Proceeds from Share Entitlement Offer
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 2006 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
41
41
41
Financial statements
Consolidated
Parent Entity
Note
2016
2015
2014
2016
2015
31,817
(16,721)
43
5,050
(8,106)
(3,373)
1,893
30
348
(1,642)
(96)
9,243
6,755
(38,082)
(896)
(253)
(209)
(5,107)
(476)
(4,488)
38,771
(73)
312
32,377
(18,319)
12
5,289
(7,502)
(3,322)
1,921
33
328
(1,754)
(104)
8,959
21,538
(39,569)
(1,000)
(191)
497
11,730
95
(10,027)
8,526
(1,194)
95
(541)
32,136
(18,743)
11
5,732
(7,327)
(2,660)
1,694
48
297
(1,723)
(123)
9,342
31,812
(19,221)
960
3,426
(6,496)
(3,143)
32,151
(20,803)
1,519
3,985
(6,072)
(3,027)
-
-
-
-
-
-
-
-
-
-
7,338
7,753
1,724
6,706
(35,734)
(35,852)
3,932
(156)
126
(3,329)
121
9,079
34,229
9,419
(382)
28,371
(128)
-
(219)
(3,796)
4
(4,861)
33,508
459
284
3,443
18,779
(24,724)
8,471
6,768
(26,551)
(12,443)
14,357
(20,149)
-
-
(707)
(521)
32
-
(104)
(7,245)
3,596
(1,444)
5,213
3,510
-
2
(24)
(27)
(62)
(8)
-
-
(630)
(677)
24
-
648
-
-
(664)
(515)
17
(7,744)
-
(18,715)
(14,581)
2,244
-
6,826
-
1,000
16
(73)
(27)
(69)
(12)
1,768
(385)
3,678
-
-
49
(113)
(27)
(59)
8
(37)
888
(625)
(441)
17
-
(104)
(6,094)
3,596
(1,444)
5,674
3,510
-
2
(24)
(27)
(62)
1
(5,402)
(4,340)
(5,837)
(5,414)
(4,364)
(18)
(763)
4,573
2,825
(580)
14,770
17,015
(52)
-
5,513
(13,743)
2,753
25,760
14,770
(48)
-
(966)
12,824
1,237
11,699
25,760
-
(763)
5,049
2,398
(584)
13,372
15,186
-
-
4,882
(12,711)
2,683
23,400
13,372
22,668
(38,270)
(2,108)
-
511
11,497
729
(9,945)
6,548
(1,544)
158
(2,003)
4,993
(22,779)
102
3,288
(582)
(633)
5
-
16
(15,590)
2,244
-
6,155
-
1,000
16
(73)
(27)
(69)
-
The above cash flow statements should be read in conjunction with the accompanying notes.
2016 Westpac Group Annual Report
123
3
Notes to the financial statements
Note 1. Basis of preparation
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 2016 was authorised for issue by the Board of Directors on 7 November 2016. The
Directors have the power to amend and reissue the financial report.
The principal accounting policies are set out below and in the relevant notes to the financial statements. The accounting policy
for the recognition and derecognition of financial assets and financial liabilities precedes Note 10. These accounting policies
provide details of the accounting treatments adopted for complex balances and where accounting standards provide policy
choices. These policies have been consistently applied to all the 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). It also
includes additional disclosures required for foreign registrants by the United States Securities and Exchange Commission (US
SEC).
All amounts have been rounded in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191, to the nearest million dollars, unless otherwise stated.
(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) measured at fair value through
income statement or in other comprehensive income.
(iii) Comparative revisions
Comparative information has been revised where appropriate to conform to changes in presentation in the current year and to
enhance comparability.
(iv) Changes in accounting standards
No new accounting standards or amendments have been adopted for the year ended 30 September 2016.
(v) Business combinations
Business combinations are accounted for using the acquisition method of accounting. Acquisition cost is measured as the
aggregate of the fair value at the date of acquisition of the assets given, equity instruments issued or liabilities incurred or
assumed. Acquisition-related costs are expensed as incurred (except for those costs 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 acquisition cost, 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.
(vi) 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 of the relevant branch or subsidiary 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.
124
2016 Westpac Group Annual Report
Notes to the financial statements
Note 1. Basis of preparation (continued)
Foreign operations
Assets and liabilities of foreign 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 year. Other equity balances are translated at historical exchange rates. The resulting exchange
differences are recognised in the foreign currency translation reserve and in other comprehensive income.
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 and in
other comprehensive income. 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 is recognised in the income statement as part of
the gain or loss on disposal or repayment of borrowing.
b. Critical accounting assumptions and estimates
Applying the Group’s accounting policies requires the use of judgement, assumptions and estimates which impact the financial
information. The significant assumptions and estimates used are discussed in the relevant notes below:
Note 7
Note 14
Note 15
Note 23
Note 26
Note 28
Note 38
Income tax
Provisions for impairment charges
Life insurance assets and life insurance liabilities
Fair values of financial assets and financial liabilities
Intangible assets
Provisions
Superannuation commitments
c. 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) (AASB 9) will replace AASB 139 Financial Instruments: Recognition and
Measurement (AASB 139). It includes a forward looking ‘expected credit loss’ impairment model, revised classification and
measurement model and modifies the approach to hedge accounting. Unless early adopted the standard is effective for the
30 September 2019 year end. Whilst it is not yet practical to reliably estimate the financial impact on the financial statements,
the major changes under the standard are outlined below.
Impairment
AASB 9 introduces a revised impairment model which requires entities to recognise expected credit losses based on unbiased
forward looking information, replacing the existing incurred loss model which only recognises impairment if there is objective
evidence that a loss has been incurred. Key elements of the new impairment model are:
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;
expected credit losses are probability-weighted amounts determined by evaluating a range of possible outcomes and
taking into account the time value of money, past events, current conditions and forecasts of future economic conditions.
This will involve a greater use of judgement than the existing impairment model; and
interest is calculated on the gross carrying amount of a financial asset, except where the asset is credit impaired.
Classification and measurement
AASB 9 replaces the classification and measurement model in AASB 139 with a new model that categorises financial assets
based on a) the business model within which the assets are managed, and b) whether the contractual cash flows under the
instrument solely represent the payment of principal and interest. Financial assets will be measured at:
amortised cost where the business model is to hold the financial assets in order to collect contractual cash flows and those
cash flows represent solely payments of principal and interest;
fair value through other comprehensive income where the business model is to both collect contractual cash flows and sell
financial assets and the cash flows represent solely payments of principal and interest. Non-traded equity instruments can
also be measured at fair value through other comprehensive income; or
2016 Westpac Group Annual Report
125
3
Note 1. Basis of preparation (continued)
fair value through profit or loss if they are held for trading or if the cash flows on the asset do not solely represent payments
of principal and interest. An entity can also elect to measure a financial asset at fair value through profit or loss if it
eliminates or reduces an accounting mismatch.
The accounting for financial liabilities is largely unchanged.
Hedging
AASB 9 will change hedge accounting by increasing the eligibility of both hedged items and hedging instruments and
introducing a more principles-based approach to assessing hedge effectiveness. Adoption of the new hedge accounting model
is optional and current hedge accounting under AASB 139 can continue to be applied until the IASB completes its accounting
for dynamic risk management project. The Group is yet to determine whether to apply the new hedge accounting model when
AASB 9 is adopted.
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 (AASB 15) 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.
AASB 16 Leasing was issued on 24 February 2016 and will be effective for the 30 September 2020 financial year. The main
changes under the standard are:
all operating leases of greater than 12 months duration will be required to be presented on balance sheet. The net present
value of these leases will be recognised as an asset and a liability; and
all leases on balance sheet will give rise to a combination of interest expense on the lease liability and depreciation of the
lease asset.
The impact of the standard will be determined by the level of operating lease commitments greater than 12 months duration at
adoption and is not yet practicable to determine.
AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 was issued
on 23 March 2016 and will be effective for the 30 September 2018 year end unless early adopted. Comparatives are not
required on first application. The standard requires additional disclosures regarding both cash and non-cash changes in
liabilities arising from financing activities. The standard 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 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.
Internally, Westpac uses ‘cash earnings’ in assessing the financial performance of its divisions. Management believes this
allows the Group to:
more effectively assess current year performance against prior years;
compare performance across business divisions; and
compare performance across peer companies.
Cash earnings is viewed as a measure of the level of profit that is generated by ongoing operations and is therefore considered
in assessing distributions. Cash earnings is neither a measure of cash flow nor net profit determined on a cash accounting
basis, as it includes both cash and non-cash adjustments to statutory net profit.
To determine cash earnings, three categories of adjustments are made to statutory results:
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.
126
2016 Westpac Group Annual Report
Notes to the financial statements
Note 2. Segment reporting (continued)
Reportable operating segments
Westpac announced in June 2015 a new operating structure to better align the Group’s divisional structure to customer
segments, up to 30 September 2015 the accounting and financial performance continued to be reported (both internally and
externally) on the basis of the previous structure. The new operating structure has seen the Group’s Australian retail and
business banking operations reorganised under two divisions, Consumer Bank and Business Bank. A key rationale for the
change has been to improve accountability for the end-to-end customer experience while maintaining the Group’s unique
portfolio of brands.
In 2015, Westpac also commenced the sale of certain Pacific island operations. In light of this change, Westpac Pacific is no
longer reported under Group Businesses (previously called Other Divisions). Its results are now included under Westpac
Institutional Bank consistent with its line of reporting.
Refer to Divisional performance in Section 2 for further details.
Comparatives have been restated to reflect the new organisational structure.
The operating segments are defined by the customers they service and the services they provide:
Consumer Bank (CB):
- responsible for sale and service of banking and financial products and services;
- customer base is consumer customers in Australia;
- operates under the Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands.
Business Bank (BB):
- responsible for sales and service of banking and financial products and services;
- customer base is micro, SME and commercial business customers for facilities up to approximately $150 million;
- operates under the Westpac, St.George, BankSA and Bank of Melbourne brands.
BT Financial Group (Australia) (BTFG):
- Westpac’s Australian wealth management and insurance division;
- services include the provision of funds management, insurance, financial advice, margin lending, private banking and
broking services;
- operates under the Advance, Ascalon Capital Managers, Asgard, Licensee Select, BT Select, and Securitor brands, as
well as the Advice, Private Banking and Insurance operations of Westpac, St.George, Bank of Melbourne and BankSA
brands;
- includes the share of the Group’s interest in BT Investment Management (BTIM) which, following Westpac’s partial sale
(see Note 35), has been equity accounted from July 2015.
Westpac Institutional Bank (WIB):
- Westpac’s institutional financial services division delivering a broad range of financial products and services;
- customer base includes commercial, corporate, institutional and government customers in Australia and New Zealand;
- supports customers through branches and subsidiaries located in Australia, New Zealand, US, UK and Asia;
- also responsible for Westpac Pacific, providing a range of banking services in Fiji and Papua New Guinea (PNG).
Westpac New Zealand:
- responsible for sales and service of banking, wealth and insurance products to customers in New Zealand;
- customer base includes consumers, business, institutional and government customers;
- operates under the Westpac brand for banking products, the Westpac Life brand for life insurance products and the BT
brand for wealth products.
2016 Westpac Group Annual Report
127
3
Note 2. Segment reporting (continued)
Group Businesses include:
- 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 the Group’s operating segments, earnings from non-core asset sales
and certain other head office items such as centrally raised provisions;
- Treasury is responsible for the management of the Group’s balance sheet including wholesale funding, capital and
management of liquidity. Treasury also manages the interest rate risk and foreign exchange risks inherent in the balance
sheet, including managing the mismatch between Group assets and liabilities. Treasury’s earnings are primarily sourced
from managing the Group’s balance sheet and interest rate risk, within set risk limits;
- Group Technology1 which comprises functions responsible for technology strategy and architecture, infrastructure and
operations, applications development and business integration; and
- Core Support and enterprise services2, which comprises functions performed centrally, including Australian banking
operations, property services, strategy, finance, risk, compliance, legal, and human resources.
Revisions to expense allocations and cost of funds transfer pricing
Consistent with Westpac’s objective of improving divisional accountability, in 2015 the Group has adjusted its expense
allocation methodology and cost of funds transfer pricing, as outlined below.
Expense allocation
Internal expense allocation methodologies have been adjusted to increase the responsibility of the Group’s divisions for
expenses that they control. This has seen changes to some cost allocations (particularly related to resource usage and
investment) with a portion of Group costs (mostly relating to finance, HR and risk functions) retained in the Group Businesses
division.
Cost of funds transfer pricing changes
Following implementation of the Liquidity Coverage Ratio and other changes to the management of the balance sheet, the
Group has adjusted its cost of funds transfer pricing. The changes included:
improved allocation of liquidity costs to better reflect the funding mix and deposit quality of divisions; and
changes to the allocation of wholesale funding costs to divisions, including incorporating the credit costs associated with
Tier 1 and Tier 2 capital instruments.
The net impact of expense and cost of funds transfer pricing changes has led to a smaller contribution from the Group
Businesses division and WIB, and larger contributions from CB and BB.
The comparative restatements impact all divisional results but have no impact on the Group’s reported results or cash earnings.
The following tables present the segment results on a cash earnings basis:
1 Costs are fully allocated to other divisions in the Group.
2 Costs are partially allocated to other divisions in the Group, with costs attributed to enterprise activity retained in Group Businesses.
128
2016 Westpac Group Annual Report
Note 2. Segment reporting (continued)
Notes to the financial statements
2016
$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
Westpac
Institutional
Bank
Westpac
New
Zealand
Group
Businesses
Consumer
Bank
Business
Bank
7,171
850
3,959
1,104
BT
Financial
Group
(Australia)
498
1,908
8,021
(3,270)
(492)
4,259
(1,278)
-
2,981
(116)
5,063
(1,796)
(410)
2,857
(858)
-
1,999
(10)
2,865
1,989
2,406
(1,160)
-
1,246
(370)
-
876
(32)
844
1,562
1,536
1,588
449
3,098
(1,347)
(177)
1,574
(469)
(7)
1,098
-
1,098
2,037
(856)
(54)
1,127
(315)
-
812
2
814
Net cash
earnings
adjustment
Income
Statement
(200)
(18)
15,148
5,837
(218)
(319)
-
(537)
160
20,985
(9,217)
(1,124)
10,644
(3,184)
-
(15)
(377)
7,445
Total
15,348
5,855
21,203
(8,898)
(1,124)
11,181
(3,344)
(15)
7,822
(377)
570
8
578
(469)
9
118
(54)
(8)
56
(221)
(165)
7,445
(116)
(36)
(43)
(115)
(97)
(524)
(931)
Balance Sheet
Total assets1
Total liabilities
Additions of property
and equipment and intangible assets
1 Total assets for BT Financial Group (Australia) include the equity accounted carrying value of the investment in BTIM of $718 million.
116,804
100,166
781,021
120,653
351,528
839,202
110,416
156,804
244,817
186,629
72,408
38,217
39,710
82,071
1,321
178
459
417
88
83
96
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
Consumer
Bank
Business
Bank
6,396
940
3,767
1,068
BT
Financial
Group
(Australia)
445
2,192
7,336
(3,113)
(478)
3,745
(1,125)
-
2,620
(116)
4,835
(1,731)
(273)
2,831
(852)
-
1,979
(10)
2,504
1,969
2,637
(1,286)
4
1,355
(409)
(32)
914
(23)
891
Westpac
Institutional
Bank
Westpac
New
Zealand
Group
Businesses
1,638
1,578
1,552
457
3,216
(1,319)
38
1,935
(584)
(8)
1,343
-
2,009
(808)
(44)
1,157
(313)
(3)
841
-
441
66
507
(378)
-
129
9
(15)
123
341
Net cash
earnings
adjustment
Income
Statement
28
1,074
14,267
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
1,343
841
464
8,012
(118)
(27)
(42)
(132)
(93)
(1,047)
(1,459)
Balance Sheet
Total assets1
Total liabilities
Additions of property
and equipment and intangible assets
1 Total assets for BT Financial Group (Australia) include the equity accounted carrying value of the investment in BTIM of $756 million.
108,589
175,247
149,346
328,566
758,241
246,147
812,156
127,600
127,316
99,577
71,538
63,490
37,168
35,813
1,313
768
282
90
42
73
58
2016 Westpac Group Annual Report
129
3
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 and intangible assets
Consumer
Bank
Business
Bank
5,917
934
3,567
1,022
BT
Financial
Group
(Australia)
403
2,257
6,851
(3,007)
(424)
3,420
(1,028)
-
2,392
(116)
4,589
(1,653)
(248)
2,688
(807)
-
1,881
(9)
2,276
1,872
2,660
(1,305)
2
1,357
(408)
(39)
910
(22)
888
Westpac
Institutional
Bank
Westpac
New
Zealand
Group
Businesses
1,624
1,626
1,420
438
3,250
(1,202)
126
2,174
(646)
(9)
1,519
-
1,858
(756)
(24)
1,078
(296)
(3)
779
-
565
47
612
(323)
(82)
207
(45)
(15)
147
80
Net cash
earnings
adjustment
Income
Statement
46
71
13,542
6,395
117
(301)
-
(184)
115
2
(67)
19,937
(8,547)
(650)
10,740
(3,115)
(64)
7,561
Total
13,496
6,324
19,820
(8,246)
(650)
10,924
(3,230)
(66)
7,628
(67)
1,519
779
227
7,561
(91)
(25)
(45)
(93)
(80)
(469)
(803)
308,537
160,638
141,253
110,192
31,803
34,288
122,190
132,965
65,874
57,568
101,185
770,842
225,854
721,505
86
287
72
227
89
779
1,540
130
2016 Westpac Group Annual Report
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
Total Cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Notes to the financial statements
2016
7,822
-
-
(158)
(15)
-
(203)
9
(10)
-
-
-
-
-
2015
7,820
665
(354)
(149)
(66)
64
33
(1)
(1)
1
-
-
-
-
(377)
7,445
192
8,012
2014
7,628
-
-
(147)
(51)
-
105
(46)
(7)
42
(70)
70
54
(17)
(67)
7,561
Further details of the above cash earnings adjustments, which are all net of tax, are provided in Divisional performance 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 amounted
to greater than 10% of the Group’s revenue.
Geographic segments
Geographic segments are based on the location of the office where the following items were recognised:
Revenue
Australia
New Zealand
Other1
Total
Non-current assets2
Australia
New Zealand
Other1
2016
$m
32,868
4,158
633
37,659
12,406
774
77
%
87.3
11.0
1.7
100.0
93.6
5.8
0.6
Total
1 Other included Pacific Islands, Asia, the Americas and Europe.
2 Non-current assets included property and equipment and intangible assets.
13,257
100.0
2015
$m
33,991
4,937
742
39,670
11,949
751
466
13,166
%
85.7
12.4
1.9
100.0
90.8
5.7
3.5
100.0
2014
$m
32,880
4,738
1,025
38,643
12,828
797
433
14,058
%
85.1
12.3
2.6
100.0
91.2
5.7
3.1
100.0
2016 Westpac Group Annual Report
131
3
Note 3. Net interest income
Accounting policy
Interest income and expense for all interest earning financial assets and interest bearing financial liabilities, detailed within the
table below, are recognised using the effective interest rate method. Net income from 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 by discounting the financial
instrument’s estimated future cash receipts or payments to their present value and allocates the interest income or interest
expense, including any fees, costs, premiums or discounts integral to the instrument, over its expected life.
$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 income
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 expense
Net interest income
Consolidated
Parent Entity
2016
2015
2014
2016
2015
260
100
12
645
1,808
28,953
13
-
31
219
87
(13)
1,032
1,634
225
84
(58)
1,482
1,386
228
64
8
585
1,625
170
50
(8)
956
1,445
29,307
29,104
24,641
24,468
12
-
17
18
-
7
13
4,608
31
12
4,933
17
31,822
32,295
32,248
31,803
32,043
(345)
(9,369)
(2,520)
(3,737)
-
(589)
(114)
(304)
(300)
(10,669)
(11,499)
(2,475)
(3,908)
-
(535)
(137)
(2,523)
(3,813)
-
(490)
(81)
(344)
(8,074)
(2,206)
(3,101)
(4,788)
(571)
(98)
(304)
(9,008)
(2,476)
(3,205)
(4,873)
(495)
(141)
(16,674)
(18,028)
(18,706)
(19,182)
(20,502)
15,148
14,267
13,542
12,621
11,541
Of the amounts noted in total interest income and total interest expense, the amounts related to financial instruments not
measured at fair value through income statement were as follows:
$m
Interest income
Interest expense
Consolidated
Parent Entity
2016
30,941
13,101
2015
31,276
14,363
2014
30,824
14,996
2016
30,986
15,993
2015
31,095
16,923
132
2016 Westpac Group Annual Report
Notes to the financial statements
Note 4. Non-interest income
Accounting policy
Fees and commissions
Fees and commission income are recognised as follows:
Facility fees are primarily earned for the provision of credit and other facilities to customers and are recognised as the
services were provided;
Transaction fees are earned for facilitating transactions and are recognised once the transaction is executed;
Other non-risk fee income includes advisory and underwriting fees which are recognised when the related service is
completed.
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).
Funds management income
Funds management fees earned for the ongoing management of customer funds and investments are recognised over the
period of management.
Premium income
Premium income includes premiums earned for life insurance, life investment and general insurance products:
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 included 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
were treated as movements in life insurance policy liabilities.
General insurance premium comprises amounts charged to policyholders, excluding taxes and is recognised based on the
likely pattern in which the insured risk is likely to 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 the liability is 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 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, refer to Note 23). Those
relating to foreign exchange related products are recognised in foreign exchange income, the remaining gains and losses
are recognised in other trading products.
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.
2016 Westpac Group Annual Report
133
3
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 income1
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 purposes2
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
Consolidated
Parent Entity
2016
2015
2014
2016
1,297
1,177
281
-
1,342
1,247
353
-
1,329
1,254
343
-
1,256
965
252
426
20153
1,287
1,025
323
595
2,755
2,942
2,926
2,899
3,230
1,657
242
1,899
760
364
1,124
-
7
1
-
(6)
(88)
(6)
1
109
30
11
59
5,837
1,006
1,114
386
(849)
455
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
-
-
-
713
299
1,017
1,012
-
-
-
622
275
897
-
11
97
-
12
(27)
(14)
-
32
-
87
198
6,395
1,337
881
639
(857)
426
954
1,509
6
-
-
(241)
(88)
-
1
74
-
-
10
95
2
(77)
(27)
11
-
30
-
42
706
4,617
1,595
5,722
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
70
30
22
(283)
(288)
(194)
Total wealth management and insurance income
1 Trading income represents a component of total markets income from our WIB markets business, Westpac Pacific and Treasury foreign exchange
2,254
1,899
2,228
-
operations in Australia and New Zealand.
Income from derivatives held for risk management purposes reflected the impact of economic hedges of foreign currency capital and earnings.
2
3 Comparatives have been revised for consistency.
134
2016 Westpac Group Annual Report
Note 5. Operating expenses
$m
Staff expenses
Employee remuneration, entitlements and on-costs
Superannuation expense1
Share-based payments
Restructuring costs
Total staff expenses
Occupancy expenses
Operating lease rentals
Depreciation of property and equipment
Other
Total occupancy expenses
Technology expenses
Amortisation and impairment of software assets2
Depreciation and impairment of IT equipment2
Technology services
Software maintenance and licences
Telecommunications
Data processing
Total technology expenses
Other expenses
Professional and processing services3
Amortisation and impairment of intangible assets
and deferred expenditure
Postage and stationery
Advertising
Credit card loyalty programs
Westpac Bicentennial Foundation grant
Non-lending losses
(Reversal of impairment)/impairment on investments
in subsidiaries
Other expenses
Total other expenses
Notes to the financial statements
Consolidated
Parent Entity
2016
2015
2014
2016
2015
4,005
369
135
92
4,601
622
285
125
1,032
571
156
672
277
181
72
4,094
362
174
74
4,704
586
229
139
954
1,051
170
575
221
204
67
3,990
336
184
61
4,571
565
199
140
904
493
105
541
199
167
69
3,233
304
108
89
3,734
554
225
105
884
503
136
518
235
160
70
3,199
294
119
71
3,683
507
190
113
810
927
152
432
181
178
65
1,929
2,288
1,574
1,622
1,935
741
216
217
156
144
-
81
-
100
615
221
204
150
134
-
74
-
129
1,655
1,527
580
223
205
159
136
100
(23)
-
118
1,498
535
197
175
110
144
-
74
(4)
101
1,332
425
207
159
117
134
-
64
19
220
1,345
Operating expenses
7,773
1 Superannuation expense includes both defined contribution and defined benefit expense. Further details of the Group's defined benefit plans are in
7,572
9,473
8,547
9,217
2
Note 38.
In 2015, the Group reviewed the depreciation method and useful lives of certain technology assets, resulting in increased depreciation, amortisation
and impairment of $505 million which otherwise would have been recognised over the following 8 years. Refer to Note 26 for further details on
Intangible assets.
3 Professional and processing services relates to services provided by external suppliers and includes costs associated with professional contractors,
legal and audit services, consultants and costs associated with operations processing.
2016 Westpac Group Annual Report
135
3
Note 6. Impairment charges
Accounting policy
Impaired loans
A loan, or group of loans, is impaired when there is objective evidence that its principal or interest repayments may not be
recoverable. An impairment charge is recognised when the financial impact of the non-recoverable loan can be reliably
measured. At each balance sheet date, the Group assesses whether any loans are impaired, recognising an impairment
charge if required.
Objective evidence of impairment could include a breach of contract with the Group such as a default on interest or principal
payments, a borrower experiencing significant financial difficulties or observable economic conditions that correlate to defaults
on a group of loans.
If a loan is impaired, the impairment charge is measured as the difference between the loan’s current carrying amount and the
present value of its estimated future cash flows. The estimated future cash flows exclude any expected future credit losses
which have not yet occurred and are discounted to their present value using the loan’s original effective interest rate. If a loan
has a variable interest rate, the discount rate for measuring any impairment is the current effective interest rate.
The impairment charge is recognised in the income statement with a corresponding reduction of the carrying value of the loan
through an offsetting provision account (see Note 14).
In subsequent periods, objective evidence may indicate that an impairment charge should be reversed. Objective evidence
could include a borrower’s credit rating or financial circumstances improving. The impairment charge is reversed in the income
statement of that future period and the related provision for impairment is reduced.
Uncollectable loans
An impaired loan may become uncollectable in full or part if, after following the Group’s loan recovery procedures, the Group
remains unable to collect that loan’s contractual repayments. Uncollectable loans are written off against their related provision
for impairment, after all possible recoveries have been made.
The Group may subsequently be able to recover cash flows from loans written off. In the period which these recoveries are
made, they are recognised in the income statement.
Critical accounting assumptions and estimates relating to impairment charges are included in Note 14.
$m
Individually assessed provisions raised
Write-backs
Recoveries
Collectively assessed provisions raised
Impairment charges
Consolidated
Parent Entity
2016
727
(210)
(137)
744
1,124
2015
566
(297)
(131)
615
753
2014
684
(433)
(106)
505
650
2016
694
(188)
(94)
510
922
2015
457
(274)
(82)
521
622
Refer to Note 14 for further details on Provisions for impairment charges.
136
2016 Westpac Group Annual Report
Notes to the financial statements
Note 7. Income tax
Accounting policy
The tax expense for the year 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 tax payable for the year using enacted or substantively enacted tax rates and laws for each jurisdiction.
Current tax also includes adjustments to tax payable for previous years.
Deferred tax accounts for temporary differences between the carrying amounts of assets and liabilities in the financial
statements and their values for taxation purposes.
Deferred tax is determined using the enacted or substantively enacted tax rates and laws for each jurisdiction which are
expected to apply when the assets will be realised or the liabilities settled.
Deferred tax assets and liabilities have been offset where they relate to the same taxation authority, the same taxable entity
or group, and where there is a legal right and intention to settle on a net basis.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available to utilise the
assets.
Deferred tax is not recognised for the following temporary differences:
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;
the initial recognition of goodwill in a business combination;
retained earnings in subsidiaries which the Parent Entity does not intend to distribute for the foreseeable future.
The Parent Entity is the head entity of a tax consolidated group with its wholly owned, Australian subsidiaries. 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 in the case of a default by the Parent Entity.
Tax expense and income deferred tax balances arising from temporary differences are recognised using a ‘group allocation
basis’. As head entity, the Parent Entity recognises all current tax balances and deferred tax assets arising from unused tax
losses and relevant tax credits for the tax-consolidated group. The Parent Entity fully compensates/is compensated by the other
members for these balances.
Critical accounting assumptions and estimates
The Group operates in multiple tax jurisdictions and significant judgement is required in determining the worldwide current tax
liability. There are many transactions with uncertain tax outcomes and provisions are held to reflect these tax uncertainties.
2016 Westpac Group Annual Report
137
3
Note 7. Income tax (continued)
Income tax expense
The income tax expense for the year reconciles to the profit before income tax as follows:
$m
Profit before income tax
Tax at the Australian company tax rate of 30%
The effect of amounts which are not deductible
(assessable) in calculating taxable income
Hybrid capital distributions
Life insurance:
Tax adjustment on policyholder earnings
Adjustment for life business tax rates
Dividend adjustments
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
Income tax analysis
Income tax expense comprises:
Current income tax
Movement in deferred tax
Income tax (over)/under provision in prior years
Total income tax expense
Total Australia
Total Overseas
Consolidated
Parent Entity
2016
2015
2014
10,644
3,193
11,416
3,425
10,740
3,222
2016
8,744
2,623
2015
8,868
2,660
50
46
36
(2)
-
(4)
(10)
35
(26)
(65)
13
-
(4)
11
(52)
25
(27)
(88)
12
3,184
3,348
3
(4)
7
(22)
46
(21)
(14)
(138)
3,115
50
-
1
(286)
(5)
27
(4)
(65)
96
46
-
1
(453)
(23)
19
3
(76)
(56)
2,437
2,121
3,351
3,347
2,704
2,540
2,329
(102)
(65)
3,184
2,835
349
89
(88)
3,348
2,964
384
425
(14)
3,115
2,694
421
3,115
(38)
(65)
2,437
2,426
11
2,437
(132)
(76)
2,121
2,117
4
2,121
Total income tax expense
1 2014 includes the release of provisions no longer required following the finalisation of prior year taxation matters.
3,348
3,184
The effective tax rate was 29.9% in 2016 (2015: 29.3%, 2014: 29.0%).
138
2016 Westpac Group Annual Report
Note 7. Income tax (continued)
Deferred tax assets
The balance comprises temporary differences attributable to:
$m
Amounts recognised in the 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
Notes to the financial statements
Consolidated
Parent Entity
2016
2015
2016
2015
983
300
49
234
173
356
906
299
269
235
182
334
793
272
8
220
163
356
726
274
221
222
164
326
Total amounts recognised in the income statements
2,095
2,225
1,812
1,933
Amounts recognised directly in other comprehensive income
Available-for-sale securities
Defined benefit deficit
Total amounts recognised directly in other comprehensive income
Gross deferred tax assets
Set-off of deferred tax assets and deferred tax liabilities
Net deferred tax assets
Movements
Opening balance
Recognised in the income statements
Recognised in other comprehensive income
Set-off of deferred tax assets and deferred tax liabilities
Closing balance
Deferred tax liabilities
The balance comprises temporary differences attributable to:
$m
Amounts recognised in the income statements
Financial instruments
Finance lease transactions
Property and equipment
Life insurance assets
Other assets
Total amounts recognised in the income statements
Amounts recognised directly in other comprehensive income
Cash flow hedges
Gross deferred tax liabilities
Set-off of deferred tax assets and deferred tax liabilities
Net deferred tax liabilities
Movements
Opening balance
Recognised in the income statements
Recognised in other comprehensive income
Set-off of deferred tax assets and deferred tax liabilities
Closing balance
(1)
82
81
2,176
(624)
1,552
1,377
792
7
(624)
1,552
12
62
74
2,299
(922)
1,377
1,397
886
16
(922)
1,377
(1)
79
78
1,890
(300)
1,590
1,463
428
(1)
(300)
1,590
18
61
79
2,012
(549)
1,463
1,322
689
1
(549)
1,463
Consolidated
Parent Entity
2016
2015
2016
2015
42
134
181
79
293
729
(69)
660
(624)
36
55
690
(85)
(624)
36
249
142
112
73
385
961
16
977
(922)
55
55
975
(53)
(922)
55
2
78
183
-
71
334
(34)
300
(300)
-
-
390
(90)
(300)
-
204
41
116
-
132
493
56
549
(549)
-
-
557
(8)
(549)
-
2016 Westpac Group Annual Report
139
3
Note 7. Income tax (continued)
Unrecognised deferred tax balances
The following potential deferred tax balances have not been recognised. The values shown are the gross balances and not tax
effected. The tax effected balances would be approximately 30% of the values shown.
$m
Unrecognised deferred tax asset
Tax losses on revenue account
Unrecognised deferred tax liability
Gross retained earnings of subsidiaries which the Parent Entity does
not intend to distribute in the foreseeable future
Consolidated
Parent Entity
2016
204
51
2015
80
49
2016
180
-
2015
72
-
Note 8. Earnings per share
Accounting policy
Basic earnings per share (EPS) is calculated by dividing the net profit attributable to shareholders, by the weighted average
number of ordinary shares on issue during the year, adjusted for treasury shares. Diluted EPS is calculated by adjusting the
basic earnings per share by assuming all dilutive potential ordinary shares (share based payments – Note 37 and convertible
loan capital – Note 20) are converted.
Consolidated
$m
Net profit attributable to shareholders
Adjustment for RSP dividends1
Adjustment for potential dilution:
Distributions to convertible loan capital holders2
Adjusted net profit attributable to shareholders
Weighted average number of ordinary shares (millions)3
2016
2015
2014
Basic
Diluted
Basic
Diluted
Basic
Diluted
7,445
7,445
8,012
8,012
7,561
7,561
(5)
-
7,440
-
222
7,667
(6)
-
8,006
-
(10)
-
184
8,196
-
7,551
165
7,726
Weighted average number of ordinary shares on issue
3,322
3,322
3,150
3,150
3,125
3,125
Treasury shares (including RSP share rights)
(9)
(9)
(10)
(10)
(11)
(11)
Adjustment for potential dilution:
Share-based payments
Convertible loan capital2
-
-
4
203
-
-
6
157
-
-
9
130
Adjusted weighted average number of ordinary shares
Earnings per ordinary share (cents)3
1 RSP share rights are explained in Note 37. Some RSP share rights have not vested and are not ordinary shares but do receive dividends. These
3,114
242.5
255.0
224.6
3,140
3,303
3,313
248.2
3,520
217.8
3,253
237.6
RSP dividends are deducted to show the profit attributable to ordinary shareholders.
2 The Group has issued convertible loan capital which is expected to convert into ordinary shares in the future (see Note 20 for further details). These
convertible loan capital instruments are all dilutive and diluted EPS is therefore calculated as if the instruments had already been converted.
3 Comparative information has been restated to incorporate the bonus element of the share entitlement offer in the weighted average number of
ordinary shares.
140
2016 Westpac Group Annual Report
Note 9. Average balance sheet and interest rates
The daily average balances of the Group’s interest earning assets and interest bearing liabilities are shown below along with
their interest income or expense.
Notes to the financial statements
Consolidated
Assets
Interest earning assets
Receivables due from other
financial institutions:
Australia
New Zealand
Overseas
Trading securities and 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
2016
Interest
Income
$m
Average
Rate
%
Average
Balance
$m
2015
Interest
Income
$m
Average
Rate
%
Average
Balance
$m
2014
Interest
Income
$m
Average
Rate
%
9,616
449
1,292
18,632
4,105
3,339
84
6
10
481
118
46
48,151
1,581
3,193
2,710
141
86
0.9
1.3
0.8
2.6
2.9
1.4
3.3
4.4
3.2
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
1,197
13
1.1
1,147
12
1.0
1,369
18
532,172
25,162
68,370
28,617
3,617
477
4.7
5.3
1.7
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
721,843
31,822
4.4
683,814
32,295
4.7
647,362
32,248
2.5
1.7
0.4
3.7
3.0
1.2
4.5
4.5
3.6
1.3
5.4
5.8
1.3
5.0
2,431
48,666
12,702
57,913
121,712
1,970
49,400
11,590
51,929
114,889
1,513
28,866
13,687
45,696
89,762
Total assets
1 Loans and other receivables are stated net of provisions for impairment charges on loans. Other receivables include cash and balances with central
737,124
798,703
843,555
banks and other interest earning assets.
Includes property and equipment, intangibles, deferred tax, non-interest bearing loans relating to mortgage offset accounts and other assets.
2
2016 Westpac Group Annual Report
141
3
Note 9. Average balance sheet and interest rates (continued)
Consolidated
2016
2015
2014
Average
Balance
$m
Interest
Expense
$m
Average
Rate
%
Average
Balance
$m
Interest
Expense
$m
Average
Rate
%
Average
Balance
$m
Interest
Expense
$m
Average
Rate
%
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
16,570
567
2,811
376,115
48,251
29,336
12,150
1,687
301
10
34
7,801
1,280
288
513
76
164,871
5,574
14,067
851
787
10
1.8
1.8
1.2
2.1
2.7
1.0
4.2
4.5
3.4
5.6
1.2
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
667,276
16,674
2.5
640,628
18,028
2.8
606,553
18,706
2.4
2.0
0.8
2.9
3.4
0.7
4.9
4.9
3.8
4.5
1.6
3.1
36,594
4,105
1,023
55,956
10,985
11,145
119,808
787,084
55,896
575
56,471
843,555
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
Total liabilities and equity
1
2
Include net impact of Treasury balance sheet management activities.
Include other liabilities, provisions, current and deferred tax liabilities.
142
2016 Westpac Group Annual Report
Notes to the financial statements
Note 9. Average balance sheet and interest rates (continued)
Net interest income may vary from year to year due to changes in the volume of, and interest rates associated with, interest
earning assets and interest bearing liabilities. The table below allocates the change in net interest income between changes in
volume and interest rate for those assets and liabilities.
Calculation of variances
Volume changes are determined based on the movements in average asset and liability balances.
Interest rate changes are determined based on the change in interest rate associated with those assets and liabilities.
Where variances arise due to a combination of volume and interest rate changes, the absolute dollar value of each change is
allocated in proportion to their impact on the total change.
Consolidated
$m
Interest earning assets
Receivables due from other financial institutions:
Australia
New Zealand
Overseas
Trading securities and 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
2016
Change Due to
2015
Change Due to
Volume
Rate
Total
Volume
Rate
Total
3
1
7
(179)
(17)
(66)
441
23
25
-
-
(8)
(225)
23
14
(249)
-
8
3
1
(1)
(404)
6
(52)
192
23
33
(3)
(3)
(6)
1,499
(1,717)
(218)
239
31
130
70
2,004
(1,957)
175
2
(15)
(277)
11
(22)
430
14
27
1
(154)
(2)
7
(64)
(31)
(4)
(271)
(3)
(23)
-
1,494
(1,612)
303
4
(504)
41
2,147
(2,620)
21
-
(8)
(341)
(20)
(26)
159
11
4
1
(118)
(201)
45
(473)
54
(4)
(9)
(1,461)
(1,035)
99
-
(21)
467
97
(10)
57
53
28
63
1
(45)
(4)
12
(1,481)
(1,014)
(460)
87
(36)
(20)
(310)
63
6
(363)
77
21
33
(282)
126
7
39
1
5
426
106
9
105
(29)
473
21
(30)
(42)
2
(1)
84
6
(37)
6
(441)
88
(8)
369
101
47
(3)
3
4
190
15
68
(23)
32
109
(38)
(678)
511
97
117
725
143
834
(2,188)
(1,354)
1,126
(1,804)
1,171
170
(28)
1,313
(229)
(139)
(64)
(432)
942
31
(92)
881
721
118
39
878
(210)
(21)
78
(153)
2016 Westpac Group Annual Report
3
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Accounting policy
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.
Classification and measurement
The Group classifies its financial assets in the following categories: financial assets at fair value through income statement,
derivative 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.
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 and transferred substantially all the risks and rewards of ownership.
There may be situations where the Group has partially transferred the risks and rewards of ownership but has neither
transferred nor retained substantially all the risks and rewards of ownership. In such situations, the asset continues to be
recognised on the balance sheet to the extent of the Group’s continuing involvement in the asset.
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 the income statement.
Note 10. Receivables due from other financial institutions
Accounting policy
Receivables due from other financial institutions are recognised initially at fair value and subsequently at amortised cost using
the effective interest rate method.
$m
Conduit assets1
Cash collateral
Interbank lending
Consolidated
Parent Entity
2016
936
7,128
1,887
2015
823
7,602
1,158
2016
-
6,441
1,884
2015
-
7,586
1,155
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
9,583
9,951
8,325
8,741
Note 19.
144
2016 Westpac Group Annual Report
Notes to the financial statements
Note 11. Trading securities and financial assets designated at fair value
Accounting policy
Trading securities
Trading securities include actively traded debt (government and other) and equity instruments and those acquired for sale in
the near term.
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 in “Other assets” or as a borrowing in “Other liabilities” respectively.
Gains and losses on trading securities are recognised in the income statement. Interest received from government and other
debt securities is recognised in net interest income (Note 3) and dividends on equity securities are recognised in non-interest
income (Note 4).
Securities purchased under agreements to resell (‘reverse repos’)
Securities purchased under agreements to resell are not recognised on the balance sheet as Westpac has not obtained the
risks and rewards of ownership. The cash consideration paid is recognised as an asset. Reverse repos which are part of a
trading portfolio are designated at fair value. Gains and losses on these financial assets are recognised in non-interest income.
Interest received under these agreements is recognised in interest income.
Other financial assets designated at fair value
Other financial assets designated at fair value either: contain an embedded derivative, are managed on a fair value basis, or
are held at fair value to reduce or eliminate an accounting mismatch. Gains and losses on these financial assets are recognised
as non-interest income. Interest received from these other financial assets is recognised in interest income.
A portfolio of fixed rate bills designated at fair value to reduce an accounting mismatch have, due to their nature, been
presented in loans (refer Note 13).
$m
Trading securities
Securities purchased under agreement to resell
Other financial assets designated at fair value
Consolidated
Parent Entity
2016
15,288
3,260
2,620
2015
20,170
3,982
3,302
2014
36,881
6,275
2,753
2016
13,258
3,260
2,044
2015
18,272
3,982
2,642
Total trading securities and financial assets designated at fair value
21,168
27,454
45,909
18,562
24,896
Trading securities included the following:
$m
Government and semi-government securities
Other debt securities
Equity securities
Other
Total trading securities
Other financial assets designated at fair value included:
$m
Other debt securities
Equity securities
Total other financial assets designated at fair value
Consolidated
Parent Entity
2016
9,267
5,960
7
54
2015
2014
12,545
7,555
25,275
11,519
20
50
44
43
2016
8,601
4,596
7
54
2015
11,937
6,265
20
50
15,288
20,170
36,881
13,258
18,272
Consolidated
Parent Entity
2016
2015
2014
2,319
301
2,620
2,900
402
3,302
2,447
306
2,753
2016
1,989
55
2,044
2015
2,531
111
2,642
2016 Westpac Group Annual Report
145
3
Note 12. Available-for-sale securities
Accounting policy
Available-for-sale debt (government and other) and equity securities are held at fair value with gains and losses recognised in
other comprehensive income except for the following amounts recognised in the income statement:
Interest on debt securities;
Dividends on equity securities; and
The cumulative gain or loss recognised in other comprehensive income is subsequently recognised in the income statement
when the instrument is disposed.
Impairment charges.
At each reporting date, the Group assesses whether any available-for-sale securities are impaired. Impairment exists if one or
more events have occurred which have a negative impact on the security's estimated cash flows.
For debt instruments, evidence of impairment includes significant financial difficulties or adverse changes in the payment status
of an issuer.
For equity securities, a significant or prolonged decline in the fair value of the security below its cost is considered evidence
of impairment.
If impairment exists, the cumulative loss is removed from other comprehensive income and recognised in the income
statement. Any subsequent reversals of impairment on debt securities are also recognised in the income statement.
Subsequent reversal of impairment charges on equity instruments is not recognised in the income statement until the
instrument is disposed.
$m
Available-for-sale securities
Government and semi-government securities
Other debt securities
Equity securities1
Consolidated
Parent Entity
2016
2015
2014
2016
2015
46,255
14,323
87
41,112
13,672
49
22,573
13,241
210
43,286
12,831
44
38,182
12,133
29
Total available-for-sale securities
1 Certain equity securities are measured at cost because their fair value cannot be reliably measured (there is no active market and quoted prices are
60,665
36,024
56,161
54,833
50,344
not available) 2016: $59 million (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 2016. There are no tax-exempt securities.
2016
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
11,344
Other debt securities
Equity securities
Total by maturity
2.8%
2.7%
22,972
11,663
3.6%
3.1%
2,153
-
-
-
-
13,497
34,635
11,939
507
-
12,446
3.2%
2.9%
-
-
-
-
-
-
-
-
-
-
87
87
-
-
-
46,255
14,323
87
60,665
3.3%
3.0%
-
The maturity profile is determined based upon contractual terms for available-for-sale instruments.
Included in available-for-sale securities (above) and trading securities and financial assets designated at fair value (Note 11)
are:
US Government treasury notes of $8,593 million (2015: $8,473 million, 2014: $4,559 million); and
Total holdings of debt securities from the following entities, where the aggregate book value exceeds 10% of equity
attributable to Westpac's owners:
- Queensland Treasury Corporation of $13,178 million;
- NSW Treasury Corporation of $9,731 million; and
- Western Australia Treasury Corporation of $6,032 million.
146
2016 Westpac Group Annual Report
Notes to the financial statements
Note 13. Loans
Accounting policy
Loans are financial assets initially recognised at fair value plus directly attributable transaction costs. Except for a portfolio of
fixed rate bills (see below), loans are subsequently measured at amortised cost using the effective interest rate method and are
presented net of any provisions for impairment.
Loan products that have both mortgage and deposit facilities are presented gross on the balance sheet, segregating the asset
and liability component, because they do not meet the criteria to be offset. Interest earned on these products is presented on a
net basis in the income statement as this reflects how the customer is charged.
Finance leases, where the Group acts as lessor, are also included within loans. These are leases where substantially all the
risks and rewards of the leased asset have been transferred to the lessee. Finance income is recognised on a basis reflecting a
constant rate of return on the net investment in the finance lease. The net investment of a finance lease is the present value of
future cash flows on the lease. Gross future cash flows are discounted using the interest rate implicit in the lease to determine
their present value.
The loan portfolio is disaggregated by location of booking office and product type, as follows:
$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
Consolidated
Parent Entity
2016
2015
2016
2015
404,190
22,825
150,209
1,912
108
375,848
22,234
145,481
1,980
112
404,173
19,199
144,562
1,912
108
375,826
16,321
138,478
1,987
112
579,244
545,655
569,954
532,724
43,035
1,865
27,499
96
72,495
2,358
11,159
13,517
665,256
(3,330)
661,926
38,351
1,800
23,485
93
63,729
5,639
11,321
16,960
626,344
(3,028)
623,316
-
-
336
-
336
2,354
9,805
12,159
582,449
(2,710)
579,739
-
-
328
-
328
5,639
9,857
15,496
548,548
(2,473)
546,075
Provisions for impairment charges on loans (refer to Note 14)
Total net loans1
1
Included in net loans was $5,562 million (2015: $7,076 million) of fixed rate bills designated at fair value to reduce an accounting mismatch. The
change in fair value of fixed rate bills attributable to credit risk recognised during the year was $12 million (2015: $21 million) for both the Group and
Parent Entity. The cumulative change in fair value of the fixed rate bills attributable to credit risk was a decrease of $29 million (2015: $41 million
decrease) for both the Group and Parent Entity.
2016 Westpac Group Annual Report
147
3
Note 13. Loans (continued)
Loans included the following finance lease receivables:
$m
Gross investment in finance leases, receivable:
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
Consolidated
Parent Entity
2016
2015
2016
2015
745
4,342
289
(718)
4,658
(7)
4,651
717
3,724
217
4,658
743
4,668
419
(804)
5,026
(10)
5,016
713
4,000
313
5,026
409
2,707
187
(455)
2,848
(3)
2,845
393
2,308
147
2,848
388
2,228
303
(315)
2,604
(7)
2,597
375
1,991
238
2,604
148
2016 Westpac Group Annual Report
Note 13. Loans (continued)
The following table shows loans presented based on their industry classification:
Notes to the financial statements
2016
2015
2014
2013
2012
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
Services
Trade
Transport and storage
Utilities
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
7,750
8,006
6,290
17,526
1,410
9,328
3,699
61,167
13,347
16,626
9,065
4,026
418,729
2,275
579,244
610
8,027
1,203
3,286
171
2,747
295
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
541
7,370
1,200
2,346
302
2,554
425
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
435
6,473
1,064
1,874
354
2,205
502
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
455
6,130
1,195
1,714
608
2,066
478
Property, property services and business services
14,468
13,131
12,018
10,863
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total overseas
Total loans
Provisions for impairment charges on loans
Total net loans
2,524
3,558
1,490
1,671
32,182
263
72,495
118
12
53
2,767
4
2,619
535
1,099
99
3,463
1,186
442
1,120
-
2,321
3,263
1,340
1,098
27,838
-
63,729
111
568
247
4,297
130
3,848
778
812
182
2,898
1,099
722
1,191
77
2,073
2,879
1,041
1,063
26,351
138
58,470
127
465
120
2,006
35
2,886
1,617
492
242
3,248
689
701
1,111
52
13,517
665,256
(3,330)
661,926
16,960
626,344
(3,028)
623,316
13,791
583,516
(3,173)
580,343
2016 Westpac Group Annual Report
2,479
2,824
1,088
1,177
24,463
45
55,585
130
376
172
1,246
31
2,418
857
362
172
2,611
1,766
440
299
900
63
10,077
539,806
(3,642)
536,164
551
161
988
42
7,020
518,279
(3,834)
514,445
149
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
438
5,277
1,148
1,680
525
1,895
390
9,248
2,101
2,645
1,038
1,051
20,778
31
48,245
156
68
72
726
8
1,787
250
372
73
3
Note 13. Loans (continued)
Parent Entity
$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
Services
Trade
Transport and storage
Utilities
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total loans
Provisions for impairment charges on loans
Total net loans
150
2016 Westpac Group Annual Report
2016
2015
7,633
7,826
5,490
17,412
1,345
8,954
3,606
59,728
12,640
16,103
8,505
3,994
414,631
2,087
569,954
-
2
6
-
-
102
-
7
4
215
-
-
-
-
336
100
11
41
2,762
152
2,462
535
851
164
7,539
7,503
5,115
15,906
737
9,084
4,289
57,556
11,067
15,372
9,308
3,511
384,399
1,338
532,724
-
2
5
-
1
90
-
7
3
218
2
-
-
-
328
93
567
204
4,251
130
3,817
777
584
144
3,142
2,752
953
430
556
-
12,159
582,449
(2,710)
579,739
783
702
617
75
15,496
548,548
(2,473)
546,075
Note 13. Loans (continued)
The following table shows the consolidated contractual maturity distribution of all loans by type of customer as at 30 September
2016:
Notes to the financial statements
Up to 1 Year
1 to 5 Years Over 5 Years
Total
Consolidated 2016
$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
2,500
2,906
1,442
7,172
136
3,120
652
4,691
4,307
3,806
5,750
717
4,791
1,538
559
793
1,042
4,604
557
1,417
1,509
8,861
2,423
1,832
2,006
903
357,957
123
384,586
44,803
7,750
8,006
6,290
17,526
1,410
9,328
3,699
61,167
13,347
16,626
9,065
4,026
418,729
2,275
579,244
86,012
665,256
Property, property services and business services
20,294
32,012
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
Total overseas
2,276
6,232
1,436
268
17,849
1,326
67,609
22,994
8,648
8,562
5,623
2,855
42,923
826
127,049
18,215
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
145,264
429,389
90,603
associated business.
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
2016
Loans at
Fixed
Interest
Rates
Loans at
Variable
Interest
Rates
2015
Loans at
Fixed
Interest
Rates
Total
Total
419,728
19,005
438,733
91,907
44,013
135,920
511,635
63,018
574,653
394,307
18,641
412,948
87,759
38,037
125,796
482,066
56,678
538,744
2016 Westpac Group Annual Report
151
3
Note 14. Provisions for impairment charges
Accounting policy
The Group recognises two types of impairment provisions for its loans, being provisions for loans which are:
individually assessed to be impaired; and
collectively assessed to be impaired.
Note 6 explains how impairment charges are determined.
The Group assesses impairment as follows:
individually for loans that exceed specified thresholds. Where the loans are assessed as impaired, individually assessed
provisions will be recognised; and
if an individually assessed loan is not impaired, it is then included in a group of loans with similar risk characteristics and,
along with those loans below the specified thresholds noted above, collectively assessed for impairment. If there is
objective evidence that the group of loans is collectively impaired, collectively assessed provisions will be recognised.
Critical accounting assumptions and estimates
The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce
differences between impairment provisions and actual loss experience.
Individual component
Key judgements include 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 recovering the loan.
Judgements can change with time as new information becomes available or as loan recovery strategies evolve, which may
result in revisions to the impairment provision.
Collective component
Key judgements include estimated loss rates and their related emergence periods. The emergence period for each loan type is
determined through studies of loss emergence patterns. Loan files are reviewed to identify the average time period between
observable loss indicator events and the loss becoming identifiable.
Actual credit losses may differ materially from reported loan impairment provisions due to uncertainties including interest rates
and their effect on consumer spending, unemployment levels, payment behaviour and bankruptcy rates.
$m
Individually assessed provisions
Opening balance
Provisions raised
Write-backs
Write-offs
Interest adjustment
Other adjustments
Closing balance
Collectively assessed provisions
Opening balance
Provisions raised
Write-offs
Interest adjustment
Other adjustments
Closing balance
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
2016
669
727
(210)
(287)
(13)
(17)
869
2,663
744
(902)
193
35
2,733
3,602
(272)
3,330
2015
867
566
(297)
(445)
(22)
-
669
2,614
615
(793)
190
37
2,663
3,332
(304)
3,028
2014
1,364
684
(433)
(706)
(34)
(8)
867
2,585
505
(702)
189
37
2,614
3,481
(308)
3,173
2016
543
694
(188)
(267)
(13)
(17)
752
2,203
510
(682)
156
11
2,198
2,950
(240)
2,710
2015
719
457
(274)
(338)
(24)
3
543
2,148
521
(627)
156
5
2,203
2,746
(273)
2,473
152
2016 Westpac Group Annual Report
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:
Notes to the financial statements
Consolidated
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
Services
Trade
Transport and storage
Utilities
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
Services
Trade
Transport and storage
Utilities
Retail lending
Total New Zealand
Total other overseas
Total individually assessed provisions
Total collectively assessed provisions
Total provisions for impairment charges and
credit commitments
2016
$m
2015
2014
2013
2012
%
$m
%
$m
%
$m
%
$m
%
39
21
23
15
120
41
340
16
62
14
-
57
4
1.1
0.6
0.6
0.4
3.4
1.1
9.5
0.4
1.7
0.4
-
1.6
0.1
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
12.2
2.9
2.1
1.1
0.5
1.6
0.2
752
20.9
553
16.6
691
19.9
1,089
27.6
1,197
28.3
-
11
1
-
34
14
32
2
1
-
-
4
99
18
869
2,733
-
0.3
-
-
0.9
0.4
0.9
0.1
-
-
-
0.1
2.7
0.5
24.1
75.9
-
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
17
207
68
1,364
2,585
-
0.4
0.2
0.2
0.2
0.9
1.8
1.0
0.1
-
-
0.4
5.2
1.7
34.5
65.5
5
20
2
9
16
-
116
35
3
-
-
14
220
53
1,470
2,771
0.1
0.5
0.1
0.2
0.4
-
2.7
0.8
0.1
-
-
0.3
5.2
1.2
34.7
65.3
3,602
100.0
3,332
100.0
3,481
100.0
3,949
100.0
4,241
100.0
2016 Westpac Group Annual Report
153
3
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
$m
Write-offs
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property, property services and business services
Services
Trade
Transport and storage
Utilities
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Total other overseas
Total write-offs
Write-offs in relation to:
Collectively assessed provisions
Individually assessed provisions
Total write-offs
2016
2015
2014
2013
2012
(17)
(12)
(20)
(13)
(21)
(18)
(87)
(36)
(30)
(48)
(1)
(803)
(13)
(1,119)
-
(1)
(1)
-
-
-
(12)
-
(1)
-
-
(51)
(1)
(67)
(3)
(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)
(24)
(11)
(106)
(11)
(45)
(1)
(453)
(41)
(53)
(37)
(33)
(597)
(11)
(1,423)
(2)
(23)
(9)
(2)
(17)
(1)
(105)
(5)
(3)
(1)
-
(59)
(1)
(228)
(57)
(1,189)
(1,238)
(1,408)
(1,399)
(1,708)
(902)
(287)
(1,189)
(793)
(445)
(1,238)
(702)
(706)
(1,408)
(708)
(691)
(1,399)
(756)
(952)
(1,708)
154
2016 Westpac Group Annual Report
Note 14. Provisions for impairment charges (continued)
The following table shows details of recoveries of loans by industry classifications for the past five years:
Notes to the financial statements
Consolidated
$m
Recoveries
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property, property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
Total New Zealand
Total other overseas
Total recoveries
Total write-offs
Net write-offs and recoveries
2016
2015
2014
2013
2012
-
-
1
34
1
-
5
2
1
1
-
84
2
-
-
4
8
3
-
17
1
1
-
-
78
1
131
6
-
137
(1,189)
(1,052)
113
18
-
131
(1,238)
(1,107)
-
-
2
8
3
-
12
-
1
-
2
62
2
92
14
-
1
1
1
3
8
-
11
-
1
1
-
41
-
68
8
-
-
-
1
2
5
-
23
1
1
1
-
61
1
96
8
-
106
(1,408)
(1,302)
76
(1,399)
(1,323)
104
(1,708)
(1,604)
Note 15. Life insurance assets and life insurance liabilities
Accounting policy
The Group conducts its life insurance business in Australia primarily through Westpac Life Insurance Services Limited and its
subsidiaries, which are separate statutory funds and registered under the Life Insurance Act 1995 (Life Act) and; in New
Zealand through Westpac Life-NZ-Limited which are separate statutory funds licensed under the Insurance (Prudential
Supervision) Act 2010.
Life insurance assets
Life insurance assets, including investments in funds managed by the Group, are designated at fair value through income
statement. Changes in fair value are recognised in non-interest income. The determination of fair value of life insurance assets
involves the same judgements as other financial assets, which are described in the critical accounting assumptions and
estimates in Note 23.
The Life Act places restrictions on life insurance assets, including that they 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 a distribution, when the fund has met its solvency and capital adequacy requirements.
Life insurance liabilities
Life insurance liabilities primarily consist of life investment contract liabilities and life insurance contract liabilities. Claims
incurred in respect of life investment contracts are withdrawals of customer deposits, and are recognised as a reduction in life
insurance liabilities.
Life investment contract liabilities
Life investment contract liabilities are designated at fair value through income statement. Fair value is the higher of the
valuation of life insurance assets linked to the life investment contract, or the minimum current surrender value (the minimum
amount the Group would pay to a policyholder if their policy is voluntarily terminated before it matures or the insured event
occurs). Changes in fair value are recognised in non-interest income.
Life insurance contract liabilities
The value of life insurance contract liabilities is calculated using the margin on services methodology (MoS), specified in the
Prudential Standard LPS 340 Valuation of Policy Liabilities.
2016 Westpac Group Annual Report
155
3
Note 15. Life insurance assets and life insurance liabilities (continued)
MoS accounts for the associated risks and uncertainties of each type of life insurance contract written. At each reporting date,
planned profit margins and an estimate of future liabilities are calculated. Profit margins are released to non-interest income
over the period that life insurance is provided to policyholders (Note 4). The cost incurred in acquiring specific insurance
contracts is deferred provided that these amounts are recoverable out of planned profit margins. The deferred amounts are
recognised as a reduction in life insurance policy liabilities and are amortised to non-interest income over the same period as
the planned profit margins.
External unit holder liabilities of managed investment schemes
The life insurance statutory funds include controlling interests in managed investment schemes which are consolidated. When
the managed investment scheme is consolidated, the external unit holder liabilities are recognised as a liability and included in
life insurance liabilities. They are designated at fair value through income statement.
Critical accounting assumptions and estimates
The key factors that affect the estimation of life insurance liabilities and related assets are:
the cost of providing benefits and administering contracts;
mortality and morbidity experience, which includes policyholder benefits enhancements;
discontinuance rates, which affects the Group’s ability to recover the cost of acquiring new business over the life of the
contracts; and
the discount rate of projected future cash flows.
Regulation, competition, interest rates, taxes, securities market conditions and general economic conditions also affect the
estimation of life insurance liabilities.
Life insurance assets
Consolidated
$m
Investments held directly and in unit trusts
Equities
Debt securities
Property
Loans
Other
Total life insurance assets
2016
2015
4,403
8,628
763
37
361
14,192
4,350
7,448
621
51
655
13,125
There were no life insurance assets in the Parent Entity as at 30 September 2016 (2015: nil).
Life insurance liabilities
Consolidated
Reconciliation of movements in policy liabilities
$m
$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 external unit holders of
managed investment schemes
Closing balance
Life Investment
Contracts
Life Insurance
Contracts
Total
2016
12,395
416
780
(1,052)
(112)
807
13,234
2015
10,378
463
875
(1,183)
(129)
1,991
12,395
2016
(836)
2015
(741)
(37)
(95)
-
-
-
-
-
-
-
-
(873)
(836)
2016
11,559
379
780
(1,052)
(112)
807
12,361
2015
9,637
368
875
(1,183)
(129)
1,991
11,559
There were no life insurance liabilities in the Parent Entity as at 30 September 2016 (2015: nil).
156
2016 Westpac Group Annual Report
Notes to the financial statements
Note 16. Payables due to other financial institutions
Accounting policy
Payables due to other financial institutions are recognised initially at fair value and subsequently at amortised cost using the
effective interest rate method.
Security repurchase agreements
Where securities are sold subject to an agreement to repurchase at a predetermined price, they remain recognised on the
balance sheet in their original category (i.e. ‘Trading securities’ or ‘Available-for-sale’).
The cash consideration received is recognised as a liability (‘Security repurchase agreements’). Security repurchase
agreements are designated at fair value and recognised as part of ‘Other financial liabilities at fair value through income
statement’ (refer to Note 18) where they are managed as part of a trading portfolio; otherwise they are measured on an
amortised cost basis and recognised in ‘Payables due to other financial institutions’.
$m
Cash collateral
Offshore central bank deposits
Consolidated
Parent Entity
2016
1,615
5,493
2015
4,037
3,922
2016
1,557
5,493
2015
3,445
3,922
Interbank borrowing
Security repurchase agreements1
Total payables due to other financial institutions
1 The carrying value of the related securities’ assets pledged under repurchase agreements for the Group and the Parent Entity is $7,052 million
18,731
18,141
18,209
5,501
5,009
5,009
6,092
6,082
5,271
5,265
5,501
18,133
(2015: $6,998 million).
2016 Westpac Group Annual Report
157
3
Note 17. Deposits and other borrowings
Accounting policy
Deposits and other borrowings are initially recognised at fair value and subsequently either measured at amortised cost using
the effective interest rate method or at fair value.
Deposits and other borrowings are designated at fair value if they are managed on a fair value basis, reduce or eliminate an
accounting mismatch or contain an embedded derivative.
Where they are measured at fair value, any changes in fair value (except those due to changes in credit risk) are recognised as
non-interest income.
The change in the fair value that is due to changes in credit risk is recognised in other comprehensive income except where it
would create an accounting mismatch, in which case it is also recognised in the income statement.
Interest expense incurred is recognised in 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
2016
2015
2016
2015
29,774
37,491
210,666
148,876
426,807
1,192
4,407
22,642
27,826
56,067
15,497
845
1,441
12,414
30,197
513,071
44,227
468,844
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
29,910
37,491
210,397
148,876
426,674
32,223
33,030
209,638
122,071
396,962
-
-
-
-
-
15,497
391
1,050
12,130
29,068
455,742
43,171
412,571
-
-
-
-
-
15,054
431
1,211
11,851
28,547
425,509
45,331
380,178
425,509
Total deposits and other borrowings
1 The contractual outstanding amount payable at maturity for the Group is $44,326 million (2015: $46,351 million) and for the Parent Entity is
513,071
475,328
455,742
$43,270 million (2015: $45,443 million).
158
2016 Westpac Group Annual Report
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
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
2016
Average
Balance
$m
Average
Rate
%
2015
Average
Balance
$m
Average
Rate
%
2014
Average
Balance
$m
Average
Rate
%
35,732
31,165
205,860
139,090
411,847
5,051
16,938
24,214
36,435
82,638
2.4%
1.9%
2.3%
0.9%
1.9%
2.6%
29,201
32,201
199,107
125,891
386,400
4,514
16,617
22,427
37,271
80,829
2.5%
2.0%
3.2%
0.6%
3.0%
2.9%
23,082
31,793
182,046
128,546
365,467
3,926
15,717
20,354
35,720
75,717
2.7%
2.5%
3.5%
0.5%
3.1%
2.6%
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 2016
$m
Certificates of deposit greater than US$100,000
Term deposits greater than US$100,000
Less Than
3 Months
16,779
68,428
Between
3 and
6 Months
12,628
26,894
Between
6 Months
and
1 Year
244
22,873
Over 1 Year
123
11,868
Total
29,774
130,063
Note 18. Other financial liabilities at fair value through income statement
Accounting policy
Other financial liabilities at fair value through income statement include trading securities sold short and security repurchase
agreements which have been designated at fair value at initial recognition.
The accounting policy for security repurchase agreements is consistent with that detailed in Note 16.
Securities sold short reflect the obligation to deliver securities to a buyer for the sale of securities Westpac does not own at the
time of sale but that are promised to be delivered to the buyer. Securities delivered to the buyer are usually borrowed and/or
subsequently purchased.
Subsequent to initial recognition, these liabilities are measured at fair value with changes in fair value (except credit risk)
recognised through the income statement as they arise. The change in fair value that is attributable to 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 is recognised in net interest income using the effective interest rate method.
$m
Security repurchase agreements1
Securities sold short
Consolidated
Parent Entity
2016
4,363
389
2015
8,407
819
2016
3,982
389
2015
8,407
819
Total other financial liabilities at fair value through income statement
9,226
1 The carrying value of securities pledged under repurchase agreements for the Group is $4,595 million (2015: $8,653 million) and for the Parent Entity
4,371
4,752
9,226
is $4,213 million (2015: $8,653 million).
At maturity, the Group is contractually required to pay $4,752 million (2015: $9,226 million), and the Parent Entity $4,371 million
(2015: $9,226 million) to holders of these financial liabilities.
2016 Westpac Group Annual Report
159
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
exchange is reported as part of loans.
Debt issues are initially measured at fair value and subsequently either measured at amortised cost using the effective interest
rate method or at fair value.
Debt issues are designated at fair value if they:
reduce or eliminate an accounting mismatch; or
contain an embedded derivative.
They are measured at fair value with changes in fair value (except those due to changes in credit risk) recognised as non-
interest income.
The change in the fair value that is due to credit risk is recognised in other comprehensive income except where it would create
an accounting mismatch, in which case it is also recognised in the income statement.
Interest expense incurred is recognised within net interest income using the effective interest rate method.
In the table below, the distinction between short-term (less than 12 months) and long-term (greater than 12 months) debt is
based on the original maturity of the underlying security.
$m
Short-term debt:
Own issuances
Customer conduits1
Acceptances
Total short-term debt
Long-term debt:
Covered bonds
Senior
Securitisation
Structured notes
Total long-term debt
Total debt issues
Debt issues at fair value2
Debt issues at amortised cost
Consolidated
Parent Entity
2016
2015
2016
2015
18,931
34,943
16,633
32,470
936
12
823
97
-
12
-
97
19,879
35,863
16,645
32,567
33,529
106,626
9,445
423
150,023
169,902
6,303
163,599
35,062
87,645
12,034
450
135,191
171,054
9,318
161,736
30,211
98,720
-
-
128,931
145,576
3,589
141,987
31,401
80,747
-
-
112,148
144,715
6,415
138,300
144,715
Total debt issues
1 Further information on customer conduits is disclosed in Note 25.
2 The contractual outstanding amount payable at maturity for the Group is $6,185 million (2015: $9,372 million) and for the Parent Entity is
171,054
169,902
145,576
$3,484 million (2015: $6,483 million). Included in the carrying value of debt issues at fair value is a decrease for cumulative changes in own credit
spreads of $165 million (2015: $218 million) for the Group and Parent Entity.
160
2016 Westpac Group Annual Report
Note 19. Debt issues (continued)
Consolidated
$m
Short-term debt
US commercial paper
Euro commercial paper
Asset backed commercial paper (by currency):
AUD
Total asset backed commercial paper
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
2016
2015
18,683
248
18,931
936
936
12
34,943
-
34,943
823
823
97
19,879
35,863
42,946
2,294
20,267
12,134
4,333
3,422
61,788
2,839
150,023
41,706
1,912
27,278
7,067
4,272
2,991
48,145
1,820
135,191
2016
2015
2014
36,478
26,351
0.7%
0.9%
38,774
35,482
0.3%
0.3%
35,173
31,130
0.3%
0.3%
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 which qualify for inclusion as regulatory capital under Australian Prudential
Regulation Authority (APRA) Prudential Standards. Loan capital is initially measured at fair value and subsequently measured
at amortised cost using the effective interest rate method. Interest expense incurred is recognised in net interest income.
$m
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
2016
2015
2016
2015
-
1,185
5,673
6,858
8,485
462
8,947
15,805
765
1,182
3,981
5,928
7,408
504
7,912
13,840
-
1,185
5,673
6,858
8,485
462
8,947
15,805
765
1,182
3,981
5,928
7,408
504
7,912
13,840
2016 Westpac Group Annual Report
161
3
Note 20. Loan capital (continued)
Additional Tier 1 loan capital
A summary of the key terms and common features of certain Additional Tier 1 (AT1) instruments are provided below1.
Consolidated and Parent Entity
$m
Dividend/distribution rate
Potential scheduled
conversion date2
Optional call date3
2016
2015
Westpac convertible preference shares (CPS)
$1,189 million CPS
Total convertible preference shares
Westpac capital notes (WCN)
$1,384 million WCN
$1,311 million WCN2
$1,324 million WCN3
$1,702 million WCN4
Total Westpac capital notes
(180 day bank bill rate + 3.25% p.a.) x
(1 - Australian corporate tax rate)
31 March 2020
31 March 20184
(90 day bank bill rate + 3.20% p.a.) x
(1 - Australian corporate tax rate)
(90 day bank bill rate + 3.05% p.a.) x
(1 - Australian corporate tax rate)
(90 day bank bill rate + 4.00% p.a.) x
(1 - Australian corporate tax rate)
(90 day bank bill rate + 4.90% p.a.) x
(1 - Australian corporate tax rate)
8 March 2021
8 March 2019
23 September 2024
23 September 2022
22 March 2023
22 March 2021
20 December 2023
20 December 2021
1,185
1,185
1,375
1,302
1,310
1,686
5,673
1,182
1,182
1,372
1,301
1,308
-
3,981
Common features of AT1 instruments tabled above
Distribution payment conditions
Semi-annual dividends on the CPS are discretionary and only paid if the Directors determine to make a payment, the amount
does not exceed Westpac’s distributable profits (unless APRA gives its prior written approval), and APRA does not object to the
payment of the dividend.
Quarterly distributions on the Westpac capital notes are at Westpac’s absolute discretion. Distributions cannot be paid if they
will result in a breach of Westpac’s capital requirements under APRA’s prudential standards; result in Westpac becoming, or
being likely to become, insolvent; or if APRA objects.
Broadly, if for any reason a dividend or distribution has not been paid in full on the relevant distribution payment date, Westpac
must not determine or pay any dividends on ordinary share or undertake a discretionary buy back or capital reduction of
ordinary shares, unless the unpaid distribution is paid in full within 20 business days of the relevant distribution payment date or
in certain other circumstances.
The AT1 instruments convert into Westpac ordinary shares in the following circumstances:
Scheduled Conversion
On the scheduled conversion date, provided certain conversion conditions are satisfied, it is expected that the applicable AT1
instrument will be converted and holders will receive a variable number of Westpac ordinary shares. The conversion number of
Westpac ordinary shares is 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 20 business day period prior to the scheduled
conversion date and includes a 1% discount.
Capital Trigger Event or Non-Viability Trigger Event
Westpac will be required to convert some or all AT1 instruments into a variable number of Westpac ordinary shares upon the
occurrence of a capital trigger event5 or non-viability trigger event6. No conversion conditions apply in these circumstances.
A capital trigger event occurs when Westpac determines, or APRA notifies Westpac in writing that it believes, Westpac’s
Common Equity Tier 1 Capital ratio is equal to or less than 5.125% (on a level 1 or level 2 basis7,8).
1 Excludes convertible debentures and Trust preferred securities (2004 TPS).
2 Conversion is subject to the satisfaction of the scheduled conversion conditions. If the conditions are not satisfied, conversion will not occur until the
next distribution payment date on which the scheduled conversion conditions are satisfied.
3 Westpac may elect to redeem, subject to APRA’s prior written approval, convert (excluding WCN) or transfer the applicable AT1 instrument on the
optional redemption/conversion/transfer date.
4 Each payment date on or after 31 March 2018.
5 All CPS must be converted upon the occurrence of a capital trigger event.
6 All Westpac capital notes contain a non-viability trigger event. CPS does not contain a non-viability trigger event.
7 Level 1 comprises Westpac Banking Corporation and subsidiaries approved by APRA as being part of a single ‘Extended Licenced Entity’ for the
purposes of measuring capital adequacy. Level 2 includes all subsidiaries except those entities specifically excluded by APRA regulations for the
purposes of measuring capital adequacy.
8 On a level 2 basis only for CPS.
162
2016 Westpac Group Annual Report
Notes to the financial statements
Note 20. Loan capital (continued)
A non-viability trigger event will occur when APRA notifies Westpac in writing that it believes conversion of all or some AT1
instruments (or conversion or write-down of capital instruments of the Westpac Group), or public sector injection of capital (or
equivalent support), is necessary because without it, Westpac would become non-viable. No conversion conditions apply in
these circumstances.
For each AT1 instrument converted, holders will receive a variable number of Westpac ordinary shares calculated using the
formula described in the terms of the applicable AT1 instrument 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 5 business
day period prior to the capital trigger event or non-viability trigger event and includes a 1% discount. For each AT1 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 event1, if conversion of an AT1 instrument does not
occur within five business days, holders’ rights in relation to the AT1 instrument will be immediately and irrevocably terminated.
Early conversion
Westpac is able to elect to convert2, or may be required to convert, AT1 instruments early in certain circumstances. The terms
of conversion and the conversion conditions are broadly similar to scheduled conversion.
Convertible debentures and Trust preferred securities (2004 TPS)
A Westpac subsidiary, Westpac Capital Trust IV issued 525,000 2004 TPS for US$1,000 each on 5 April 2004. Westpac
Capital Trust IV also issued US$1,000 of common securities to a Westpac subsidiary.
The sole assets of Westpac Capital Trust IV were US$525,001,000 2004 Funding TPS issued by Tavarua Funding Trust IV, a
Westpac subsidiary. Tavarua Funding Trust IV also issued common securities with a total price of US$1,000 to Westpac.
The assets of Tavarua Funding Trust IV were US$525,001,000 of convertible debentures issued by Westpac and US
Government securities purchased with the proceeds of the common securities.
On 31 March 2016, the convertible debentures, common securities, Funding TPS and 2004 TPS were redeemed in full for
cash.
1 Excludes CPS.
2 Excludes WCN.
2016 Westpac Group Annual Report
163
3
Note 20. Loan capital (continued)
Tier 2 loan capital
A summary of the key terms and common features of Tier 2 instruments are provided below1.
-
-
483
500
1,673
1,052
921
1,000
252
108
572
540
500
1,670
1,147
919
999
288
Consolidated and Parent Entity
$m
Basel III transitional subordinated notes
US$75 million subordinated notes
Fixed 5.00% p.a.
US$400 million subordinated notes
Fixed 5.30% p.a.
US$350 million subordinated notes
Fixed 4.625% p.a.
Interest rate2
Maturity date
Optional call date3
2016
2015
30 December 2015
15 October 2015
1 June 2018
N/A
N/A
N/A
A$500 million subordinated notes
Floating 90 day bank bill rate + 3.00% p.a.
21 March 2022
21 March 2017
A$1,676 million subordinated notes
Floating 90 day bank bill rate + 2.75% p.a.
23 August 2022
23 August 2017
US$800 million subordinated notes
3.625% p.a. until but excluding 28 February 2018. Thereafter, if not
called, fixed rate equal to 5 year US Treasury rate + 2.90% p.a.
28 February 2023
28 February 2018
Basel III fully compliant subordinated notes
A$925 million subordinated notes
90 day bank bill rate + 2.30% p.a.
A$1,000 million subordinated notes
90 day bank bill rate + 2.05% p.a.
CNY1,250 million subordinated notes
A$350 million subordinated notes
S$325 million subordinated notes
A$175 million subordinated notes
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 plus 0.8345% p.a.
4.50% p.a. until but excluding 11 March 2022. Thereafter, if not
called, a fixed rate per annum equal to the five year AUD semi-
quarterly mid-swap reference rate plus 1.95% p.a., the sum of which
will be annualised
4.00% p.a. until but excluding 12 August 2022. Thereafter, if not
called, a fixed rate per annum equal to the five year SGD swap offer
rate plus 1.54% p.a.
4.80% p.a. until but excluding 14 June 2023. Thereafter, if not called,
a fixed rate per annum equal to the five year AUD semi-quarterly mid-
swap reference rate plus 2.65% p.a., each of which will be
annualised
22 August 2023
22 August 2018
14 March 2024
14 March 2019
9 February 2025
9 February 2020
11 March 2027
11 March 2022
361
348
12 August 2027
12 August 2022
322
317
14 June 2028
14 June 2023
179
US$100 million subordinated notes
Fixed 5.00% p.a.
23 February 2046
NA
A$700 million subordinated notes
Floating 90 day bank bill rate + 3.10% p.a.
10 March 2026
10 March 2021
JPY20,000 million subordinated notes
Fixed 1.16% p.a.
JPY10,200 million subordinated notes
Fixed 1.16% p.a.
JPY10,000 million subordinated notes
Fixed 0.76% p.a.
NZ$400 million subordinated notes
4.6950% p.a. until but excluding 1 September 2021. Thereafter, if
not called, a fixed rate per annum equal to the New Zealand 5 year
swap rate on 1 September 2021 plus 2.60% p.a.
19 May 2026
2 June 2026
9 June 2026
NA
NA
NA
1 September 2026
1 September 2021
144
695
262
134
130
377
-
-
-
-
-
-
-
Total subordinated notes
8,485
7,408
Common features of the Basel III transitional subordinated notes
Interest payments are subject to Westpac being solvent at the time of, and immediately following, the interest payment. These
subordinated notes do not contain non-viability loss absorption requirements and pay non-discretionary, cumulative interest.
Common features of Basel III fully compliant subordinated notes
Interest payments are subject to Westpac being solvent at the time of, and immediately following, the interest payment.
1 Excludes subordinated perpetual notes.
2 Interest payments are made periodically as set out in the terms of the subordinated notes.
3 Westpac may elect to redeem the applicable Tier 2 instrument on the optional call date, subject to APRA’s prior written approval. If not called,
Westpac may elect to call the applicable Tier 2 instrument on any interest payment date after the first call date (except for A$500 million
subordinated notes maturing 21 March 2022), subject to APRA’s prior written approval.
164
2016 Westpac Group Annual Report
Notes to the financial statements
Note 20. Loan capital (continued)
Non-viability trigger event
Westpac will be required to convert some or all subordinated notes into a variable number of Westpac ordinary shares upon the
occurrence of a non-viability trigger event. A non-viability trigger event will occur on the same terms as described under
Additional Tier 1 loan capital.
For each subordinated note converted, holders will receive a variable number of Westpac ordinary shares calculated using the
formula described in the terms of the applicable Tier 2 instrument but subject to a maximum conversion number. The price at
which Westpac ordinary shares will be issued is similar to that described under Additional Tier 1 loan capital for a non-viability
trigger event. For each Tier 2 instrument, the maximum conversion number is set using a Westpac ordinary share price which
is broadly equivalent to 20% of the Westpac ordinary share price at the time of issue.
Following the occurrence of a non-viability trigger event, if conversion of a Tier 2 instrument does not occur within five business
days, holders’ rights in relation to the Tier 2 instrument will be immediately and irrevocably terminated.
Subordinated perpetual notes
These notes have no final maturity but Westpac can choose to redeem them at par, subject to APRA approval and certain other
conditions. Interest is cumulative and payable on the notes semi-annually at a rate of 6 month US$ LIBOR plus 0.15% p.a.,
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.
These 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 creditors whose claims against Westpac rank equally with, or junior to, these notes.
2016 Westpac Group Annual Report
165
3
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.
All derivatives are held at fair value. Changes in fair value are recognised in the income statement, unless designated in a cash
flow 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 trading and also as part of its asset and liability risk management activities, which
are discussed in Note 22. Derivatives used for risk management activities include designating derivatives into one of three
hedge accounting relationships: fair value hedge; cash flow hedge; or hedge of a net investment in a foreign operation, where
permitted under AASB 139. These hedge designations and associated accounting treatment are as follows:
Fair value hedges
Fair value hedges hedge the exposure to changes in the fair value of an asset or liability.
Changes in the fair value of derivatives and the hedged asset or liability in fair value hedges are recognised in interest income.
The carrying value of the hedged asset or liability is adjusted for the changes in fair value.
If a hedge is discontinued, any fair value adjustments to the carrying value of the asset or liability are amortised to interest
income over the period to maturity. If the asset or liability is sold, any unamortised adjustment is immediately recognised in
interest income.
Cash flow hedges
Cash flow hedges hedge the exposure to variability of cash flows attributable to an asset, liability or future forecast transaction.
For effective hedges, changes in the fair value of derivatives are recognised in the cash flow hedge reserve through other
comprehensive income and subsequently recognised in interest income when the asset or liability that was hedged impacts the
income statement.
For hedges with some ineffectiveness, the changes in the fair value of the derivatives relating to the ineffective portion are
immediately recognised in interest income.
If a hedge is discontinued, any cumulative gain or loss remains in other comprehensive income. It is amortised to interest
income over the period which the asset or liability that was hedged also impacts the income statement.
If a hedge of a forecast transaction is no longer expected to occur, any cumulative gain or loss in other comprehensive income
is immediately recognised in interest income.
Net investment hedges
Net investment hedges hedge foreign currency risks arising from a net investment of a foreign operation. They are accounted
for similarly to cash flow hedges.
For effective hedges, changes in the fair value of derivatives are recognised in the foreign currency translation reserve through
other comprehensive income.
For hedges with some ineffectiveness, the changes in the fair value of the derivatives relating to the ineffective portion are
immediately recognised in non-interest income.
If a foreign operation is disposed of, any cumulative gain or loss in other comprehensive income is immediately recognised in
non-interest income.
a. Fair value hedges
The Group hedges a proportion of its interest rate risk and foreign exchange risk from debt issuances and fixed interest rate
assets with single currency and cross currency interest rate derivatives.
$m
Change in fair value hedging instruments
Change in fair value hedge items attributed to hedged risk
Ineffectiveness in interest income
Consolidated
Parenty Entity
2016
(39)
47
8
2015
(308)
317
9
2016
(52)
62
10
2015
(80)
88
8
b. Cash flow hedges
Exposure to the volatility of interest cash flows from floating rate customer deposits, at call balances and loans is hedged with
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.
166
2016 Westpac Group Annual Report
Note 21. Derivative financial instruments (continued)
Gross cash inflows and outflows on derivatives designated in cash flow hedges are, as a proportion of total gross cash flows,
expected to occur in the following periods:
Notes to the financial statements
2016
Cash inflows
Cash outflows
2015
Cash inflows
Cash outflows
$m
Cash flow hedge ineffectiveness
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
0.6%
0.7%
1.9%
1.9%
8.8%
8.9%
2.8%
2.9%
29.5%
30.4%
28.4%
29.9%
13.0%
13.2%
17.6%
18.4%
13.1%
12.3%
12.6%
12.4%
12.6%
12.4%
11.2%
10.4%
9.9%
10.1%
11.1%
10.1%
12.5%
12.0%
14.4%
14.0%
Consolidated
Parenty Entity
2016
4
2015
(22)
2016
(2)
2015
(16)
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
The Group uses foreign exchange forward contracts when hedging the currency translation risk of net investments in foreign
operations. For both the Group and Parent Entity, ineffectiveness arising from net investments hedges was a loss of $6 million
(2015: nil).
2016 Westpac Group Annual Report
167
3
-
-
927
-
927
-
-
-
739
-
739
-
-
-
-
Note 21. Derivative financial instruments (continued)
The notional amount and fair value of derivative instruments held for trading and designated in hedge relationships are set out
in the following tables:
Trading
Fair Value
Fair Value
Hedging
Cash Flow
Net Investment
Total
Fair Value
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Consolidated 2016
$m
Interest rate contracts
Futures contracts1
Forward rate agreements
Notional
Amount
252,462
325,877
-
29
-
(28)
Swap agreements
2,556,563
27,734
(25,771)
Options
82,534
412
(487)
Total interest rate contracts
3,217,436
28,175
(26,286)
Foreign exchange contracts
Spot and forward contracts
652,452
5,380
(5,308)
Cross currency
swap agreements2
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
10,979
106
17,565
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
4,372,054
-
4,372,054
Consolidated 2015
$m
Interest rate contracts
Futures contracts1
Forward rate agreements
Notional
Amount
147,368
517,297
449,954
23,562
6,295
212
(10,455)
(219)
1,031
-
1,125,968
11,887
(15,982)
1,031
337
1
80
40,480
(11,982)
28,498
(276)
-
(76)
(42,620)
12,459
(30,161)
-
-
-
1,958
(362)
1,596
Trading
Fair Value
-
-
-
-
-
-
(3,819)
1,092
(1,387)
-
-
-
(3,819)
1,092
(1,387)
-
213
-
213
-
-
-
(3,606)
1,177
(2,429)
-
(40)
1,312
(2,405)
-
-
1,312
(2,445)
-
-
-
2,404
(315)
2,089
-
-
-
(3,832)
398
(3,434)
Fair Value
Hedging
Cash Flow
-
-
-
-
-
44
-
-
44
-
-
-
44
-
44
-
-
-
-
-
-
29
-
(28)
29,753
(30,977)
412
(487)
30,194
(31,492)
(52)
5,424
(5,400)
-
-
8,638
212
(12,647)
(219)
(52)
14,274
(18,266)
-
-
-
(52)
-
(52)
337
1
80
44,886
(12,659)
32,227
(276)
-
(76)
(50,110)
14,034
(36,076)
Net Investment
Total
Fair Value
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
-
154
-
(156)
Swap agreements
2,014,629
25,837
(24,310)
Options
90,074
576
(683)
Total interest rate contracts
2,769,368
26,567
(25,149)
Foreign exchange contracts
Spot and forward contracts
674,114
10,002
(8,653)
Cross currency
swap agreements2
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
1
435,465
34,956
12,687
(18,782)
1,094
651
(689)
-
1,144,535
23,340
(28,124)
1,094
6,398
216
33,181
3,953,698
-
3,953,698
472
9
143
50,531
(9,505)
41,026
(409)
(10)
(150)
(53,842)
10,367
(43,475)
-
-
-
-
-
-
(2,995)
1,212
(1,301)
-
-
-
(2,995)
1,212
(1,301)
-
124
-
124
-
-
-
-
(27)
4,102
-
(414)
-
4,102
(441)
-
-
-
-
-
-
1,833
(2,871)
5,314
(1,742)
-
-
-
-
1,833
(2,871)
5,314
(1,742)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
(28,657)
-
-
-
(216)
-
(216)
472
9
143
57,678
(9,505)
48,173
(409)
(10)
(150)
(58,671)
10,367
(48,304)
The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
30 September.
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.
2
3 Primarily consists of derivative trades settled directly with central clearing counterparties and their associated variation margin. Westpac became a
direct clearing member of LCH.Clearnet Limited (LCH) during the 2015 year. Refer to Note 24.
168
2016 Westpac Group Annual Report
-
-
899
-
899
-
945
-
945
-
-
-
-
-
722
-
722
-
Note 21. Derivative financial instruments (continued)
Notes to the financial statements
Trading
Fair Value
Fair Value
Hedging
Cash Flow
Net Investment
Total
Fair Value
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Parent Entity 2016
$m
Interest rate contracts
Futures contracts1
Forward rate agreements
Notional
Amount
252,462
325,877
-
29
-
(28)
Swap agreements
2,552,413
27,796
(26,157)
Options
81,620
411
(487)
Total interest rate contracts
3,212,372
28,236
(26,672)
Foreign exchange contracts
Spot and forward contracts
651,469
5,379
(5,307)
Cross currency
swap agreements2
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
442,606
23,562
6,297
212
(10,708)
(219)
1,117,637
11,888
(16,234)
10,979
106
17,565
337
1
80
(276)
-
(76)
(43,258)
12,459
(30,799)
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
4,358,659
40,542
-
4,358,659
(11,982)
28,560
1,844
(362)
1,482
(3,344)
1,177
(2,167)
-
-
-
-
-
-
(3,444)
1,026
(1,154)
-
-
-
(3,444)
1,026
(1,154)
-
100
-
100
-
-
-
-
(40)
1,300
(1,395)
-
-
1,300
(1,435)
-
-
-
2,326
(315)
2,011
-
-
-
(2,589)
398
(2,191)
Fair Value
Hedging
Cash Flow
-
-
-
-
-
37
-
-
37
-
-
-
37
-
37
-
-
-
-
-
-
29
-
(28)
29,721
(30,755)
411
(487)
30,161
(31,270)
(52)
5,416
(5,399)
-
-
8,542
212
(12,003)
(219)
(52)
14,170
(17,621)
-
-
-
(52)
-
(52)
337
1
80
44,749
(12,659)
32,090
(276)
-
(76)
(49,243)
14,034
(35,209)
Net Investment
Total
Fair Value
Trading
Fair Value
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Parent Entity 2015
$m
Interest rate contracts
Futures contracts1
Forward rate agreements
Notional
Amount
147,368
517,297
-
154
-
(156)
Swap agreements
2,010,895
25,890
(24,726)
Options
90,049
575
(683)
Total interest rate contracts
2,765,609
26,619
(25,565)
Foreign exchange contracts
Spot and forward contracts
672,295
9,976
(8,621)
Cross currency
swap agreements2
Options
Total foreign
exchange contracts
Commodity contracts
Equities
Credit default swaps
427,053
34,956
12,691
(18,840)
1,004
651
(689)
-
1,134,304
23,318
(28,150)
1,004
3,843
216
33,181
472
9
143
(409)
(10)
(150)
-
-
-
-
-
-
-
-
-
(2,689)
1,155
(1,015)
-
-
-
(2,689)
1,155
(1,015)
-
56
-
56
-
-
-
-
(27)
3,603
-
(256)
-
3,603
(283)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
(28,579)
-
-
-
472
9
143
(409)
(10)
(150)
(58,417)
10,367
(48,050)
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
1,726
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
3,937,153
3,937,153
(54,284)
(43,917)
(9,505)
(1,298)
(2,633)
(1,298)
(2,633)
50,561
41,056
10,367
1,726
4,758
4,758
(202)
(202)
-
-
-
-
-
-
-
-
-
57,045
(9,505)
47,540
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.
3 Primarily consists of derivative trades settled directly with central clearing counterparties and their associated variation margin. Westpac became a
direct clearing member of LCH during the 2015 year. Refer to Note 24.
2016 Westpac Group Annual Report
169
3
Note 21. Derivative financial instruments (continued)
Credit default swaps
The Group buys and sells credit protection through the use of credit default swap (CDS) derivatives. These CDSs either protect
the Group (as a buyer) or expose it (as a seller) to the risk of default of the entity referenced by the CDS. The CDSs are
predominantly executed with other financial institutions and are entered into to facilitate institutional customer transactions and
to manage the Group’s credit risk exposures.
The notional amount and fair value of CDSs are presented in the following table for both the Group and the Parent Entity:
$m
Credit protection bought
Credit protection sold
Total
2016
2015
Notional
Amount
Fair value
Asset
Liability
Notional
Amount
Fair value
Asset
Liability
9,231
8,334
17,565
7
73
80
(75)
(1)
(76)
16,849
16,332
33,181
44
99
143
(107)
(43)
(150)
Note 22. Financial risk
Financial instruments are fundamental to the Group’s business of providing banking and financial services. The associated
financial risks (including credit risk, funding and liquidity risk and market risk) are a significant proportion of the total risks faced
by the Group.
This note details the financial risk management policies, practices and quantitative information of the Group’s principal financial
risk exposures.
Principal financial risks
Overview
Credit risk
The risk of financial loss where a customer or
counterparty fails to meet their financial
obligations.
Note name
Risk management frameworks
Internal credit risk ratings system
Note
number
22.1
22.2.1
Credit risk mitigation, collateral and other credit enhancements
22.2.2
Credit risk concentrations
Credit quality of financial assets
Financial assets that are past due, but not impaired
22.2.3
22.2.4
22.2.5
Items 90 days past due, or otherwise in default, and not impaired 22.2.6
Funding and liquidity risk
The risk that the Group will be unable to fund
assets and meet obligations as they become
due.
Impaired loans
Collateral held
Liquidity modelling
Sources of liquidity
Assets pledged as collateral
Contractual maturity of financial liabilities
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.
Expected maturity
Value-at-Risk (VaR)
Traded market risk
Non-traded market risk
22.2.7
22.2.8
22.3.1
22.3.2
22.3.3
22.3.4
22.3.5
22.4.1
22.4.2
22.4.3
170
2016 Westpac Group Annual Report
Notes to the financial statements
Note 22. Financial risk (continued)
22.1 Risk management frameworks
The Board is responsible for approving the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite
Statement and monitoring the effectiveness of risk management by the Westpac Group. The Board has delegated authority to
the Board Risk and Compliance Committee (BRCC) to:
review and recommend the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite Statement to
the Board for approval;
set risk appetite consistent with the Group Risk Appetite Statement;
approve frameworks, policies and processes for managing risk (consistent with the Westpac Group Risk Management
Strategy and Westpac Group Risk Appetite Statement); and
review and, where appropriate, approve risks beyond the approval discretion provided to management.
For each of its primary financial risks, the Group maintains risk management frameworks and a number of supporting policies
that define roles and responsibilities, acceptable practices, limits and key controls:
Risk
Credit risk
Funding and liquidity
risk
Risk management framework and controls
The Credit Risk Management Framework describes the principles, methodologies, systems, roles
and responsibilities, reports and key controls for managing credit risk.
The BRCC, Westpac Group Executive Risk Committee (RISKCO) and Westpac Group Credit Risk
Committee (CREDCO) monitor the risk profile, performance and management of the Group’s credit
portfolio and the development and review of key credit risk policies.
The Credit Risk Rating System Policy describes the credit risk rating system philosophy, design,
key features and uses of rating outcomes.
All models materially impacting the risk rating process are periodically reviewed in accordance with
Westpac’s model risk policies.
An annual review is performed of the Credit Risk Rating System by the BRCC, RISKCO and
CREDCO.
Specific credit risk estimates (including probability of default (PD), loss given default (LGD) and
exposure at default (EAD) levels) are overseen, reviewed annually and supported by the Credit
Risk Estimates Committee (a subcommittee of RISKCO) prior to approval under delegated authority
from the Chief Risk Officer.
Policies for the delegation of credit approval authorities and formal limits for the extension of credit
are established throughout the Group.
Credit manuals are established throughout the Group including policies governing the origination,
evaluation, approval, documentation, settlement and ongoing management of credit risks.
Sector policies guide credit extension where industry-specific guidelines are considered necessary
(e.g. acceptable financial ratios or permitted collateral).
The Related Entity Risk Management Framework and supporting policies govern credit exposures
to related entities, to minimise the spread of credit risk between Group entities and to comply with
prudential requirements prescribed by APRA.
The Liquidity Risk Management Framework sets out the liquidity risk appetite, roles and
responsibilities, tools for measuring and managing liquidity risk, reporting procedures and
supporting policies. It also documents the limits and targets for minimum liquid asset holdings, cash
flow mismatch levels, wholesale funding and balance sheet ratios. It is reviewed by Westpac Asset
and Liability Committee (ALCO) prior to approval by the BRCC.
The Group’s Treasury function is responsible for managing funding and liquidity including managing
the balance sheet against approved limits and targets and, managing the Group’s funding base so
that it is appropriately maintained, stable and diversified.
Daily liquidity risk reports are reviewed by Treasury and the Liquidity risk teams. Liquidity reports
are presented to ALCO monthly and to the BRCC quarterly.
An annual funding strategy is established by Treasury which includes consideration of trends in
global markets, peer analysis, wholesale funding capacity, expected funding requirements and
funding risk analysis. The strategy is continuously reviewed to take into account current market
conditions.
A contingency funding plan is also maintained, which details actions to be taken in response to
severe disruptions in the Group’s ability to conduct its activities in a timely manner and at a
reasonable cost. The plan identifies the committee of senior executives to manage any crisis and
their responsibilities. The plan is aligned with the Group’s broader Liquidity Crisis Management
Policy.
2016 Westpac Group Annual Report
171
3
Note 22. Financial risk (continued)
Risk
Market risk
Risk management framework and controls
The Market Risk Framework describes the Group’s approach to managing traded and non-traded
market risk.
Traded market risk includes interest rates, foreign exchange, commodity, equity prices, credit
spread and volatility risks. Non-traded market risk includes interest rates and foreign exchange
risks.
Market risk is managed using VaR limits, Net interest income at risk (NaR) and structural risk limits
(including credit spread and interest rate basis point value limits) as well as scenario analysis and
stress testing.
The BRCC approves the VaR limits for traded and non-traded risks and the NaR limit for non-
traded risk.
RISKCO has approved separate VaR sub-limits for the trading activities of Financial Markets and
Treasury and for Asset and Liability Management (ALM) activities.
Market risk limits are assigned to business managers based upon business strategies, experience,
and the consideration of market liquidity and the concentration of risks.
Market risk positions are managed by the trading desks and ALM consistent with their delegated
authorities and the nature and scale of the market risks involved.
Daily monitoring of current exposure and limit utilisation is conducted independently by the market
risk unit, which monitors market risk exposures against VaR and structural risk limits. Daily VaR
position reports are produced by risk type, by product lines and by geographic region. Quarterly
reports are produced for RISKCO and the BRCC.
Daily stress testing and backtesting of VaR results is performed to support model integrity and to
analyse extreme or unexpected movements. A review of both the potential profit and loss outcomes
is also undertaken to monitor any skew created by the historical data. RISKCO has ratified an
approved escalation framework.
The BRCC has approved a framework for profit or loss escalation which considers both single day
and 20 day cumulative results.
Treasury’s ALM unit is responsible for managing the non-traded interest rate risk including risk
mitigation through hedge accounting. This is overseen by the market risk unit and reviewed by
RISKCO and BRCC.
Further details regarding the Group’s principal risks including our strategic approach to their management is contained within
the Corporate governance statement in Section 1 and the Risk and risk management section in Section 2.
22.2 Credit Risk
22.2.1 Credit risk ratings system
The principal objective of the credit risk rating system is to reliably assess the credit risk to which the Group is exposed. The
Group has two main approaches to this assessment.
Transaction-managed customers
The Group assigns a Customer Risk Grade (CRG) to each customer, corresponding to their expected PD. Each facility is
assigned an LGD. The Group’s 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 S&P Global Ratings (S&P) external senior ranking
unsecured ratings.
172
2016 Westpac Group Annual Report
Notes to the financial statements
Note 22. Financial risk (continued)
Program-managed portfolio
Customers that are not transaction-managed are grouped into pools of similar risk. Pools are created by analysing
characteristics that have historically predicted that an account is likely to go into default. Customers grouped according to these
predictive characteristics are assigned a PD and LGD relative to their pool.
The table below maps the Group’s high level CRGs to their corresponding external rating.
Financial statement disclosure
Strong
Westpac CRG
A
Good/satisfactory
Weak
Weak/default/non-performing
B
C
D
E
F
G
H
Moody’s Rating
Aaa – Aa3
A1 – A3
Baa1 – Baa3
Ba1 – B1
S&P Rating
AAA – AA–
A+ – A–
BBB+ – BBB–
BB+ – B+
Westpac Rating
Watchlist
Special Mention
Substandard/Default
Default
22.2.2 Credit risk mitigation, collateral and other credit enhancements
Westpac uses a variety of techniques to reduce the credit risk arising from its lending activities.
This includes the Group establishing that it has direct, irrevocable and unconditional recourse to collateral and other credit
enhancements through obtaining legally enforceable documentation.
Collateral
The table below describes the nature of collateral or security held for each relevant class of financial asset:
Loans – housing and personal1 Housing loans are secured by a mortgage over property and additional security may take the
Loans – business1
Trading securities, financial
assets designated at fair value
and derivatives
form of guarantees and deposits.
Personal lending (including credit cards and overdrafts) is predominantly unsecured. Where
security is taken, it is restricted to eligible motor vehicles, caravans, campers, motor homes
and boats.
Business loans 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 security such as guarantees, standby letters of credit or derivative protection may also
be taken as collateral, if appropriate.
These exposures are carried at fair value which reflects the credit risk.
For trading securities, 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.
For derivatives, 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.
1 This includes collateral held in relation to associated credit commitments.
2016 Westpac Group Annual Report
173
3
Note 22. Financial risk (continued)
Management of risk mitigation
The Group mitigates credit risk through controls covering:
Collateral and valuation
management
The estimated realisable value of collateral held in support of loans is based on a
combination of:
formal valuations currently held for such collateral; and
management’s assessment of the estimated realisable value of all collateral held.
This analysis also takes into consideration any other relevant knowledge available to
management at the time. Updated valuations are obtained when appropriate.
The Group revalues collateral related to financial markets positions on a daily basis and has
formal processes in place to promptly call for collateral top-ups, if required. The
collaterisation arrangements are documented via the Credit Support Annex of the
International Swaps and Derivatives Association (ISDA) dealing agreements.
In relation to financial markets positions, Westpac only recognises collateral which is:
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 Aa3 / AA– or better rated sovereign governments.
The Group only recognises guarantees, standby letters of credit, or credit derivative
protection from the following entities (provided they are not related to the entity with which
Westpac has a credit exposure):
Sovereign;
Australia and New Zealand public sector;
ADIs and overseas banks with a minimum risk grade equivalent of A3 / A–; and
Others with a minimum risk grade equivalent of A3 / A–.
Credit Portfolio Management (CPM) manages the Group’s corporate, sovereign and bank
credit portfolios through monitoring the exposure and any offsetting hedge positions.
CPM purchases credit protection from entities meeting the criteria above and sells credit
protection to diversify the Group’s credit risk.
Creditworthy customers domiciled in Australia and New Zealand may enter into formal
agreements with the Group, permitting the Group to set-off gross credit and debit balances in
their nominated accounts. Cross-border set-offs are not permitted.
Close-out netting is undertaken with counterparties with whom the Group has entered into a
legally enforceable master netting agreement for their off-balance sheet financial market
transactions in the event of default.
Further details of offsetting are provided in Note 24.
The Group increasingly executes derivative transactions through central clearing
counterparties. Central clearing counterparties mitigate risk through stringent membership
requirements, the collection of margin against all trades placed, the default fund, and an
explicitly defined order of priority of payments in the event of default.
Other credit enhancements
Offsetting
Central clearing (ASX/LCH)
174
2016 Westpac Group Annual Report
Notes to the financial statements
Note 22. Financial risk (continued)
22.2.3 Credit risk concentrations
Credit risk is concentrated when a number of counterparties are engaged in similar activities, have similar economic
characteristics and thus may be similarly affected by changes in economic or other conditions.
The Group monitors its credit portfolio to manage risk concentrations and rebalance the portfolio.
Individual customers or groups of related customers
The Group 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 related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored against the
Group’s industry risk appetite limits.
Individual countries
The Group has limits governing risks related to individual countries, such as political situations, government policies and
economic conditions that may adversely affect either a customer’s ability to meet its obligations to the Group, or the Group’s
ability to realise its assets in a particular country.
Maximum exposure to credit risk
The carrying amount of on-balance sheet financial assets (which comprises receivables due from financial institutions, trading
securities and financial assets designated at fair value; derivatives; available-for-sale securities; loans; and regulatory deposits
with central banks overseas) and undrawn credit commitments, represents the maximum exposure to credit risk (excluding any
collateral received) as set out in the following tables.
The following tables set out the credit risk concentrations to which the Group and the Parent Entity are exposed for on-balance
sheet financial assets and for undrawn credit commitments.
Life insurance assets are excluded as primarily the credit risk is passed on to the policyholder and backed by the policyholder
liabilities.
The balances for trading securities and financial assets designated at fair value and available-for-sale securities exclude equity
securities as the primary financial risk is not credit risk.
The credit concentrations for each significant class of financial asset are:
Trading securities and financial
assets designated at fair value
(Note 11)
Available-for-sale securities
(Note12)
51% (2015: 48%) were issued by financial institutions for the Group; 50%
(2015: 47%) for the Parent Entity.
45% (2015: 47%) were issued by government or semi-government authorities
for the Group; 45% (2015: 48%) for the Parent Entity.
66% (2015: 72%) were held in Australia by the Group; 72% (2015: 77%) by the
Parent Entity.
23% (2015: 24%) were issued by financial institutions for both the Group and
Parent Entity.
77% (2015: 75%) were issued by government or semi-government authorities
for the Group; 77% (2015: 76%) for the Parent Entity.
90% (2015: 90%) were held in Australia by the Group; 97% (2015: 97%) by the
Parent Entity.
Loans (Note 13)
Note 13 provides a detailed breakdown of loans by industry and geographic
classification.
Derivative financial instruments
(Note 21)
74% (2015: 83%) were issued by financial institutions for both the Group and
Parent Entity.
85% (2015: 88%) were held in Australia by the Group; 85% (2015: 89%) by the
Parent Entity.
2016 Westpac Group Annual Report
175
3
Note 22. Financial risk (continued)
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
Services
Trade
Transport and storage
Utilities
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total gross credit risk
1 Comparatives have been revised for consistency.
2016
Undrawn
credit
commit-
ments
Total on
balance
sheet
Total on
balance
sheet1
Total
7,772
8,127
6,295
65,221
50,711
10,447
4,383
61,983
13,898
16,870
10,322
5,327
418,816
2,509
1,176
1,991
4,251
8,137
1,171
6,193
3,647
19,611
6,930
8,774
4,665
4,116
83,153
1,096
8,948
10,118
10,546
73,358
51,882
16,640
8,030
81,594
20,828
25,644
14,987
9,443
7,712
7,808
6,213
79,569
48,367
11,122
5,316
60,357
12,259
16,389
11,151
4,788
2015
Undrawn
credit
commit-
ments
1,305
1,924
3,958
10,344
912
7,294
3,943
19,848
5,982
7,752
4,112
3,368
Total
9,017
9,732
10,171
89,913
49,279
18,416
9,259
80,205
18,241
24,141
15,263
8,156
501,969
390,617
80,230
470,847
3,605
2,176
816
2,992
682,681
154,911
837,592
663,844
151,788
815,632
610
8,080
1,207
10,692
4,410
2,864
301
14,576
2,652
3,600
1,557
2,370
32,192
264
85,375
118
52
53
7,435
3,798
2,661
590
1,099
99
3,464
1,231
485
1,120
1
119
818
541
1,728
849
1,758
249
3,161
1,259
1,660
1,083
1,437
8,780
17
729
8,898
1,748
12,420
5,259
4,622
550
542
7,441
1,204
9,166
4,548
2,683
426
17,737
13,222
3,911
5,260
2,640
3,807
40,972
281
2,378
3,285
1,395
1,631
27,844
32
105
697
565
2,073
611
1,497
76
2,382
1,106
1,464
916
1,382
8,118
26
647
8,138
1,769
11,239
5,159
4,180
502
15,604
3,484
4,749
2,311
3,013
35,962
58
23,459
108,834
75,797
21,018
96,815
15
1
259
3,838
38
4,454
2,015
405
96
3,409
315
193
38
35
133
53
312
11,273
3,836
7,115
2,605
1,504
195
6,873
1,546
678
1,158
36
111
587
247
11,143
3,689
3,947
778
812
183
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
124
1,078
385
14,907
3,736
9,385
4,156
1,371
414
6,529
1,885
1,059
1,229
113
22,206
790,262
15,111
193,481
37,317
983,743
27,584
767,225
18,787
191,593
46,371
958,818
176
2016 Westpac Group Annual Report
Note 22. Financial risk (continued)
Parent Entity
$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
Services
Trade
Transport and storage
Utilities
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total gross credit risk
1 Comparatives have been revised for consistency.
Notes to the financial statements
2016
Undrawn
credit
commit-
ments
Total on
balance
sheet
Total on
balance
sheet1
Total
7,655
7,947
5,495
63,837
50,646
10,073
4,290
60,544
13,191
16,347
9,762
5,295
414,718
2,321
1,176
1,989
4,250
8,137
1,171
6,191
3,646
19,603
6,929
8,747
4,660
4,116
83,154
1,096
8,831
9,936
9,745
71,974
51,817
16,264
7,936
80,147
20,120
25,094
14,422
9,411
7,561
7,570
5,214
78,214
48,308
10,668
5,161
58,576
11,570
15,723
10,255
4,750
2015
Undrawn
credit
commit-
ments
1,305
1,921
3,957
10,344
912
7,292
3,942
19,831
5,959
7,723
4,102
3,368
Total
8,866
9,491
9,171
88,558
49,220
17,960
9,103
78,407
17,529
23,446
14,357
8,118
497,872
384,424
80,230
464,654
3,417
1,505
811
2,316
672,121
154,865
826,986
649,499
151,697
801,196
-
55
10
4,449
818
219
6
115
132
257
67
622
10
1
-
26
15
172
85
145
5
34
57
260
57
225
14
-
-
81
25
4,621
903
364
11
149
189
517
124
847
24
1
1
73
9
4,212
1,351
219
1
98
60
240
57
446
6
32
6,761
1,095
7,856
6,805
100
51
41
7,176
3,230
2,500
585
851
164
3,143
998
473
556
-
14
1
253
3,821
38
4,357
2,001
396
95
3,284
297
191
30
5
114
52
294
10,997
3,268
6,857
2,586
1,247
259
6,427
1,295
664
586
5
93
586
204
10,703
2,721
3,915
777
584
145
2,752
859
726
617
75
-
6
13
61
24
116
-
37
4
209
209
204
14
-
897
13
491
132
3,763
47
5,290
3,360
536
230
3,469
685
308
25
6
1
79
22
4,273
1,375
335
1
135
64
449
266
650
20
32
7,702
106
1,077
336
14,466
2,768
9,205
4,137
1,120
375
6,221
1,544
1,034
642
81
19,868
698,750
14,783
170,743
34,651
869,493
24,757
681,061
18,355
170,949
43,112
852,010
2016 Westpac Group Annual Report
177
3
Note 22. Financial risk (continued)
22.2.4 Credit quality of financial assets
An asset is considered to be past due when any payment under the contractual terms has been missed. The entire contractual
balance is considered to be past due, rather than only the overdue portion. Assets may be overdue for a number of reasons,
including late payments or incomplete documentation. Late payment may be influenced by the timing of weekends and
holidays. This does not always align with the underlying basis by which credit risk is managed.
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. The credit quality of financial assets that are neither past due nor
impaired is determined by reference to the credit risk ratings system (refer to Note 22.2.1).
Consolidated 2016
$m
Cash and balances
with central banks
Receivables due from
other financial institutions
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
Neither past due nor impaired
Good/
Satisfactory
Strong
Weak
Total
Past due
but not
impaired
Impaired
Total
Impairment
provision
Total
carrying
value
17,015
9,908
20,845
30,931
59,962
-
43
15
1,224
616
-
-
-
71
-
17,015
9,951
20,860
32,226
60,578
-
-
-
-
-
-
-
-
1
-
17,015
9,951
20,860
32,227
60,578
-
-
-
-
-
17,015
9,951
20,860
32,227
60,578
Loans - housing and personal
338,648
119,094
Loans - business
86,959
93,226
1,960
4,472
459,702
184,657
15,067
3,671
515
475,284
(1,320)
473,964
1,644
189,972
(2,010)
187,962
Regulatory deposits with central
banks overseas
Other financial assets2
1,169
4,098
221
357
-
11
1,390
4,466
-
31
-
4
1,390
4,501
-
-
1,390
4,501
Total
569,535
214,796
6,514
790,845
18,769
2,164
811,778
(3,330)
808,448
Neither past due nor impaired
Good/
Satisfactory
Strong
Weak
Total
Past due
but not
impaired
Impaired
Total
Impairment
provision
Total
carrying
value
Consolidated 2015
$m
Cash and balances
with central banks
Receivables due from
other financial institutions
Trading securities and
financial assets
designated at fair value1,3
Derivative financial instruments
Available-for-sale securities1,3
Loans:
14,770
9,583
27,014
47,137
53,922
-
-
16
927
841
Loans - housing and personal
317,870
107,349
Loans - business
83,938
92,020
Regulatory deposits with central
banks overseas
Other financial assets2
1,042
2,666
163
365
-
-
2
109
21
1,512
3,851
104
10
14,770
9,583
27,032
48,173
54,784
-
-
-
-
-
-
-
-
-
-
14,770
9,583
27,032
48,173
54,784
-
-
-
-
-
14,770
9,583
27,032
48,173
54,784
426,731
179,809
14,439
3,470
497
441,667
(1,197)
440,470
1,398
184,677
(1,831)
182,846
1,309
3,041
-
33
-
3
1,309
3,077
-
-
1,309
3,077
Total
782,044
1 Equity securities are excluded from these balances and as result the total carrying value will not represent the balance reported on the balance sheet.
2 Other financial assets include accrued interest of $1,118 million (2015: $1,143 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 $1,195 million (2015: $740 million) are also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
765,232
785,072
557,942
201,681
(3,028)
17,942
5,609
1,898
3 Comparatives have been revised for consistency.
178
2016 Westpac Group Annual Report
Notes to the financial statements
Note 22. Financial risk (continued)
Parent Entity 2016
$m
Cash and balances
with central banks
Receivables due from
other financial institutions
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
Loans - housing and personal
Loans - business
Regulatory deposits with central
banks overseas
Due from subsidiaries
Other financial assets2
Neither past due nor impaired
Good/
Satisfactory
Strong
Weak
Total
Past due
but not
impaired
Impaired
Total
Impairment
provision
Total
carrying
value
15,186
8,282
18,491
30,796
56,111
320,916
73,671
1,169
143,549
3,449
-
43
9
1,222
6
89,510
75,651
100
-
269
-
-
-
71
-
1,509
2,533
-
-
7
15,186
8,325
18,500
32,089
56,117
411,935
151,855
1,269
143,549
3,725
-
-
-
-
-
13,713
3,122
-
-
27
-
-
-
1
-
15,186
8,325
18,500
32,090
56,117
-
-
-
-
-
15,186
8,325
18,500
32,090
56,117
425
426,073
(1,033)
425,040
1,399
156,376
(1,677)
154,699
-
-
3
1,269
143,549
3,755
-
-
-
1,269
143,549
3,755
Total
671,620
166,810
4,120
842,550
16,862
1,828
861,240
(2,710)
858,530
Neither past due nor impaired
Good/
Satisfactory
Strong
Weak
Total
Past due
but not
impaired
Impaired
Total
Impairment
provision
Total
carrying
value
-
-
2
926
2
-
-
2
109
21
13,372
8,741
24,765
47,540
50,315
-
-
-
-
-
-
-
-
-
-
13,372
8,741
24,765
47,540
50,315
-
-
-
-
-
13,372
8,741
24,765
47,540
50,315
75,388
71,329
1,034
3,061
381,795
149,756
12,750
2,832
364
394,909
(993)
393,916
1,051
153,639
(1,480)
152,159
Parent Entity 2015
$m
Cash and balances
with central banks
Receivables due from
other financial institutions
Trading securities and
financial assets
designated at fair value1,3
Derivative financial instruments
Available-for-sale securities1,3
Loans:
Loans - housing and personal
Loans - business
Regulatory deposits with central
banks overseas
Due from subsidiaries
Other financial assets2
13,372
8,741
24,761
46,505
50,292
305,373
75,366
1,042
145,560
2,166
6
-
256
104
1,152
-
7
145,560
2,429
-
-
27
-
-
2
1,152
145,560
2,458
-
-
-
1,152
145,560
2,458
839,978
(2,473)
4,338
Total
1 Equity securities are excluded from these balances and as a result the total carrying value will not represent the balance reported on the
842,451
825,425
147,909
673,178
15,609
1,417
balance sheet.
2 Other financial assets include accrued interest of $948 million (2015: $957 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 $1,192 million (2015: $725 million) are also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
3 Comparatives have been revised for consistency.
Details of collateral held in support of these balances are provided in Note 22.2.8.
2016 Westpac Group Annual Report
179
3
Note 22. Financial risk (continued)
22.2.5 Financial assets that are past due, but not impaired
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
Other financial assets
Total1
1 Comparatives have been revised for consistency.
2016
2015
1-5 days 6-89 days 90+ days
Total
1-5 days
6-89 days 90+ days
Total
3,681
1,052
8
8,834
2,154
18
2,552
15,067
3,997
465
5
3,671
31
838
9
8,867
2,151
20
1,575
14,439
481
3,470
4
33
4,741
11,006
3,022
18,769
4,844
11,038
2,060
17,942
Parent Entity
$m
Loans:
Loans – housing and personal
Loans – business
Other financial assets
Total
2016
2015
1-5 days 6-89 days 90+ days
Total
1-5 days
6-89 days 90+ days
Total
3,258
878
7
7,951
1,869
15
2,504
13,713
3,648
375
5
3,122
27
640
8
7,573
1,860
16
1,529
12,750
332
2,832
3
27
4,143
9,835
2,884
16,862
4,296
9,449
1,864
15,609
Details of collateral held in support of these balances are provided in Note 22.2.8.
22.2.6 Items 90 days past due, or otherwise in default, and not impaired
These include financial assets that are:
currently 90 days or more past due but well secured;
assets that were, but are no longer 90 days past due but are yet to satisfactorily demonstrate sustained improvement to
allow reclassification; and
other assets in default and not impaired, including those where an order for bankruptcy or similar legal action has been
taken (e.g. appointment of an Administrator or Receiver).
Consolidated
$m
Australia
New Zealand
Other Overseas
Total
Gross amount
2016
3,075
89
17
2015
2,149
130
13
2014
2,134
85
22
3,181
2,292
2,241
22.2.7 Impaired loans
The determination of the provision for impairment is one of the Group’s critical accounting assumptions and estimates. Details
of this and the Group’s accounting policy for the provision for impairment charges are discussed in Notes 6 and 14.
Impaired loans are those for which there is objective evidence that their principal or interest payments may not be recoverable.
These include:
Non-performing loans (aligned to an impaired internal credit risk grade);
Unsecured facilities including overdrafts, personal loans and revolving credit facilities which are greater than 90 days past
due; and
Restructured loans (the original contractual terms have been modified to provide for concessions for a customer facing
financial difficulties).
180
2016 Westpac Group Annual Report
Note 22. Financial risk (continued)
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:
Notes to the financial statements
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
2016
Loans –
Business
136
(76)
60
379
(173)
206
515
(249)
266
1,472
(793)
679
172
(25)
147
1,644
(818)
826
Loans –
Housing and
Personal
2016
Loans –
Business
104
(63)
41
321
(146)
175
425
(209)
216
1,237
(689)
548
162
(24)
138
1,399
(713)
686
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
Total
1,608
(869)
739
551
(198)
353
2,159
(1,067)
1,092
Total
1,341
(752)
589
483
(170)
313
1,824
(922)
902
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
2016 Westpac Group Annual Report
181
3
Note 22. Financial risk (continued)
The gross amount of impaired loans, along with the provision for impairment, by type and geography of impaired loans at
30 September, is summarised in the table below:
Consolidated
$m
Australia
Non-performing loans
Gross amount
Impairment provision
Net
Restructured loans
Gross amount
Impairment provision
Net
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Gross amount
Impairment provision
Net
New Zealand
Non-performing loans
Gross amount
Impairment provision
Net
Restructured loans
Gross amount
Impairment provision
Net
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Gross amount
Impairment provision
Net
Other Overseas
Non-performing loans
Gross amount
Impairment provision
Net
Restructured loans
Gross amount
Impairment provision
Net
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Gross amount
Impairment provision
Net
Total net impaired assets
2016
2015
2014
2013
2012
1,589
(769)
820
13
(11)
2
267
(159)
108
218
(95)
123
16
(4)
12
10
(7)
3
44
(21)
23
2
(1)
1
1,220
(572)
648
22
(12)
10
252
(164)
88
348
(104)
244
17
(4)
13
10
(7)
3
25
(13)
12
-
-
-
1,580
(697)
883
34
(23)
11
203
(132)
71
397
(130)
267
-
-
-
13
(9)
4
53
(35)
18
59
(21)
38
2,574
(1,099)
1,475
3,212
(1,199)
2,013
34
(23)
11
181
(126)
55
586
(210)
376
-
-
-
14
(9)
5
89
(54)
35
122
(33)
89
43
(19)
24
186
(126)
60
743
(224)
519
-
-
-
12
(7)
5
79
(40)
39
110
(25)
85
-
-
-
1,092
1
(1)
-
1,018
1
-
1
1,293
-
-
-
2,046
1
(1)
-
2,745
Details of collateral held in support of these balances are provided in Note 22.2.8.
182
2016 Westpac Group Annual Report
Note 22. Financial risk (continued)
The following table summarises the interest received and forgone on non-performing loans and restructured financial assets:
Notes to the financial statements
Consolidated 2016
$m
Interest received
Interest forgone
Australia
2
76
Overseas
12
2
Total
14
78
22.2.8 Collateral held
Loans
The Group analyses the coverage of the loan portfolio which is secured by the collateral that it holds. Coverage is measured
as follows:
Coverage
Fully secured
Partially secured
Unsecured
Secured loan to collateral value ratio
Less than or equal to 100%
Greater than 100% but not more than 150%
Greater than 150%, or no security held (e.g. can include credit cards, personal loans, and
exposure to highly rated corporate entities)
The Group’s loan portfolio has the following coverage from collateral held:
Neither past due nor impaired
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Past due but not impaired
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Loans –
Housing and
Personal
96.7
1.1
2.2
100.0
Loans –
Housing and
Personal
97.7
0.3
2.0
100.0
Loans –
Housing and
Personal
92.7
3.0
4.3
100.0
2016
Loans –
Business
53.5
25.7
20.8
100.0
2016
Loans –
Business
55.1
23.9
21.0
100.0
2016
Loans –
Business
47.9
28.9
23.2
100.0
Loans –
Housing and
Personal
96.1
1.4
2.5
100.0
Loans –
Housing and
Personal
97.5
0.3
2.2
100.0
Total
84.3
8.2
7.5
100.0
Total
86.3
6.6
7.1
100.0
Loans –
Housing and
Personal
92.5
2.6
4.9
100.0
Total
84.0
8.0
8.0
100.0
2015
Loans –
Business
51.3
24.8
23.9
100.0
2015
Loans –
Business
51.5
23.7
24.8
100.0
2015
Loans –
Business
48.6
27.7
23.7
100.0
Total
82.8
8.4
8.8
100.0
Total
84.6
6.9
8.5
100.0
Total
84.1
7.4
8.5
100.0
2016 Westpac Group Annual Report
183
3
Note 22. Financial risk (continued)
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Impaired
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Loans –
Housing and
Personal
95.7
0.6
3.7
100.0
Loans –
Housing and
Personal
63.9
13.0
23.1
100.0
Loans –
Housing and
Personal
69.6
6.4
24.0
100.0
2016
Loans –
Business
47.8
26.9
25.3
100.0
2016
Loans –
Business
11.4
35.4
53.2
100.0
2016
Loans –
Business
9.9
38.5
51.6
100.0
Loans –
Housing and
Personal
95.4
0.7
3.9
100.0
Total
86.8
5.5
7.7
100.0
Loans –
Housing and
Personal
59.2
16.3
24.5
100.0
Loans –
Housing and
Personal
67.6
6.9
25.5
100.0
Total
24.0
30.0
46.0
100.0
Total
23.8
31.0
45.2
100.0
2015
Loans –
Business
47.5
26.2
26.3
100.0
2015
Loans –
Business
23.2
34.8
42.0
100.0
2015
Loans –
Business
17.3
34.7
48.0
100.0
Collateral held against financial assets other than loans
Consolidated
Parent Entity
$m
Cash, primarily for derivatives
Securities under reverse repurchase agreements1
Securities under derivatives and stock borrowing1
2016
1,788
3,260
135
Total other collateral held
1 Securities received as collateral are not recognised on the Group’s balance sheet.
5,183
2015
4,057
3,983
152
8,192
2016
1,730
3,260
135
5,125
Total
86.8
5.3
7.9
100.0
Total
32.6
29.9
37.5
100.0
Total
30.2
27.6
42.2
100.0
2015
3,465
3,983
152
7,600
22.3 Funding and liquidity risk
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 and
scenarios. These scenarios inform liquidity limits and strategic planning.
The Liquidity Coverage Ratio (LCR) requires banks to hold sufficient high-quality liquid assets, as defined by APRA, to
withstand 30 days under a regulator-defined acute stress scenario. The LCR came into effect on 1 January 2015. Westpac
maintains a buffer over the regulatory minimum of 100%.
184
2016 Westpac Group Annual Report
Note 22. Financial risk (continued)
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:
Notes to the financial statements
deposits;
debt issues;
proceeds from sale of marketable securities;
repurchase agreements with central banks;
principal repayments on loans;
interest income; and
fee income.
Group’s funding composition
The Group monitors the composition and stability of its funding so that it remains within the Group's funding risk appetite. This
includes targeting greater than 75% of total funding from stable sources. Stable sources include customer deposits, wholesale
term funding with residual maturity greater than 12 months, securitisation and equity.
The Group’s overall funding composition saw a 104 basis point increase in stable sources in 2016 due mainly to an increase in
customer deposits and equity.
%
Customer deposits
Wholesale term funding with residual maturity greater than 12 months
Wholesale funding with a residual maturity less than 12 months
Securitisation
Equity
Group's total funding
2016
60.9
15.0
15.2
1.2
7.7
100.0
2015
59.3
15.4
16.2
1.7
7.4
100.0
Movements in the Group’s funding composition in 2016 included:
Customer deposits increased by 161 basis points to 60.9% of the Group’s total funding at 30 September 2016, reflecting
growth in term deposits.
Long term funding with a residual maturity greater than 12 months decreased, down 36 basis points to 15.0%, as did
funding from securitisation, down 47 basis points to 1.2%.
Wholesale funding with a residual maturity less than 12 months also decreased, down 104 basis points to 15.2%. This
portfolio had a weighted average maturity of 134 days and is more than covered by the $144.3 billion of unencumbered
repo-eligible liquid assets and cash held by the Group.
Funding from equity increased by 27 basis points to 7.7% mainly due to impact of the Share Entitlement Offer in November
2015.
Maintaining a diverse funding base with the capacity and flexibility to access a wide range of funding markets, debt investors,
currencies, maturities and products is an important part of managing liquidity risk. 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 (See Note 19).
In Full Year 2016 the Group raised $41.8 billion of term wholesale funding with a weighted average maturity of 5.4 years
(excluding securitisation). This included benchmark senior and covered bond trades in all major currencies, an auto ABS
transaction in A$, as well as smaller senior bond trades and private placements. New term issuance also included $3.6 billion
of Basel III compliant Additional Tier 1 and Tier 2 capital (see Note 20).
Borrowings and outstanding issuances from existing debt programs at 30 September 2016 can be found in Note 16, Note 17,
Note 19 and Note 20.
2016 Westpac Group Annual Report
185
3
Note 22. Financial risk (continued)
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 (RBA) or another central bank and are held in cash,
Government, State Government and highly rated investment grade securities. 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 a central bank (including internal securitisation)
have increased by $5.3 billion to $126.3 billion over the last 12 months.
Given the limited amount of government debt in Australia, the RBA, jointly with APRA, has made available to Australian 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%) p.a. to the RBA on the approved facility. The Group has
received approval from APRA for a CLF of $49.1 billion for the 2017 calendar year (2016: $58.6 billion).
A summary of the Group’s 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
2016
2015
Actual
16,221
1,088
10,062
60,193
56,057
663
Average
19,889
618
7,537
55,645
56,481
493
Actual
14,375
11
10,968
52,815
57,249
201
Average
18,159
355
16,898
43,098
61,111
269
Total liquid assets
139,890
1 Loans are self-originated AAA rated mortgage backed securities which are eligible for repurchase with the RBA and Reserve Bank of New Zealand.
144,284
135,619
140,663
Credit ratings
As at 30 September 2016 the Parent Entity's credit ratings were:
2016
S&P Global Ratings
Moody’s Investors Services
Fitch Ratings
Short-term
A-1+
Long-term
AA-
P-1
F1+
Aa2
AA-
Outlook
Negative
Negative
Stable
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 currently paid on our wholesale borrowings.
On 7 July 2016, S&P affirmed Westpac’s credit rating at AA-, however, as a result of S&P revising the outlook for the Australian
sovereign rating to ‘negative’ from ‘stable’, Westpac’s outlook was also revised to ‘negative’ from ‘stable’.
On 18 August 2016, Moody’s affirmed Westpac’s credit rating at Aa2, but revised the outlook to ‘negative’ from ‘stable’. The
revision in outlook follows Moody’s revision of the Australian Macro Profile to ‘Very Strong-’ from ‘Very Strong’.
22.3.3 Assets pledged as collateral
The Group and Parent Entity are required to provide collateral to other financial institutions, as part of standard terms, to secure
liabilities. In addition to assets supporting securitisation and covered bond programs disclosed in Note 25, the carrying value of
these financial assets pledged as collateral is:
$m
Cash1
Cash deposit on stock borrowed
Securities (including certificates of deposit)
Securities pledged under repurchase agreements
Total amount pledged to secure liabilities
1 Primarily comprised of Receivables due from other financial institutions.
Consolidated
Parent Entity
2016
8,177
18
3,041
11,647
22,883
2015
8,079
31
1,854
15,651
25,615
2016
7,490
18
3,041
11,265
21,814
2015
8,064
31
1,854
15,651
25,600
186
2016 Westpac Group Annual Report
Notes to the financial statements
Note 22. Financial risk (continued)
22.3.4 Contractual maturity of financial liabilities
The tables below present cash flows associated with financial liabilities, payable at the balance sheet date, by remaining
contractual maturity. The amounts disclosed in the table are the future 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 over the remaining contractual term.
Derivatives held for trading and certain liabilities classified in “Other financial liabilities at fair value through income statement”
are not managed for liquidity purposes on the basis of their contractual maturity, and accordingly these liabilities are presented
in the up to 1 month column. Only the liabilities that the Group manages based on their contractual maturity are presented on a
contractual undiscounted basis in the tables below.
Consolidated 2016
$m
Financial 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
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
12,798
315,122
3,301
28,588
99
2,205
(2,137)
3,443
1,967
2,696
82,287
1,403
-
283
4,140
(3,641)
15,693
543
2,596
177
-
18,267
102,111
16,880
425
516,825
-
-
-
-
-
-
4,704
28,588
1,140
3,196
498
5,216
9,958
(8,625)
44,516
2,443
6,418
722
23,443
(5,564)
(628)
(20,595)
100,127
14,306
178,085
-
-
4,953
Total financial liabilities excluding loan capital
365,386
103,404
154,139
121,234
15,323
759,486
Loan capital
-
85
257
4,353
13,275
17,970
Total undiscounted financial liabilities
365,386
103,489
154,396
125,587
28,598
777,456
Total contingent liabilities and commitments
Letters of credit and guarantees
Commitments to extend credit
Other commitments
Total undiscounted contingent liabilities and commitments
16,435
176,811
235
193,481
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,435
176,811
235
193,481
2016 Westpac Group Annual Report
187
3
Note 22. Financial risk (continued)
Consolidated 2015
$m
Financial 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 financial liabilities excluding loan capital
Loan capital1
Total undiscounted financial liabilities1
Total contingent liabilities and commitments
Letters of credit and guarantees1
Commitments to extend credit
Other commitments
Total undiscounted contingent liabilities and commitments1
1 Comparatives have been revised for consistency.
Parent Entity 2016
$m
Financial 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 financial liabilities excluding loan capital
Loan capital
Total undiscounted financial liabilities
Total contingent liabilities and commitments
Letters of credit and guarantees
Commitments to extend credit
Other commitments
Total undiscounted contingent liabilities and commitments
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
14,941
306,518
5,941
43,475
129
3,687
(3,580)
5,369
1,289
377,769
573
378,342
17,018
174,391
184
191,593
2,331
78,744
2,250
-
221
4,152
(3,965)
12,930
563
97,226
171
97,397
-
-
-
-
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
992
16,918
(2,197)
(977)
(16,112)
98,791
13,750
180,225
-
-
4,385
133,980
115,582
14,703
739,260
231
2,805
11,710
15,490
134,211
118,387
26,413
754,750
-
-
-
-
-
-
-
-
-
-
-
-
17,018
174,391
184
191,593
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
12,782
286,669
2,920
29,223
81
2,182
(2,127)
2,900
142,808
1,932
479,370
-
479,370
15,725
154,783
235
170,743
2,696
66,726
1,403
-
228
3,872
(3,464)
14,221
-
480
86,162
85
86,247
-
-
-
-
2,544
89,864
177
-
18,199
15,181
405
458,845
-
-
-
-
-
-
4,323
29,223
901
2,887
494
4,591
6,671
(5,889)
37,773
-
2,159
2,473
120
15,318
(2,329)
(113)
(13,922)
86,633
11,969
153,496
-
-
-
-
142,808
4,571
134,023
105,022
12,875
817,452
257
4,353
13,275
17,970
134,280
109,375
26,150
835,422
-
-
-
-
-
-
-
-
-
-
-
-
15,725
154,783
235
170,743
188
2016 Westpac Group Annual Report
Note 22. Financial risk (continued)
Parent Entity 2015
$m
Financial 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 financial liabilities excluding loan capital
Loan capital1
Total undiscounted financial liabilities1
Total contingent liabilities and commitments
Letters of credit and guarantees1
Commitments to extend credit
Other commitments
Total undiscounted contingent liabilities and commitments1
1 Comparatives have been revised for consistency.
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
573
495,258
16,390
154,375
184
170,949
2,332
66,983
2,250
-
192
3,586
(3,444)
10,568
-
491
82,958
171
83,129
-
-
-
-
1,221
69,461
251
201
11,183
432
-
18,244
233
372
427,273
9,246
-
801
-
-
43,917
2,431
324
3,857
5,511
(5,306)
42,765
-
2,210
778
(745)
176
13,682
(169)
(13,190)
83,412
10,683
152,245
-
-
-
-
144,650
3,944
116,914
97,692
11,619
803,868
231
2,805
11,710
15,490
117,145
100,497
23,329
819,358
-
-
-
-
-
-
-
-
-
-
-
-
16,390
154,375
184
170,949
22.3.5 Expected maturity
The tables below present the balance sheet based on expected maturity dates, except for deposits, based on historical
behaviours. The liability balances in the following tables will not agree to the contractual maturity tables (Note 22.3.4) 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 securities 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, the Group would expect a large proportion of these balances to be retained.
2016 Westpac Group Annual Report
189
3
Note 22. Financial risk (continued)
Consolidated 2016
$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
17,015
9,951
14,633
24,886
13,499
88,962
7,409
776
-
5,621
182,752
18,037
497,072
4,752
24,349
59,464
1,184
9,935
614,793
2,173
616,966
(434,214)
-
-
6,535
7,341
47,166
572,964
6,783
614
726
14,321
656,450
172
15,999
-
11,727
110,438
11,177
910
150,423
13,632
164,055
492,395
Total
17,015
9,951
21,168
32,227
60,665
661,926
14,192
1,390
726
19,942
839,202
18,209
513,071
4,752
36,076
169,902
12,361
10,845
765,216
15,805
781,021
58,181
190
2016 Westpac Group Annual Report
Notes to the financial statements
Note 22. Financial risk (continued)
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)
Parent Entity 2016
$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
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
Due within
12 Months
Greater than
12 Months
15,186
8,325
12,847
24,872
12,617
70,686
655
143,549
-
4,598
293,335
17,969
441,290
4,371
24,096
52,196
142,808
8,063
690,793
2,173
692,966
(399,631)
-
-
5,715
7,218
43,544
509,053
614
-
4,622
11,619
582,385
172
14,452
-
11,113
93,380
-
804
119,921
13,632
133,553
448,832
2016 Westpac Group Annual Report
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
Total
15,186
8,325
18,562
32,090
56,161
579,739
1,269
143,549
4,622
16,217
875,720
18,141
455,742
4,371
35,209
145,576
142,808
8,867
810,714
15,805
826,519
49,201
191
3
Note 22. Financial risk (continued)
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
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)
-
-
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
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
22.4 Market risk
22.4.1 Value-at-Risk
The Group uses VaR as one of the mechanisms for controlling both traded and non-traded market risk.
VaR is a statistical estimate of the potential loss in earnings over a specified period of time and to a given level of confidence
based on historical market movements. The confidence level indicates the probability that the loss will not exceed the VaR
estimate on any given day.
VaR seeks to take account of all material market variables that may cause a change in the value of the portfolio, including
interest rates, foreign exchange rates, price changes, volatility and the correlations between these variables.
The key parameters of VaR are:
Holding period
Confidence level
Period of historical data used
Stressed VaR measures
1 day
99%
1 year
10 day, 99% confidence level
192
2016 Westpac Group Annual Report
Note 22. Financial risk (continued)
22.4.2 Traded market risk
The table below depicts the aggregate VaR, by risk type, for the year ended 30 September:
Consolidated and Parent Entity
2016
2015
2014
Notes to the financial statements
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
1
2
High
14.0
12.2
2.9
4.5
6.0
n/a
18.7
Low Average
8.8
4.6
1.4
0.1
1.4
2.6
n/a
7.7
5.1
0.3
2.7
3.6
(8.0)
12.5
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
Includes electricity risk.
Include prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
22.4.3 Non-traded market risk
Non-traded market risk includes interest rate risk in the banking book (IRRBB) – the risk to interest income from a mismatch
between the duration of assets and liabilities that arises in the normal course of business activities.
Net interest income (NII) sensitivity is managed in terms of the NaR. A simulation model is used to calculate Westpac’s
potential NaR. This 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, over a three year time horizon
using a 99% confidence interval, 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.
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
2016
2015
Maximum
Exposure
Minimum
Exposure
Average
Exposure
1.08
0.85
0.14
(0.11)
0.47
0.23
As at
0.89
0.54
As at
0.12
(0.11)
Maximum
Exposure
Minimum
Exposure
Average
Exposure
0.66
0.41
(0.26)
(0.50)
0.23
0.04
Value at Risk – IRRBB1
The table below depicts VaR for IRRBB:
$m
Consolidated
As at
49.5
2016
High
53.6
Low
31.1
Average
39.4
As at
31.1
2015
High
37.5
Low
31.1
Average
34.3
As at 30 September 2016 the Value at Risk – IRRBB for the Parent Entity was $42.9 million (2015: $44.4 million).
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.
The Group hedges its exposure to such interest rate risk using derivatives. Further details on the Group’s hedge accounting are
discussed in Note 21.
The same controls as used to monitor traded market risk allow management to continuously monitor and manage IRRBB.
1
IRRBB VaR includes interest rate risk, credit spread risk on liquid assets and other basis risks as used for internal management purposes.
Comparatives have been revised for consistency.
2016 Westpac Group Annual Report
193
3
Note 22. Financial risk (continued)
Structural foreign exchange risk
Structural foreign exchange risk results from the generation of foreign currency denominated earnings and from Westpac’s
capital deployed in offshore branches and subsidiaries, where it is denominated in currencies other than Australian dollars. As
exchange rates move, the Australian dollar equivalent of offshore earnings and capital is subject to change that could introduce
significant variability to the Bank’s reported financial results and capital ratios. To minimise this impact, Westpac manages
offshore earnings and capital on the following basis:
New Zealand future earnings are overseen by Group Asset and Liability Committee (ALCO) and may be hedged as per
policy approved by Group ALCO;
Permanent capital (capital permanently employed in an offshore jurisdiction to meet regulatory, prudential and/or strategic
requirements) of subsidiaries and branches is not hedged. However, hedges on permanently deployed capital may still be
considered in light of the cyclical nature of currency valuations;
Free capital (capital that can be repatriated at Westpac’s discretion), excluding capital denominated in minor currencies,
may be fully hedged; and
Minor currencies may not be hedged because of liquidity, expensive pricing and materiality.
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 from an active market to the contrary. Where unobservable information is used, the difference between
the transaction price and the fair value (day one profit or loss) is only recognised in the income statement when the inputs
become observable, or over the life of the instrument.
Critical accounting assumptions and estimates
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 availability of observable inputs is influenced by factors such as:
product type;
depth of market activity;
maturity of market models; and
Where unobservable market data is used, more judgement is required to determine fair value. The significance of these
judgements depends on the significance of the unobservable input to the overall valuation. Unobservable inputs are generally
derived from other relevant market data and adjusted against:
complexity of the transaction.
economic models; and
standard industry practice;
In order to determine a reliable fair value for a financial instrument, management may apply adjustments to the techniques
previously described. These adjustments reflect the Group’s assessment of factors that market participants would consider in
setting the fair value.
observed transaction prices.
These adjustments incorporate bid/offer spreads, credit valuation adjustments and funding valuation adjustments.
Fair Valuation Control Framework
The Group uses a Fair Valuation Control Framework where the fair value is either determined or validated by a function
independent of the transaction. This framework formalises the policies and procedures used 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.
194
2016 Westpac Group Annual Report
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
A key element of the Framework is the WIB Revaluation Committee, comprising senior valuation specialists from within the
Group. The WIB Revaluation Committee reviews the application of the agreed policies and procedures to assess that a fair
value measurement basis has been applied.
The method of determining fair value differs depending on the information available.
Fair value hierarchy
A financial instrument’s categorisation within the valuation hierarchy is based on the lowest level input that is significant to the
fair value measurement.
The Group categorises all fair value instruments according to the hierarchy described below.
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:
Level 1 instruments
The fair value of financial instruments traded in active markets based on recent unadjusted quoted prices. These prices are
based on actual arm’s length basis transactions.
The valuations of Level 1 instruments require little or no management judgement.
Instrument
Exchange traded
products
Balance sheet
category
Derivatives
Foreign exchange
products
Derivatives
Commodity
products
Derivatives
Derivatives
Valuation
Includes:
Exchange traded interest
rate futures and options
FX spot and futures
contracts
Commodity, energy and
carbon futures
Equity products
Trading securities and
financial assets
designated at fair value
Other financial liabilities
at fair value through
income statement
Trading securities and
financial assets
designated at fair value
Listed equities and equity
indices
Non-asset backed
debt instruments
Available-for-sale
securities
Australian and New
Zealand Commonwealth
government bonds
Other financial liabilities
at fair value through
income statement
Life insurance
assets and
liabilities
Life insurance assets
Life insurance liabilities
Listed equities, exchange
traded derivatives and
short sale of listed equities
within controlled managed
investment schemes
All these instruments are traded in liquid,
active markets where prices are readily
observable. No modelling or assumptions are
used in the valuation.
2016 Westpac Group Annual Report
195
3
Note 23. Fair values of financial assets and financial liabilities (continued)
Level 2 instruments
The fair value for financial instruments that are not actively traded are determined using valuation techniques which maximise
the use of observable market prices. Valuation techniques include:
the use of market standard discounting methodologies;
option pricing models; and
other valuation techniques widely used and accepted by market participants.
Instrument
Balance sheet
category
Includes:
Interest rate
derivatives
Derivatives
Interest rate and inflation
swaps, swaptions, caps,
floors, collars and other
non-vanilla interest
rate derivatives
Valuation
Industry standard valuation models are used to
calculate the expected future value of payments
by product, which is discounted back to a
present value. The model’s interest rate inputs
are benchmark interest rates such as BBSW and
active broker quoted interest rates in the swap,
bond and futures markets. Interest rate
volatilities are sourced through a consensus data
provider.
Foreign exchange
products
Derivatives
FX swap, FX forward
contracts, FX options and
other non-vanilla FX
derivatives
Derived from market observable inputs or
consensus pricing providers using industry
standard models.
Other credit
products
Derivatives
Single Name and Index
credit default swaps (CDS)
Commodity
products
Derivatives
Commodity, energy and
carbon derivatives
Equity products
Derivatives
Exchange traded equity
options, OTC equity
options and equity warrants
Asset backed debt
instruments
Trading securities and
financial assets
designated at fair value
Available-for-sale
securities
Australian residential
mortgage backed securities
(RMBS) denominated in
Australian dollar, offshore
RMBS and other asset
backed securities (ABS).
Valued using an industry standard model that
incorporates the credit spread as its principal
input. Credit spreads are obtained from
consensus data providers. If consensus prices
are not available, these are classified as level 3
instruments.
Valued using industry standard models.
The models calculate the expected future value
of deliveries and payments and discounts them
back to a present value. The model 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. If
consensus prices are not available, these are
classified as level 3 instruments.
Due to low liquidity exchange traded options are
level 2.
Valued using industry standard models based on
observable parameters such as stock prices,
dividends, volatilities and interest rates.
Valued using an industry approach to value
floating rate debt with prepayment features. The
main inputs to the model are the trading margin
and the weighted average life (WAL) of the
security. These inputs are sourced from a
consensus data provider. If consensus prices
are not available these are classified as level 3
instruments.
196
2016 Westpac Group Annual Report
Note 23. Fair values of financial assets and financial liabilities (continued)
Level 2 Instruments (continued)
Notes to the financial statements
Instrument
Balance sheet category Includes:
Trading securities and
financial assets
designated at fair value
State and other government
bonds, corporate bonds and
commercial paper.
Non-asset backed
debt instruments
Available-for-sale
securities
Regulatory deposits
Other financial liabilities
through income statement
Security repurchase
agreements and reverse
repurchase agreements
over non-asset backed debt
securities.
Loans at fair value Loans
Fixed rate bills
Certificates of
deposit
Deposits and other
borrowings
Certificates of deposit
Debt issues at fair
value
Debt issues
Debt issues
Life insurance
assets and
liabilities
Life insurance assets
Life insurance liabilities
Corporate bonds, over the
counter derivatives, units in
unlisted unit trusts, life
insurance contract liabilities,
life investment contract
liabilities and external
liabilities of managed
investment schemes
controlled by statutory life
funds.
Valuation
Valued using observable market prices which
are sourced from consensus pricing services,
broker quotes or inter-dealer prices.
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.
Discounted cash flow using market rates offered
for deposits of similar remaining maturities.
Discounted cash flows, 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.
Valued using observable market prices or other
widely used and accepted valuation techniques
utilising observable market input.
2016 Westpac Group Annual Report
197
3
Note 23. Fair values of financial assets and financial liabilities (continued)
Level 3 instruments
Financial instruments valued where at least one input that could have a significant effect on the instrument’s valuation is not
based on observable market data 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 historical transactions.
These valuations are calculated using a high degree of management judgement.
Instrument
Balance sheet
category
Includes:
Asset backed debt
instruments
Trading securities and
financial assets
designated at fair value
Available-for-sale
securities
Australian issued RMBS
denominated in foreign
currency and synthetic
collateralised debt
obligations (CDO)
Valuation
Australian issued RMBS denominated in foreign
currency is classified as level 3 as the trading
margin is considered unobservable. Trading
volumes in these instruments are low. Data from
the Australian denominated RMBS market is
used to derive the fair value for these
instruments.
Synthetic CDOs are valued using a model that
uses a combination of established analytic and
numerical approaches. The model calculates the
fair value based on observable and
unobservable parameters including credit
spreads, recovery rates, correlations and interest
rates. Some of the model inputs (e.g.
correlations) are indirectly implied or
unobservable.
Non-asset backed
debt instruments
Trading securities and
financial assets
designated at fair value
Available-for-sale
securities
Government securities
(predominantly PNG
government bonds)
Government securities from illiquid markets are
classified as level 3. Fair value is monitored by
reference to recent issuances.
198
2016 Westpac Group Annual Report
Note 23. Fair values of financial assets and financial liabilities (continued)
The table below summarises the attribution of financial instruments carried at fair value to the fair value hierarchy:
Consolidated
2016
2015
Notes to the financial statements
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
2,431
21
5,047
-
5,076
17,897
32,163
54,914
5,562
9,116
-
1,008
840
43
704
-
-
-
21,168
32,227
60,665
5,562
14,192
2,446
39
2,071
-
4,560
24,001
48,090
51,811
7,076
8,565
1,008
-
945
1,007
44
918
-
-
-
27,454
48,173
54,800
7,076
13,125
945
12,575
120,660
1,587
134,822
9,116
140,488
1,969
151,573
$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
Regulatory deposits with central banks
overseas
Total financial assets carried
at fair value1
Financial liabilities measured at
fair value on a recurring basis
Deposits and other borrowings at fair value
-
44,227
44,227
-
46,239
Other financial liabilities at fair
value through income statement
Derivative financial instruments
Debt issues at fair value
Life insurance liabilities
Total financial liabilities carried at fair
value
151
12
-
1,180
4,601
36,047
6,303
11,181
-
-
4,752
17
36,076
-
-
6,303
12,361
414
35
-
775
8,812
48,230
9,300
10,784
-
-
39
18
-
46,239
9,226
48,304
9,318
11,559
1,343
102,359
17
103,719
1,224
123,365
57
124,646
Parent Entity
2016
2015
$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
Regulatory deposits with central banks
overseas
Total financial assets carried
at fair value1
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 financial liabilities carried at fair
value
1
Comparatives have been revised for consistency.
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
1,976
21
3,513
-
-
15,996
32,027
52,598
5,562
1,008
590
42
50
-
-
18,562
32,090
56,161
5,562
1,008
2,446
39
598
-
-
21,729
47,457
49,654
7,076
945
721
44
79
-
-
24,896
47,540
50,331
7,076
945
5,510
107,191
682
113,383
3,083
126,861
844
130,788
-
43,171
4,220
35,180
3,589
151
12
-
163
-
-
17
-
43,171
-
45,331
4,371
35,209
3,589
414
35
-
8,812
47,978
6,415
-
-
37
-
45,331
9,226
48,050
6,415
86,160
17
86,340
449
108,536
37
109,022
2016 Westpac Group Annual Report
199
3
Note 23. Fair values of financial assets and financial liabilities (continued)
Analysis of movements between Fair Value Hierarchy Levels
During the year there were no material transfers between levels of the fair value hierarchy. Transfers into and out of Level 3 are
reported using the fair values at the end of year and are discussed in the following table. These have occurred due to changes
in observability in the significant inputs in the valuation models.
Reconciliation of non-market observables
The tables below summarise the changes in financial instruments measured at fair value derived from non-market observable
valuation techniques (level 3):
Consolidated 2016
$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 2016
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
44
1,007
Available-
for-Sale
Securities
918
Total
Level 3
Assets Derivatives
39
1,969
Debt
Issues
at Fair
Value
18
Total
Level 3
Liabilities
57
(1)
-
83
(245)
-
(4)
840
(6)
-
15
(11)
1
-
43
-
2
(7)
2
3,135
3,233
(3,215)
(3,471)
-
(136)
704
1
(140)
1,587
(12)
-
11
(17)
(4)
-
17
(9)
9
-
-
(1)
6
-
-
(24)
-
-
-
-
(6)
-
11
(41)
(4)
-
17
(1)
Trading Securities
and Financial
Assets Designated at
Fair Value Derivatives
5
988
Available-
for-Sale
Securities
822
Total
Level 3
Assets Derivatives
30
1,815
Debt
Issues
at Fair
Value
18
Total
Level 3
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
200
2016 Westpac Group Annual Report
Note 23. Fair values of financial assets and financial liabilities (continued)
Notes to the financial statements
Parent Entity 2016
$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 2016
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
Trading Securities
and Financial
Assets Designated at
Fair Value Derivatives
44
721
8
-
72
(207)
-
(4)
590
(7)
-
15
(11)
1
-
42
Available-
for-Sale
Securities
79
-
2
81
(109)
-
(3)
50
Total
Level 3
Assets Derivatives
37
844
Total
Level 3
Liabilities
37
1
2
168
(327)
1
(7)
682
(10)
-
11
(17)
(4)
-
17
(10)
-
11
(17)
(4)
-
17
(1)
1
8
-
9
(1)
Trading Securities
and Financial
Assets Designated at
Fair Value Derivatives
5
779
Available-
for-Sale
Securities
170
Total
Level 3
Assets Derivatives
30
954
Total
Level 3
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
2016 Westpac Group Annual Report
201
3
Note 23. Fair values of financial assets and financial liabilities (continued)
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 year was $6 million
(30 September 2015: $6 million profit).
Financial instruments not measured at fair value
For financial instruments not measured at fair value on a recurring basis, fair value has been derived as follows:
Instrument
Loans
Valuation
Where available, the fair value of loans is based on observable market transactions; otherwise 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 are
other borrowings
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.
All other financial
assets and
liabilities
For all other financial assets and liabilities, the carrying value approximates the fair value. These items are
either short-term in nature, re-price frequently or are of a high credit rating.
202
2016 Westpac Group Annual Report
Note 23. Fair values of financial assets and financial liabilities (continued)
The following table summarises the estimated fair value and fair value hierarchy of financial instruments not measured at
fair value:
Notes to the financial statements
671,689
Total financial liabilities
1 The estimated fair value of debt issues includes the impact of changes in Westpac’s credit spreads since origination.
673,988
1,615
Consolidated
$m
Financial assets not measured at fair value
Cash and balances with central banks
Receivables due from other financial institutions
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 issues1
Loan capital
Other financial liabilities
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 assets1
Financial liabilities not measured at fair value
Payables due to other financial institutions
Deposits and other borrowings
Debt issues2
Loan capital
Other financial liabilities
2016
Fair Value
Quoted
Market
Prices
(Level 1)
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Carrying
Amount
17,015
9,951
656,364
382
4,501
17,015
7,128
-
382
-
688,213
24,525
18,209
468,844
163,599
15,805
7,531
1,615
-
-
-
-
Carrying
Amount
14,770
9,583
33
616,240
364
3,077
14,770
7,602
-
-
364
-
644,067
22,736
18,731
429,089
161,736
13,840
6,861
4,037
-
-
-
-
-
1,887
-
-
4,501
6,388
16,594
466,980
164,811
15,773
7,531
-
1,158
-
-
-
3,077
4,235
14,694
426,726
162,107
13,495
6,861
Total
17,015
9,951
657,594
382
4,501
-
936
657,594
-
-
658,530
689,443
-
2,729
-
-
-
2,729
18,209
469,709
164,811
15,773
7,531
676,033
Total
14,770
9,583
33
-
823
33
617,250
617,250
-
-
364
3,077
618,106
645,077
-
3,303
-
-
-
3,303
18,731
430,029
162,107
13,495
6,861
631,223
2015
Fair Value
Quoted
Market
Prices
(Level 1)
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total financial liabilities
1 Comparatives have been revised for consistency.
2 The estimated fair value of debt issues includes the impact of changes in Westpac’s credit spreads since origination.
630,257
4,037
623,883
2016 Westpac Group Annual Report
203
3
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
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
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 assets1
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
1 Comparatives have been revised for consistency.
Carrying
Amount
15,186
8,325
574,177
261
143,549
3,755
745,253
18,141
412,571
141,987
142,808
15,805
6,832
738,144
Carrying
Amount
13,372
8,741
13
538,999
207
145,560
2,458
709,350
18,133
380,178
138,300
143,885
13,840
6,105
700,441
2016
Fair Value
Quoted
Market
Prices
(Level 1)
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
15,186
6,441
-
261
-
-
21,888
1,557
-
-
-
-
-
-
1,884
-
-
-
3,755
5,639
16,584
412,289
143,116
-
-
574,947
-
143,549
-
718,496
-
1,098
-
-
142,808
15,773
6,832
-
-
1,557
594,594
143,906
2015
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
-
1,155
-
-
-
-
2,458
3,613
14,688
379,681
138,628
-
-
13
-
145,560
-
685,024
-
1,349
-
-
143,885
13,495
6,105
-
-
3,445
552,597
145,234
Quoted
Market
Prices
(Level 1)
13,372
7,586
-
-
207
-
-
21,165
3,445
-
-
-
-
-
Total
15,186
8,325
574,947
261
143,549
3,755
746,023
18,141
413,387
143,116
142,808
15,773
6,832
740,057
Total
13,372
8,741
13
207
145,560
2,458
709,802
18,133
381,030
138,628
143,885
13,495
6,105
701,276
539,451
539,451
204
2016 Westpac Group Annual Report
Notes to the financial statements
Note 24. Offsetting financial assets and financial liabilities
Accounting policy
Financial assets and liabilities are presented net in the balance sheet when the Group has a legally enforceable right to offset
them in all circumstances and there is an intention to settle the asset and liability on a net basis, or to realise the asset and
settle the liability simultaneously. The gross assets and liabilities behind the net amounts reported in the balance sheet are
disclosed in the table below.
Some of the Group’s offsetting arrangements are not enforceable in all circumstances. The assets and liabilities under such
agreements are also disclosed in the table below, to illustrate the net balance sheet amount if these future events should occur.
The amounts in the tables below may not tie back to the balance sheet if there are balances which are not subject to offsetting
arrangements. 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 22.2.2.
Consolidated
$m
2016
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
Security repurchase agreements5
Deposits and other borrowings3
Other liabilities4
Total liabilities
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
Security repurchase agreements5
Deposits and other borrowings3
Other liabilities4
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
18
-
44,886
(12,659)
3,260
22,036
2,926
73,126
50,110
9,372
29,706
773
-
(21,963)
(2,148)
(36,770)
(14,034)
-
(21,963)
(773)
89,961
(36,770)
31
57,678
3,982
15,949
1,369
79,009
58,671
13,908
24,369
105
-
(9,505)
-
(15,757)
(959)
(26,221)
(10,367)
-
(15,757)
(97)
18
32,227
3,260
73
778
36,356
36,076
9,372
7,743
-
53,191
31
48,173
3,982
192
410
52,788
48,304
13,908
8,612
8
-
-
(22,551)
(1,774)
(17)
(118)
-
-
-
(14)
(3,246)
-
-
-
-
(22,551)
(1,788)
(3,381)
(22,551)
(8,031)
-
-
-
(1)
-
-
(3,041)
(9,371)
-
-
1
7,784
-
73
778
8,636
2,453
-
7,743
-
(22,551)
(8,032)
(12,412)
10,196
-
(33,696)
-
(4,046)
(30)
(122)
1
10,309
-
-
-
(11)
(3,971)
-
-
-
-
-
192
410
(33,696)
(4,057)
(4,123)
10,912
(33,696)
(7,973)
(1,854)
4,781
-
-
-
(6)
-
-
(13,902)
-
-
-
8,612
8
Total liabilities
70,832
1 Consist of stock borrowing arrangements, reported as part of cash collateral in Note 10.
2 Securities purchased under agreement to resell forms part of Note 11.
3 Consist of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of business
(26,221)
(33,696)
(15,756)
(7,979)
97,053
13,401
loans in Note 13 and part of deposits and other borrowings at amortised cost in Note 17.
4 Gross amounts consist of initial and variation margin held directly with central clearing counterparties, reported as part of Other in Note 27. Where
variation margin is payable it is reported as part of Other in Note 29. Amounts offset relate to variation margin.
5 Security repurchase agreements form part of Note 16 recognised at amortised cost and part of Note 18 recognised at fair value through income
statement.
2016 Westpac Group Annual Report
205
3
Note 24. Offsetting financial assets and financial liabilities (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
Sheet
Other
Recognised
Financial
Instruments
Cash
Collateral
Financial
Instrument
Collateral
Net
Amount
Parent Entity
$m
2016
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
Security repurchase agreements5
Deposits and other borrowings3
Other liabilities4
Total liabilities
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
Security repurchase agreements5
Deposits and other borrowings3
Other liabilities4
Total liabilities
18
-
44,749
(12,659)
3,260
22,036
2,926
72,989
49,243
8,991
29,706
773
-
(21,963)
(2,148)
(36,770)
(14,034)
-
(21,963)
(773)
88,713
(36,770)
31
57,045
3,982
15,949
1,369
78,376
58,417
13,908
24,369
105
96,799
-
(9,505)
-
(15,757)
(959)
(26,221)
(10,367)
-
(15,757)
(97)
(26,221)
18
32,090
3,260
73
778
36,219
35,209
8,991
7,743
-
51,943
31
47,540
3,982
192
410
52,155
48,050
13,908
8,612
8
70,578
-
-
(22,431)
(1,716)
(17)
(118)
-
-
-
(14)
(3,246)
-
-
-
-
(22,431)
(1,730)
(3,381)
(22,431)
(7,344)
-
-
-
(1)
-
-
(3,041)
(8,990)
-
-
1
7,825
-
73
778
8,677
2,393
-
7,743
-
(22,431)
(7,345)
(12,031)
10,136
-
(33,510)
-
-
-
(33,510)
-
(3,454)
(11)
-
-
(3,465)
(30)
(122)
1
10,454
(3,971)
-
-
192
-
(4,123)
410
11,057
(33,510)
(7,958)
(1,854)
4,728
-
-
-
(33,510)
(6)
-
-
(7,964)
(13,902)
-
-
8,612
-
(15,756)
8
13,348
1 Consist of stock borrowing arrangements, reported as part of cash collateral in Note 10.
2 Securities purchased under agreement to resell form part of Note 11.
3 Consist 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 and part of deposits and other borrowings at amortised cost in Note 17.
4 Gross amounts consist of initial and variation margin held directly with central clearing counterparties, reported as part of other in Note 27. Where
variation margin is payable it is reported as part of other in Note 29. Amounts offset relate to variation margin.
5 Security repurchase agreements form part of Note 16 recognised at amortised cost and part of Note 18 recognised at fair value through income
statement.
Other recognised financial instruments
These financial assets and liabilities are subject to master netting agreements which are not enforceable in all circumstances,
so they are recognised gross in the balance sheet. The offsetting rights of the master netting arrangements can only be
enforced if a predetermined event occurs in the future, such as a counterparty defaulting.
Cash collateral and financial instrument collateral
These amounts are received or pledged under master netting arrangements against the gross amounts of assets and liabilities.
Financial instrument collateral typically comprises securities which can be readily liquidated in the event of counterparty default.
The offsetting rights of the master netting arrangement can only be enforced if a predetermined event occurs in the future, such
as a counterparty defaulting.
206
2016 Westpac Group Annual Report
Notes to the financial statements
Note 25. Securitisation, covered bonds and other transferred assets
The Group enters into transactions in the normal course of business by which financial assets are transferred to counterparties
or structured entities. Depending on the circumstances, these transfers may result in derecognition of the assets in their
entirety, partial derecognition or no derecognition of the assets subject to the transfer. For the Group’s accounting policy on
derecognition of financial assets refer to the notes to the financial statements section before Note 10 titled ‘Financial assets and
financial liabilities’.
Securitisation
Securitisation is the transferring of assets (or an interest in either the assets or the cash flows arising from the assets) to a
structured entity which then issues interest bearing debt securities to third party investors.
Own assets securitised
Securitisation of its own assets is used by Westpac as a funding, liquidity and capital management tool.
For securitisation structured entities which Westpac controls, as defined in Note 35, the structured entities are classified as
subsidiaries and consolidated. When assessing whether Westpac controls a structured entity, it considers its exposure to and
ability to affect variable returns. Westpac may have variable returns from a structured entity through ongoing exposures to the
risks and rewards associated with the assets, the provision of derivatives, liquidity facilities, trust management and operational
services.
Undrawn funding and liquidity facilities of $503 million were provided by Westpac (30 September 2015: $492 million) for the
securitisation of its own assets.
Customer conduits
Westpac also facilitates securitisation structures to arrange funding on behalf of customers in customer conduits through a
subsidiary (Waratah Receivables Corporation Limited and its subsidiaries). The assets securitised are not assets of Westpac.
The lending provided to the customer conduits is disclosed in Note 10 and the funding liability is disclosed in Note 19.
Westpac provided undrawn liquidity facilities to the customer conduits of $936 million at 30 September 2016 (30 September
2015: $823 million).
Covered bonds
The Group has two covered bond programs relating to Australian residential mortgages (Australian Program) and New Zealand
residential mortgages (New Zealand Program). Under these programs, selected pools of residential mortgages are assigned to
bankruptcy remote structured entities which provide guarantees on the payments to bondholders. Through the guarantees and
derivatives with the structured entities, Westpac has variable returns from these structured entities and consolidated them.
Security repurchase agreements
Where securities are sold subject to an agreement to repurchase at a predetermined price, they remain recognised on the
balance sheet in their original category (i.e. Trading securities or Available-for-sale securities).
The cash consideration received is recognised as a liability (Security repurchase agreements). Refer Notes 16 and 18 for
further details.
2016 Westpac Group Annual Report
207
3
Note 25. Securitisation, covered bonds and other transferred assets (continued)
The following table presents Westpac’s assets transferred and their associated liabilities:
Consolidated
$m
2016
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total3
2015
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total3
Parent Entity
$m
2016
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total
2015
Securitisation - own assets1
Covered bonds2
Repurchase agreements
For those liabilities that only have recourse to
the transferred assets:
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Fair value of
transferred
assets
Fair value of
associated
liabilities
Net fair value
position
9,503
45,409
11,265
66,177
12,054
40,263
15,651
67,968
9,445
33,529
9,372
52,346
12,034
35,062
13,908
61,004
9,557
n/a
n/a
9,557
9,382
n/a
n/a
9,382
12,098
12,016
n/a
n/a
n/a
n/a
12,098
12,016
175
n/a
n/a
175
82
n/a
n/a
82
For those liabilities that only have recourse to
the transferred assets:
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Fair value of
transferred
assets
Fair value of
associated
liabilities
Net fair value
position
94,853
38,237
11,265
94,364
30,211
8,991
94,944
91,794
n/a
n/a
n/a
n/a
144,355
133,566
94,944
91,794
98,201
35,238
15,651
96,797
31,401
13,908
98,266
96,708
n/a
n/a
n/a
n/a
3,150
n/a
n/a
3,150
1,558
n/a
n/a
Total
1 The carrying amount of assets securitised exceeds the amount of notes issued primarily because the carrying amount includes both principal and
149,090
142,106
96,708
98,266
1,558
income received from the transferred assets.
2 The difference between the carrying values of covered bonds and the assets pledged reflects the over-collateralisation required to maintain the
ratings of the covered bonds and also additional assets to allow immediate issuance of additional covered bonds if required. These additional assets
can be repurchased by Westpac at its discretion, subject to the conditions set out in the transaction documents.
3 This table excludes securitisation – customer conduits as the assets securitised are not assets of Westpac.
208
2016 Westpac Group Annual Report
Notes to the financial statements
OTHER ASSETS, OTHER LIABILITIES, COMMITMENTS AND
CONTINGENCIES
Note 26. Intangible assets
Accounting policy
Indefinite life intangible assets
Goodwill
Goodwill acquired in a business combination is initially measured at cost, generally being the excess of:
i)
ii)
the consideration paid; over
the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.
Subsequently, goodwill is not amortised but rather tested for impairment. Impairment is tested at least annually or whenever
there is an indication of impairment. An impairment charge is recognised when a cash generating unit’s (CGU) carrying value
exceeds its recoverable amount. Recoverable amount means the higher of the CGU’s fair value less costs to sell and its value-
in-use.
Brand names
Brand names acquired in a business combination including St George, BT, Bank SA and RAMS, are recognised at cost.
Subsequently brand names are not amortised but tested for impairment at least annually or whenever there is an indication of
impairment.
Finite life intangible assets
Finite life intangibles including computer software and core deposits, are recognised initially at cost and subsequently at
amortised cost less any impairment.
Intangible
Goodwill
Brand names
Useful life
Indefinite
Indefinite
Depreciation method
Not applicable
Not applicable
Computer software
3 to 10 years
Straight-line or the diminishing balance
method (using the Sum of the Years Digits)
Core deposit intangibles
Other intangibles
9 years
3 to 8 years
Straight-line
Straight-line
Critical accounting assumptions and estimates
Judgement is required in determining the fair value of assets and liabilities acquired in a business combination. A different
assessment of fair values would have resulted in a different goodwill balance and different post-acquisition performance of the
acquired entity.
When assessing impairment of intangible assets, significant judgement is needed to determine the appropriate cash flows and
discount rates to be applied to the calculations. The significant assumptions applied to the value-in-use calculations are
outlined below.
2016 Westpac Group Annual Report
209
3
Note 26. Intangible assets (continued)
$m
Goodwill
Opening balance
Disposals of controlled entities1
Other adjustments
Closing balance
Computer software
Opening balance
Additions
Impairment
Amortisation
Other adjustments
Closing balance
Cost
Accumulated amortisation and impairment
Carrying amount
Brand Names
Opening balance
Closing balance
Carrying amount
Core deposit intangibles
Opening balance
Amortisation
Closing balance
Cost
Accumulated amortisation
Carrying amount
Other intangible assets
Opening balance
Additions through business combination
Disposals of controlled entities1
Amortisation
Exchange rate and other adjustments
Closing balance
Cost
Accumulated amortisation and impairment
Carrying amount
Consolidated
Parent Entity
2016
2015
2016
2015
8,809
-
20
8,829
9,112
(343)
40
8,809
6,653
6,653
-
-
-
-
6,653
6,653
1,654
2,070
1,512
1,856
696
(6)
(565)
2
1,781
4,453
(2,672)
1,781
670
670
670
352
(165)
187
1,494
(1,307)
187
89
4
-
(40)
-
53
398
(345)
53
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
628
(6)
(497)
(2)
1,635
3,693
(2,058)
1,635
636
636
636
352
(165)
187
1,279
(1,092)
187
27
-
-
(24)
-
3
160
(157)
3
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
Total intangible assets
9,180
1 2015 attributable to the partial sale of BTIM and the sale of banking operations in the Pacific Island nations. Further information is disclosed in Note
11,574
11,520
9,114
35 and Note 41.
210
2016 Westpac Group Annual Report
Note 26. Intangible assets (continued)
Goodwill has been allocated to the following CGUs:
$m
Consumer Bank1
Business Bank1
Westpac Retail & Business Banking1
St.George Banking Group1
Westpac Institutional Bank
BT Financial Group (Australia)
New Zealand Retail Banking
BT New Zealand
Hastings
Notes to the financial statements
Consolidated
Parent Entity
2016
3,244
2,427
-
-
487
2,048
489
14
120
2015
-
-
980
4,691
487
2,048
471
12
120
2016
3,039
2,292
-
-
487
835
-
-
-
2015
-
-
980
4,351
487
835
-
-
-
Total goodwill
6,653
1 Goodwill has been reallocated to the new CGUs, Consumer Bank and Business Bank, as a result of the restructure of the Group’s Australian retail
8,829
6,653
8,809
and business banking operations.
Significant assumptions used in recoverable amount calculations
Assumptions are used to determine the CGU’s recoverable amount for goodwill, which is based on value-in-use calculations.
Value-in-use refers to the present value of expected cash flows under its current use. The Group discounts the projected cash
flows by its adjusted pre-tax equity rate.
Group’s equity rate was 11.0% (2015: 11.0%)
Group’s adjusted pre-tax equity rate for:
o Australia was 15.7% (2015: 15.7%)
o New Zealand was 15.3% (2015: 15.3%)
For the purpose of goodwill impairment testing, the assumptions in the following table are made for each significant CGU. The
forecasts applied by management are not reliant on any one particular assumption.
Assumption
Cash flows
Based on:
Zero growth rate beyond 2 year forecast
Economic market conditions
Current market expectations
Business performance
Observable historical information and current market
expectations of the future
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
2016
1,118
1,195
101
744
216
171
1,588
5,133
2015
1,143
740
119
902
199
229
962
4,294
2016
948
1,192
1
305
148
71
1,390
4,055
2015
957
725
2
505
149
96
860
3,294
2016 Westpac Group Annual Report
211
3
Note 28. Provisions
Accounting policy
Provisions are recognised for present obligations arising from past events where a payment (or other economic transfer) is
likely to be necessary to settle the obligation and can be reliably estimated.
Employee benefits – long service leave
Long service leave must be granted to employees in Australia and New Zealand. The provision is calculated based on the
expected payments. When payments are expected to be more than one year in the future, the payments factor in expected
employee service periods, average salary increases and are then discounted.
Employee benefits – annual leave and other employee benefits
The provision for annual leave and other employee benefits (including wages and salaries, inclusive of non-monetary benefits,
and any associated on-costs (e.g. payroll tax)) is calculated based on expected payments.
Provision for impairment on credit commitments
The Group is committed to provide facilities and guarantees as explained in Note 31. If it is probable that a facility will be drawn
and the resulting asset will be less than the drawn amount then a provision for impairment is recognised. The provision for
impairment is calculated using the same methodology as the provision for impairment charges on loans (refer to Note 14).
Critical accounting assumptions and estimates
Some of the provisions involve significant judgement about the likely outcome of various events and estimated future cash
flows.
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.
Provisions carried for long service leave are supported by an independent actuarial report.
$m
Consolidated
Balance at 1 October 2015
Disposals of controlled entities
Additions
Utilisation
Reversal of unutilised provisions
Unwinding of discount
Other
Balance at 30 September 2016
Parent Entity
Balance at 1 October 2015
Disposals of controlled entities
Additions
Utilisation
Reversal of unutilised provisions
Unwinding of discount
Other
Balance at 30 September 2016
Long
Service
Leave
Annual Leave
and Other
Employee
Benefits
Litigation
and Non-
Lending
Losses
Provision for
Impairment
on Credit
Commitments
Leasehold
Premises
Restructuring
Provisions
348
-
71
(43)
-
-
3
379
320
-
66
(40)
-
-
-
346
755
(1)
915
(961)
(12)
-
-
696
677
(1)
860
(890)
(12)
-
(18)
616
28
-
33
(28)
(1)
-
-
32
16
-
26
(18)
-
-
-
24
304
-
-
-
-
8
(40)
272
273
-
-
-
-
7
(40)
240
28
-
13
(14)
-
-
-
27
28
-
-
(1)
-
-
-
27
26
-
11
(20)
(3)
-
-
14
18
-
11
(12)
(3)
-
-
14
Total
1,489
(1)
1,043
(1,066)
(16)
8
(37)
1,420
1,332
(1)
963
(961)
(15)
7
(58)
1,267
Legislative liabilities
The Group had the following assessed liabilities as at 30 September 2016:
212
$15 million (2015: $16 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);
$11 million (2015: $13 million) based on actuarial assessment as a self-insurer under the Accident Compensation Act
1985 (Victoria);
$4 million (2015: $4 million) based on actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1986 (South Australia);
2016 Westpac Group Annual Report
Notes to the financial statements
Note 28. Provisions (continued)
$2 million (2015: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Rehabilitation Act 2003 (Queensland);
$1 million (2015: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act
1951 (Australian Capital Territory);
$1 million (2015: $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 (2015: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1988 (Tasmania).
Adequate provision has been made for these liabilities in the provision for annual leave and other employee benefits above.
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.
Consolidated
Parent Entity
2016
388
331
282
2,579
255
1,695
1,124
2,350
9,004
2015
343
284
192
2,626
274
1,007
1,276
2,114
8,116
2016
-
-
256
2,262
-
1,692
884
2,192
7,286
2015
-
-
175
2,301
-
998
958
2,001
6,433
Note 30. Operating lease commitments
Westpac leases various commercial and retail premises and related plant and equipment. The lease commitments at
30 September are as follows:
$m
Due within one year
Due after one year but not later than five years
Due after five years
Total lease commitments
Consolidated
Parent Entity
2016
537
1,319
1,275
3,131
2015
553
1,391
1,436
3,380
2016
463
1,120
1,046
2,629
2015
480
1,189
1,207
2,876
Operating leases are entered into to meet the business needs of entities in the Group. 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.
The future minimum lease payments receivable from non-cancellable sub-leases were $11 million (2015: $10 million) for both
the Group and Parent Entity.
2016 Westpac Group Annual Report
213
3
Note 31. Contingent liabilities, contingent assets and credit commitments
Undrawn credit commitments
The Group enters into various arrangements with customers which are only recognised in the balance sheet when called upon.
These arrangements include commitments to extend credit, bill endorsements, financial guarantees, standby letters of credit
and underwriting facilities.
They expose the Group to liquidity risk when called upon and also to credit risk if the customer fails to repay the amounts owed
at the due date. The maximum exposure to credit loss is the contractual or notional amount of the instruments disclosed below.
Some of the arrangements can be cancelled by the Group at any time and a significant portion is expected to expire without
being drawn. The actual required liquidity and credit risk exposure is therefore less than the amounts disclosed.
The Group uses the same credit policies when entering into these arrangements as it does for on-balance sheet instruments.
Refer to Note 22 for further details of liquidity risk and credit risk management.
Undrawn credit commitments excluding derivatives at 30 September are as follows:
$m
Undrawn credit commitments
Letters of credit and guarantees1
Commitments to extend credit2
Other
Consolidated
Parent Entity
2016
2015
2016
2015
16,435
17,018
15,725
16,390
176,811
174,391
154,783
154,375
235
184
235
184
Total undrawn credit commitments
1 Letters of credit and guarantees are undertakings to pay, against presentation documents, an obligation in the event of a default by a customer.
193,481
191,593
170,743
170,949
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.
2 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
2016 the Group had offered $5.6 billion (2015: $9.3 billion) of facilities to customers, which had not yet been accepted.
Consolidated 2016
$m
Letters of credit and guarantees
Commitments to extend credit
Other
Total undrawn credit commitments
Up to
1 Year
9,063
66,728
63
75,854
Over 1
to 3 Years
3,479
35,090
-
38,569
Over 3
to 5 Years
1,027
21,085
73
22,185
Over
5 Years
2,866
53,908
99
56,873
Total
16,435
176,811
235
193,481
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.
Contingent liabilities
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 provisions have been made where
appropriate.
As part of ASIC’s ongoing industry-wide investigations into the interbank short-term money market and its impact on the
setting of the bank bill swap reference rate (BBSW), on 5 April 2016, ASIC commenced civil proceedings against Westpac
in the Federal Court of Australia, alleging certain misconduct including market manipulation and unconscionable conduct.
The conduct that is the subject of the proceedings is alleged to have occurred between 6 April 2010 and 6 June 2012.
Westpac is defending these proceedings. ASIC is seeking from the court declarations that Westpac breached various
provisions of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth),
pecuniary penalties of unspecified amounts and orders requiring Westpac to implement a comprehensive compliance
program for persons involved in Westpac’s trading in the relevant market.
In August 2016, a class action was filed in the United States District Court for the Southern District of New York against
Westpac and a large number of other Australian and international banks alleging misconduct in relation to BBSW. These
proceedings are at an early stage and the level of damages sought has not been specified. Westpac is defending these
proceedings.
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 is defending these proceedings.
214
2016 Westpac Group Annual Report
Notes to the financial statements
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Regulatory reviews
Globally, regulators continue to progress various reviews involving the financial services sector. The nature of these reviews
can be wide ranging and, for example, in Australia currently include investigations by regulators into potential misconduct in
financial services, including in relation to Spot FX trading and financial advice. During the year, Westpac has received various
notices and requests for information from its regulators as part of both industry-wide and Westpac-specific reviews. The
outcomes and total costs associated with such reviews remains uncertain.
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.
Contingent tax risk
Tax authorities are 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 holds appropriate provisions.
Settlement risk
The Group is subject to a credit risk exposure in the event that another counterparty fails to settle for its payments clearing
activities (including foreign exchange). The Group seeks 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 mechanism.
Parent Entity guarantees and undertakings
The Parent Entity makes the following guarantees and undertakings to subsidiaries:
letters of comfort for certain subsidiaries which recognise that Westpac has a responsibility that those subsidiaries continue
to meet their obligations; and
guarantees to certain wholly owned subsidiaries which are Australian financial services or credit licensees to comply with
legislative requirements. Each guarantee is capped at $40 million per year and can only be utilised if the entity concerned
becomes legally obliged to pay for a claim under the relevant licence. The Parent Entity has a right to recover any funds
payable under the guarantees from the relevant subsidiary.
2016 Westpac Group Annual Report
215
3
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.
Other equity instruments and non-controlling interests
The convertible notes are presented in the Parent Entity balance sheet as equity in other equity instruments because Westpac
has the discretion, but no obligation, to deliver cash or a variable number of shares in settlement of the notes during their term.
The trust preferred securities are presented in the consolidated balance sheet as non-controlling interests because they are
equity instruments issued by a subsidiary of the Group.
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 and
recognised in the income statement 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 disposed of 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 equity-settled 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. The reserve
is eliminated on consolidation.
Other reserves for the Group consist of transactions relating to changes 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
Share capital
Ordinary share capital, fully paid
Restricted Share Plan (RSP) treasury shares held1
Other treasury shares held2
Total treasury shares held
Total share capital
Other equity instruments
Convertible notes
Non-controlling interests
Trust preferred securities
Other non-controlling interests
Total non-controlling interests
1 2016: 3,472,010 shares held (2015: 4,478,150).
2 2016: 5,852,290 shares held (2015: 5,423,555).
Consolidated
Parent Entity
2016
2015
2016
2015
33,469
29,280
33,469
29,280
(366)
(89)
(455)
(304)
(81)
(385)
(366)
(3)
(369)
(304)
(4)
(308)
33,014
28,895
33,100
28,972
-
-
61
61
-
755
62
817
-
-
-
-
755
-
-
-
216
2016 Westpac Group Annual Report
Notes to the financial statements
Note 32. Shareholders’ equity (continued)
Ordinary shares
Westpac does not have authorised capital and the ordinary shares have no par value. Ordinary shares entitle the holder to
participate in dividends and, in the event of Westpac winding up, to a share of the proceeds in proportion to the number of and
amounts paid on the shares held.
Each ordinary share entitles the holder to one vote, either in person or by proxy, at a shareholder meeting.
Reconciliation of movement in number of ordinary shares
2015
3,109,048,309
-
43,999,852
30,859,625
3,183,907,786
Consolidated and Parent Entity
(number)
Opening balance
Share entitlement offer
1
Dividend reinvestment plan
2
Dividend reinvestment plan underwrite
3
2016
3,183,907,786
138,998,404
23,260,663
-
Closing balance
1 The price for the issuance of shares in relation to the entitlement offer was $25.50. Net issue costs of $36 million were recognised in contributed
3,346,166,853
equity.
2 The price for the issuance of shares in relation to the dividend reinvestment plan for the 2015 final dividend was $31.83 and the 2016 interim dividend
was $30.43.
3 The price for the issuance of shares in relation to the 2015 interim dividend reinvestment plan underwrite was $32.40.
Ordinary shares purchased on market
Consolidated and Parent Entity
For share-based payment arrangements:
Employee share plan (ESP)
Restricted share plan (RSP)1
WPP - options exercised2
WPP - share rights exercised
LTI - options exercised2
LTI - share rights exercised
CEOPP - share rights exercised
As treasury shares:
Treasury shares purchased (excluding RSP)3
Treasury shares sold
2016
2016
Number
Average Price ($)
890,112
1,919,802
84,182
289,807
5,858
334,095
68,020
1,234,152
(805,417)
30.45
32.46
30.97
30.70
31.11
31.44
31.45
28.84
29.06
Total ordinary shares purchased/(sold) on market4
1 Ordinary shares allocated to employees under the RSP are classified as treasury shares until the shares vest. During the year, 1,919,802 RSP
4,020,611
treasury shares were issued to employees.
2 The average exercise price received was $23.05 on the exercise of the WPP options and $29.96 on the exercise of the LTI options.
3 Treasury shares include ordinary shares held by statutory life funds and managed investment schemes and ordinary shares held by Westpac for
equity derivatives sold to customers.
4 The purchase of ordinary shares on market resulted in a tax benefit of $2.1 million being recognised as contributed equity.
For details of the share-based payment arrangements refer to Note 37.
Convertible notes and 2006 Trust Preferred Securities (2006 TPS)
In 2006, a Westpac controlled entity, Westpac TPS Trust, issued 7,627,375 2006 TPS at $100 each. The TPS were preferred
units in the Westpac TPS Trust. The Westpac TPS Trust also issued one ordinary unit to Westpac at $100.
The principal assets of Westpac TPS Trust were 7,627,375 convertible notes issued by Westpac for $762,737,500.
On 30 June 2016, the convertible notes and 2006 TPS were redeemed in full for cash.
2016 Westpac Group Annual Report
217
3
Note 32. Shareholders’ equity (continued)
Reconciliation of movement in reserves
$m
Available-for-sale securities reserve
Opening balance
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Exchange differences
Closing balance
Share-based payment reserve
Opening balance
Share-based payment expense
Closing balance
Cash flow hedging reserve
Opening balance
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Closing balance
Foreign currency translation reserve
Opening balance
Exchange differences on translation of foreign operations (net of associated hedges)
Closing balance
Other reserves
Opening balance
Transactions with owners
Closing balance
Group's share of reserves of associates
Total reserves
Consolidated
Parent Entity
2016
2015
2016
2015
(25)
53
(15)
(8)
2
3
10
1,217
116
1,333
26
(304)
89
21
(4)
(172)
(175)
(238)
(413)
(17)
(2)
(19)
(12)
727
129
(148)
46
(73)
21
-
(25)
1,076
141
1,217
162
(59)
14
(131)
40
26
(190)
15
(175)
(1)
(16)
(17)
5
1,031
(41)
69
(19)
(1)
-
2
10
1,108
113
1,221
131
(193)
58
(106)
32
(78)
(299)
(105)
(404)
41
-
41
-
790
79
(152)
47
(21)
6
-
(41)
983
125
1,108
150
140
(42)
(167)
50
131
(332)
33
(299)
41
-
41
-
940
218
2016 Westpac Group Annual Report
Notes to the financial statements
Note 33. Capital adequacy
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. 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 the 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 external stakeholders’ perspectives, including rating agencies, equity investors and debt investors.
APRA supervises various financial services providers in Australia, including Westpac Banking Corporation. APRA’s capital
adequacy regulations are generally consistent with, but more conservative than, the Basel Committee on Banking Supervision
(BCBS)’s regulations.
APRA’s minimum capital adequacy requirements under the Basel III framework are:
Ratio
Definition
Common Equity Tier 1 capital ratio of at
least 4.5% of risk weighted assets (RWA)
Tier 1 capital ratio of at least 6.0% of RWA
Total Regulatory Capital ratio of at least 8.0% of
RWA
Subject to certain limitations, paid-up share capital, retained profits and
certain reserves, less certain intangible assets, capitalised expenses,
and retained earnings in insurance and funds management subsidiaries.
Common Equity Tier 1 capital plus AT1 capital; securities with loss
absorbing characteristics that are not already included in Common Equity
Tier 1 capital. Refer to Notes 20 and 32 for details.
Tier 1 capital plus Tier 2 capital; other components of capital that have
loss absorbing characteristics and contribute to Westpac’s capacity to
absorb losses but are lower quality than Tier 1 capital. Refer to Note 20
for details.
From 1 January 2016, APRA required Australian banks to hold capital buffers above minimum capital requirements. At 30
September 2016, the capital conservation buffer (CCB) applicable to Westpac totals 3.5% of RWA, and includes a base
requirement of 2.5% and Westpac’s Domestic Systemically Important Banks (D-SIB) surcharge of 1%. At APRA’s discretion, a
further countercyclical buffer of between 0% and 2.5% of RWA may be applied. The countercyclical buffer is currently set to
zero in Australia and New Zealand.
Westpac’s preferred range for its Common Equity Tier 1 capital Ratio is calibrated to provide a buffer above the sum of the
4.5% minimum Common Equity Tier 1 Capital requirement and 3.5% CCB, which together total 8% of RWA. Should Westpac’s
Common Equity Tier 1 Capital Ratios fall within the CCB (currently between 4.5% and 8%), restrictions on distribution apply.
Distributions for this purpose are defined as payment of dividends, discretionary bonuses and AT1 Capital distributions.
Further details of Westpac's capital ratios are provided in Section 2 in the Review of Group Operations: Capital resources.
2016 Westpac Group Annual Report
219
3
Note 34. Dividends
$m
Dividends not recognised at year end
Since year end the Directors have proposed the following dividends:
Final dividend 94 cents per share (2015: 94 cents, 2014: 92 cents)
all fully franked at 30%
Total dividends not recognised at year end
Consolidated
Parent Entity
2016
2015
2014
2016
2015
3,142
3,142
2,988
2,988
2,856
2,856
3,145
3,145
2,993
2,993
Shareholders can choose to receive their dividends as cash or reinvest for an equivalent number of shares under the Dividend
Reinvestment Plan (DRP). The Board has decided to issue new shares to satisfy the DRP for the 2016 final dividend. The DRP
will not include a discount.
Details of dividends recognised during the year are provided in the statement of changes in equity.
Australian franking credits
Australian franking credits available to the Parent Entity for subsequent years are $911 million (2015: $793 million; 2014: $565
million). This is calculated as the year end franking credit balance, adjusted for the Australian current tax liability and the
proposed 2016 final dividend.
New Zealand imputation credits
New Zealand imputation credits of NZ$0.07 (2015: NZ$0.06, 2014: NZ$0.06) per share will be attached to the proposed 2016
final dividend. New Zealand imputation credits available to the Parent Entity for subsequent years are NZ$423 million (2015:
NZ$522 million, 2014: NZ$562 million). This is calculated on the same basis as the Australian franking credits but using the
New Zealand current tax liability.
GROUP STRUCTURE
Note 35. Investments in subsidiaries and associates
Accounting policy
Subsidiaries
Westpac’s subsidiaries are entities which it controls and consolidates as it is exposed to, or has rights to, variable returns from
the entity, and can affect those returns through its power over the entity.
When the Group ceases to control a subsidiary, any retained interest in the entity is remeasured to fair value, with any resulting
gain or loss recognised in the income statement.
Changes in the Group’s ownership interest in a subsidiary which do not result in a loss of control are accounted for as
transactions with equity holders in their capacity as equity holders.
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.
All transactions between Group entities are eliminated on consolidation.
Associates
Associates are entities in which the Group has significant influence, but not control, over the operating and financial policies.
The Group accounts for associates using the equity method. The investments 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 the associate’s profit (or loss). Dividends received from the associate reduce the investment in associate.
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
has variable returns from its involvement with the trusts, and has the ability to affect those returns through its power over the
trusts. These unit trusts are excluded from the table.
220
2016 Westpac Group Annual Report
Notes to the financial statements
Note 35. Investments in subsidiaries and associates (continued)
The following table includes the material controlled entities of the Group as at 30 September 2016.
Country of
Incorporation Name
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
Crusade ABS Series 2015-1 Trust
Crusade Trust No.2P of 2008
Hastings Funds Management Limited
Hastings Management Pty Limited
Series 2008-1M WST Trust
Series 2013-1 WST Trust
Series 2013-2 WST Trust
Series 2014-1 WST Trust
Series 2014-2 WST Trust
Series 2015-1 WST Trust
St.George Finance Limited
St.George Life Limited
St.George Motor Finance Limited
Waratah Receivables Corporation Pty Limited1
Waratah Securities Australia Limited1
1 The Group has funding agreements in place with these entities and is deemed to have exposure to the associated risks and rewards. These entities
are consolidated where the Group 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.
Australia Westpac Covered Bond Trust
Australia Westpac Equity Holdings Pty Limited
Australia Westpac Financial Services Group Limited
Australia Westpac General Insurance Limited
Australia Westpac General Insurance Services Limited
Australia Westpac Lenders Mortgage Insurance Limited
Australia Westpac Life Insurance Services Limited
Australia Westpac Overseas Holdings Pty Limited
Australia Westpac Securitisation Holdings Pty Limited
Australia BT Funds Management (NZ) Limited
Australia Westpac Cash PIE Fund1
Australia Westpac Financial Services Group-NZ-Limited
Australia Westpac Group Investment-NZ-Limited
Australia Westpac Life-NZ-Limited
Australia Westpac New Zealand Group Limited
Australia Westpac New Zealand Limited
Australia Westpac NZ Covered Bond Limited2
Australia Westpac NZ Securitisation Limited2
Australia Westpac Securities NZ Limited
Australia Westpac Term PIE Fund1
Australia Westpac Bank-PNG-Limited
Australia
Country of
Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Papua New Guinea
2 The Group indirectly owns 19% of Westpac NZ Covered Bond Limited (WNZCBL) and Westpac NZ Securitisation Limited (WNZSL), however, due to
contractual and structural arrangements both WNZCBL and WNZSL are considered to be a controlled entity within the Group.
The following material controlled entities have been granted relief from compliance with the balance date synchronisation
provisions in the Corporations Act 2001:
Westpac Cash PIE Fund; and
Westpac Term PIE Fund.
The following material controlled entities are not wholly owned:
Percentage Owned
St.George Motor Finance Limited
Westpac Bank-PNG-Limited
2016
75.0%
89.9%
2015
75.0%
89.9%
Non-controlling interests
Details of the balance of non-controlling interests are set out in Note 32. There are no non-controlling interests that are material
to the Group.
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
The Group’s material investments in associates balance is an investment in BTIM of $718 million (2015: $756 million).
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 of 29.5% at 30 September 2016
(31.0% at 30 September 2015). The Group lost control of BTIM on 23 June 2015.
2016 Westpac Group Annual Report
221
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 (29.5%)
Equity accounting adjustments
Group's share in net profit recognised in the income statement
Group's share of other comprehensive income (29.5%)
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 (29.5%)
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
12 months ended
30 September 2016
3 months ended
30 September 2015
455
142
(83)
59
42
(22)
20
(24)
7
3
34
913
(169)
744
220
(6)
504
718
807
120
33
19
52
10
(5)
5
6
(1)
10
-
990
(228)
762
236
(6)
526
756
868
Changes in ownership of subsidiaries
Businesses disposed during the year ending 30 September 2016
Pacific Islands
Westpac sold its banking operations in Solomon Islands and Vanuatu to the Bank of South Pacific Limited (BSP). Settlement
occurred on 30 October 2015 and 1 July 2016 respectively, with a gain of $1 million recognised in non-interest income.
The total cash consideration paid, net of transaction costs and cash held, was $104 million.
Businesses disposed during the year ending 30 September 2015
Partial sale of BT Investment Management Limited (BTIM)
Westpac sold a 28% 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 held 31% of BTIM.
A gain on sale of $1,036 million was recognised in non-interest income. This gain consisted 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 is accounted for using the equity method.
The total cash consideration received, net of transaction costs, was $654 million.
Pacific Islands
Westpac sold its banking operations in Samoa, Cook Islands, and Tonga to the BSP. Settlement occurred on 10 July 2015,
with a loss of $3 million recognised in operating expenses.
The total cash consideration received, net of transaction costs, was $85 million.
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 cash consideration received, net of transaction costs, was $4 million.
Details of the assets and liabilities over which control was lost are provided in Note 41.
222
2016 Westpac Group Annual Report
Notes to the financial statements
Note 36. Structured entities
Accounting policy
Structured entities are generally created to achieve a specific, defined objective and their operations are restricted such as only
purchasing specific assets. Structured entities are commonly financed by debt or equity securities that are collateralised by
and/or indexed to their underlying assets. The debt and equity securities issued by structured entities may include tranches with
varying levels of subordination.
Structured entities are classified as subsidiaries and consolidated if they meet the definition in Note 35. If the Group does not
control a structured entity then it will not be consolidated.
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 funds.
Consolidated structured entities
Securitisation and covered bonds
The Group uses structured entities to securitise its financial assets, including two covered bond programs to assign pools of
residential mortgages to bankruptcy remote structured entities.
The Group also uses structured entities to give its customers access to funding from commercial paper markets.
Refer to Note 25 for further details.
Group managed funds
The Group acts as the responsible entity and/or fund manager for various investment management funds. As fund manager, if
the Group is deemed to be acting as a principal rather than agent then it consolidates the fund. The principal vs. agent decision
requires judgement of whether the Group has sufficient exposure to variable returns.
Non-contractual financial support
The Group does not provide non-contractual financial support to these consolidated structured entities.
Unconsolidated structured entities
The Group has interests in various unconsolidated structured entities including debt or equity instruments, guarantees, liquidity
and other credit support arrangements, lending, loan commitments, certain derivatives and investment management
agreements.
Interests exclude non-complex derivatives (e.g. interest rate or currency swaps), instruments that create, rather than absorb,
variability in the entity (e.g. credit protection under a credit default swap), and lending to a structured entity with recourse to a
wider operating entity, not just the structured entity.
The Group’s main interests in unconsolidated structured entities, which arise in the normal course of business, are:
Trading securities
Available-for-sale
securities
The Group actively trades interests in structured entities and normally has no other involvement
with the structured entity. The Group earns interest income on these securities and also
recognises fair value changes through trading income in non-interest income.
The Group holds mortgage-backed securities for liquidity purposes and the Group normally has
no other involvement with the structured entity. These assets are highly-rated, investment grade
and eligible for repurchase agreements with the RBA or another central bank. The Group earns
interest income and net gains or losses on selling these assets are recognised in the income
statements.
Loans and other credit
commitments
The Group lends to unconsolidated structured entities, subject to the Group’s collateral and credit
approval processes, in order to earn interest and fee income. The structured entities are mainly
property trusts, securitisation entities and those associated with project and property
financing transactions.
Investment management
agreements
The Group manages funds that provide customers with investment opportunities. The Group also
manages superannuation funds for its employees. The Group earns management and
performance fee income which is recognised in non-interest income.
The Group may also retain units in these investment management funds, primarily through life
insurance subsidiaries. The Group earns fund distribution income and recognises fair value
movements through non-interest income.
2016 Westpac Group Annual Report
223
3
Note 36. Structured entities (continued)
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 does not take into account any collateral or hedges that will reduce the risk
of loss.
For on-balance sheet instruments, including debt and equity instruments in and loans to unconsolidated structured entities,
the maximum exposure to loss is the carrying value; and
For off-balance sheet instruments, including liquidity facilities, loan and other credit commitments and guarantees, the
maximum exposure to loss is the notional amounts.
Consolidated 2016
$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 s heet exposures
Investment in
Third Party
Mortgage and
Other
Asset-Backed
Securities1
Financing to
Securitisation
Vehicles
Group
Managed
Funds
Interests
in Other
Structured
Entities
-
1,955
4,253
-
90
3
6,301
-
936
-
-
18,339
-
-
19,275
3,469
-
4
-
111
291
55
461
62
-
1,870
-
23,673
2,450
-
27,993
7,078
Total
936
3,829
4,253
42,123
2,831
58
54,030
10,609
Maximum exposure to loss
Size of structured entities2
1 The Group’s interests in third party mortgage and other asset-backed securities are senior tranches of notes 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
146,488
22,744
40,320
62,397
35,071
22,744
6,301
523
64,639
271,949
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 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 s heet exposures
Investment in
Third Party
Mortgage and
Other
Asset-Backed
Securities1
Financing to
Securitisation
Vehicles
Group
Managed
Funds
Interests
in Other
Structured
Entities
-
2,902
5,173
-
132
10
8,217
-
823
-
-
16,091
-
-
16,914
4,256
-
20
-
9
282
54
365
59
-
2,973
-
23,203
2,165
-
28,341
7,789
Total
823
5,895
5,173
39,303
2,579
64
53,837
12,104
Maximum exposure to loss
Size of structured entities2
1 The Group’s interests in third party mortgage and other asset-backed securities are senior tranches of notes 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
148,085
21,170
36,130
57,739
67,148
21,170
8,217
424
65,941
294,142
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 does not provide non-contractual financial support to these unconsolidated structured entities.
224
2016 Westpac Group Annual Report
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 a component of overall compensation
for services provided. Share-based payment arrangements comprise options to purchase shares at a pre-determined price
(share options), rights to receive shares for free (share rights) and restricted shares (issued at no cost). Share-based payment
arrangements typically require a specified period of continuing employment (the service period or vesting period) and may
include performance targets (vesting conditions). Specific details of each arrangement are provided below.
Share-based payments must be classified as either cash-settled or equity-settled arrangements. The Group’s significant
arrangements are equity-settled, as the Group is not obliged to settle in cash.
Options and share rights
Options and share rights are equity-settled arrangements. The fair value is measured at grant date and is recognised as an
expense over the service period, with a corresponding increase in the share-based payment reserve in equity.
The fair value of share options and share rights is estimated at grant date using a binomial/Monte Carlo simulation pricing
model which incorporates the vesting and market-related performance targets of the grants. The fair value of share options and
rights excludes non-market vesting conditions such as employees’ continuing employment by the Group. The non-market
vesting conditions are instead incorporated in estimating the number of share options and rights that are expected to vest and
are therefore recognised as an expense. At each reporting date the non-market vesting assumptions are revised and the
expense recognised each year takes into account the most recent estimates. The market-related assumptions are not revised
each year as the fair value is not re-estimated after the grant date.
Restricted share plan (RSP)
The RSP is accounted for as an equity-settled arrangement. The fair value of shares allocated to employees for nil
consideration is recognised as an expense over the vesting period with a corresponding increase in the share-based payments
reserve 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.
Employee share plan (ESP)
The value of shares expected to be allocated to employees for nil consideration is recognised as an expense over the financial
year and provided for as other employee benefits. The fair value of any ordinary shares issues to satisfy the obligation to
employees is recognised in equity. Alternatively, shares may be purchased on market to satisfy the obligation to employees.
Scheme name
Westpac Long Term
Incentive Plan (LTI)
Westpac Performance Plan (WPP)
Restricted Share
Plan (RSP)
Employee Share Plan
(ESP)
Type of share-
based payment
Share rights (allocated at
no cost).
Share rights (allocated at no
cost).
Share options (no longer issued
since October 2009).
Westpac
ordinary shares
(allocated at no
cost).
Westpac ordinary
shares (allocated at no
cost) of up to $1,000
per employee per year.
How it is used
Share options (no longer
issued since October
2009).
To incentivise senior
management based on
long-term performance.
The mandatory deferral of a
portion of short-term incentives
for New Zealand employees
and key employees based
outside Australia.
To reward key
employees in
respect of the
previous
financial year.
To reward eligible
Australian employees
(unless they have
already been provided
instruments under
another scheme for the
previous year).
Exercise price:
Shares rights
Nil.
Nil.
Share options
The market price of
Westpac shares at the
start of the performance
period.
The market price of Westpac
shares at the start of the
performance period.
n/a.
n/a.
n/a.
n/a.
2016 Westpac Group Annual Report
225
3
Scheme name
Performance
targets
Service
conditions
Vesting period
(period over
which expenses
are recognised)
Treatment at
end of term
Does the
employee
receive
dividends and
voting rights
during the
vesting period?
Note 37. Share-based payments (continued)
Westpac Long Term
Incentive Plan (LTI)
Westpac Performance Plan (WPP)
Restricted Share
Plan (RSP)
Employee Share Plan
(ESP)
None.
None.
None.
Relative total shareholder
return (TSR) over a 4
year performance period
and Cash EPS compound
annual growth rate
(CAGR) over a three year
performance period plus
1 year holding lock, each
applying to half of the
award1 (for awards
granted from October
2014)2.
Continued employment
throughout the vesting
period or as determined
by the Board.
Continued employment
throughout the vesting period or
as determined by the Board.
4 years2
Defined period set out at time of
grant.
Lapse if not exercised.
For those with performance
targets, lapse if not exercised.
Shares must normally
remain within the ESP
for three years from
granting unless the
employee leaves
Westpac.
1 year
Shares are released at
the end of the
restriction period or
when the employee
leaves Westpac.
Continued
employment
throughout the
restriction
period or as
determined by
the Board.
Defined period
set out at time
of grant.
Vested shares
are released
from the RSP
at the end of
the vesting
period.
Shares granted
prior to October
2009 may be
held in the RSP
for up to 10
years from the
grant date.
No
No
Yes
Yes
1 Details of the TSR and CAGR performance targets are provided in the Remuneration Report in section 4.1(c).
2 For awards granted from October 2011 to October 2014 both the TSR and CAGR are subject to a three year performance period and vesting period.
For awards granted before October 2011 all the awards were subject to a TSR hurdle over an initial three year performance period with subsequent
performance testing possible at the fourth and fifth anniversaries however further vesting may only occur if the TSR ranking has improved.
226
2016 Westpac Group Annual Report
Note 37. Share-based payments (continued)
Each share-based payment scheme is quantified below:
(i) Westpac Long Term Incentive Plan
Notes to the financial statements
Outstanding at
1 October
2015
Granted
During
the Year
Exercised
During
the Year
Lapsed
During
the Year
Outstanding at
30 September 2016
Outstanding
and Exercisable at
30 September 2016
2016
Share options
Weighted average exercise price
Weighted average remaining
contractual life
Share rights
Weighted average remaining
contractual life
2015
Share options
Weighted average exercise price
588,876
$27.61
2.5 years
-
-
5,858
$29.96
-
-
4,632,477
1,788,881
334,095
811,611
8.3 years
1 Oct 2014
991,690
$27.58
-
-
402,814
$27.55
-
-
583,018
$27.58
1.5 years
5,275,652
9.9 years
30 Sept 2015
588,876
$27.61
583,018
$27.58
6,648
588,876
$27.61
2,584
Performance share rights
The weighted average fair value at grant date of LTI share rights issued during the year was $19.84 (2015: $20.52).
2,557,968
3,318,750
4,632,477
398,983
845,258
(ii) Westpac Performance Plan (WPP)
2016
Share options
Weighted average exercise price
Weighted average remaining
contractual life
Share rights
One-year vesting period
Two-year vesting period
Three-year vesting period
Total share rights
Weighted average remaining
contractual life
2015
Share options
Weighted average exercise price
Outstanding at
1 October
2015
Granted
During
the Year
Exercised
During
the Year
Lapsed
During
the Year
Outstanding at
30 September 2016
Outstanding
and Exercisable at
30 September 2016
158,276
$23.49
1.0 year
108,113
195,430
242,739
546,282
7.1 years
1 Oct 2014
360,531
$22.66
-
-
84,182
$23.05
-
-
74,672
74,892
18,590
168,154
68,469
73,337
148,001
289,807
22,068
9,462
1,596
33,126
-
-
202,255
$22.02
-
-
74,094
$23.98
0.2 years
92,248
187,523
111,732
391,503
7.7 years
30 Sept 2015
158,276
$23.49
74,094
$23.98
20,281
26,708
59,874
106,863
158,276
$23.49
Performance share rights
211,463
The weighted average fair value at grant date of unhurdled share rights issued during the year was $29.85 (2015: $30.10).
546,282
436,407
773,324
2,098
153,897
(iii) Restricted Share Plan (RSP)
Allocation date1
Granted prior to October 2009
Granted subsequent to October 2009
Outstanding at
1 October 2015
1,215,527
4,437,558
Granted
During
the Year
-
1,971,204
Released
221,477
2,923,644
Forfeited
During
the Year
-
52,296
Outstanding at
30 September 2016
994,050
3,432,822
Total 2016
Total 2015
1 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
3,145,121
4,233,341
1,971,204
2,200,370
5,653,085
7,790,652
52,296
104,596
4,426,872
5,653,085
October 2009, shares are released from the RSP on vesting.
(iv) Employee Share Plan (ESP)
Allocation
Date
Number of
Participants
Average Number
of Shares Allocated
per Participant
Total Number
of Shares
Allocated
2016
2015
18 November 2015
4 December 2014
27,816
27,657
32
30
890,112
829,710
Market
Price per Share
$30.32
$32.68
Total
Fair Value
$26,988,196
$27,114,923
2016 Westpac Group Annual Report
227
3
Note 37. Share-based payments (continued)
The 2015 ESP award was satisfied through the purchase of shares on market.
The liability accrued for the ESP at 30 September 2016 is $27 million (2015: $28 million) and is provided for as other employee
benefits.
(v) CEO plans
Details of share-based payment arrangements held by the CEO, Brian Hartzer, which are on the same terms and conditions as
described above for the relevant plan, are provided in the Remuneration report in Section 1.
(vi) Other 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 in terms of expenses and dilution of earnings.
The names of all persons who hold share options and/or 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.
(vii) Fair value assumptions
The fair values of share options and share rights have been independently calculated at their respective grant dates.
The fair value of share rights with performance targets based on relative TSR also takes into account the average TSR
outcome determined using a Monte Carlo simulation pricing model.
The fair values of share rights without TSR based performance targets, including share rights with Cash EPS CAGR
performance targets, 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.
Other significant assumptions include:
a risk free rate of 2.1% for share rights with four-year vesting period (2.2% for share rights issued to the CEO);
a dividend yield on Westpac shares of 5.7% (6.0% for share rights issued to the CEO);
volatility in the Westpac share price of 18.8%; and
volatilities of, and correlation factors between, share price movements of the comparator group and Westpac for TSR.
Note 38. Superannuation commitments
Accounting policy
The Group recognises an asset or a liability for its defined benefit schemes, being the net of the defined benefit obligations and
the fair value of the schemes’ assets. The defined benefit obligation is calculated as the present value of the estimated future
cash flows, discounted using high-quality long dated corporate bond rates.
The superannuation expense is recognised in operating expenses and remeasurements are recognised through other
comprehensive income.
Critical accounting assumptions and estimates
The actuarial valuation of plan obligations is dependent upon a series of assumptions, principally price inflation, salary growth,
mortality, morbidity, discount rate and investment returns. Different assumptions could significantly alter the valuation of the
plan assets and obligations and the superannuation cost recognised in the income statement.
228
2016 Westpac Group Annual Report
Notes to the financial statements
Note 38. Superannuation commitments (continued)
Westpac had the following defined benefit plans at 30 September 2016:
Name of Plan
Type
Westpac Group Plan (WGP)
Defined benefit and
accumulation
Westpac New Zealand Superannuation
Scheme (WNZS)
Defined benefit and
accumulation
Westpac Banking Corporation UK
Staff Superannuation Scheme (UKSS)
Defined benefit
Form of Benefit
Indexed pension and
lump sum
Indexed pension and
lump sum
Indexed pension and
lump sum
Date of Last Actuarial
Assessment of the
Funding Status
30 June 2015
30 June 2014
5 April 2015
Westpac UK Medical Benefits Scheme Defined benefit
Medical benefits
n/a
The defined benefit sections of the schemes are closed to new members. The Group has no obligation beyond the annual
contributions for the accumulation or defined contribution sections of the schemes.
The WGP is the Group’s principal defined benefit plan and is managed and administered in accordance with the terms of its trust deed
and relevant legislation in Australia. Its defined benefit liabilities are based on salary and length of membership for active members
and inflation in the case of pensioners.
The defined benefit schemes expose the Group to the following risks:
discount rate – reductions in the discount rate would increase the present value of the future payments;
inflation rate – increases in the inflation rate would increase the payments to pensioners;
investment risk – lower investment returns would increase the contributions needed to offset the shortfall;
mortality risk – members may live longer than expected extending the cash flows payable by the Group; and
legislative risk – legislative changes could be made which increase the cost of providing defined benefits.
Investment risk is managed by setting benchmarks for the allocation of plan assets between asset classes. The long-term
investment strategy 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.
Funding recommendations for the WGP, WNZS and the UKSS are made based on triennial actuarial valuations. These
valuations resulted in a funding surplus of $354 million for the year ended 30 September 2016 (2015: $31 million). Current
contribution rates are as follows:
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 year.
Contributions
$m
Employer contributions
Member contributions
Consolidated
Parent Entity
2016
61
14
2015
51
14
2016
61
13
2015
50
14
Expected employer contributions for the year ended 30 September 2017 are $55 million.
Expense recognised
$m
Current service cost
Net interest cost on net benefit liability
Total defined benefit expense
Consolidated
Parent Entity
2016
43
7
50
2015
49
12
61
2014
46
11
57
2016
42
7
49
2016 Westpac Group Annual Report
2015
49
11
60
229
3
Note 38. Superannuation commitments (continued)
Defined benefit balances recognised
Consolidated
Parent Entity
$m
Benefit obligation at end of the year
Fair value of plan assets at end of the year
Net surplus/(deficit)
Defined benefit surplus (Note 27)
Defined benefit deficit (Note 29)
2016
2,476
2,226
(250)
32
(282)
(250)
2015
2,380
2,206
(174)
18
(192)
(174)
2016
2,385
2,160
(225)
32
(257)
(225)
2015
2,297
2,140
(157)
18
(175)
(157)
Net surplus/(deficit)
The average duration of the defined benefit obligation is 12 years (2015: 12 years).
Significant assumptions
Consolidated and Parent Entity
Discount rate
Salary increases
Inflation rate (pensioners receive inflationary increases)
Life expectancy of a 60-year-old male
Life expectancy of a 60-year-old female
2016
Australian
Funds
3.3%
2.8%
1.8%
30.6
33.5
Overseas
Funds
2.3%
3%-4.8%
2%-3.2%
27.5-28.8
29.1-30.2
2015
Australian
Funds
4.2%
3.3%
2.3%
30.9
34.0
Overseas
Funds
3.3-3.4%
3.0-4.7%
2.2-3.1%
27.3-29.7
29.0-31.0
Sensitivity to changes in significant assumptions
The table below shows the impact of changes in assumptions on the defined benefit obligation for the WGB. No reasonably
possible changes in the assumptions of the Group’s other defined benefit plans would have a material impact on the defined
benefit obligation.
Change in assumption
0.5% decrease in discount rate
0.5% increase in annual salary increases
0.5% increase in inflation rate (pensioners receive inflationary increases)
1 year increase in life expectancy
Increase in obligation
2015
136
2016
146
19
122
42
22
111
37
Asset allocation
Consolidated and Parent Entity
%
Cash
Equity instruments
Debt instruments
Property
Other assets
2016
2015
Australian
Funds
2%
Overseas
Funds
2%
Australian
Funds
2%
Overseas
Funds
5%
42%
26%
9%
21%
20%
59%
10%
9%
51%
20%
9%
18%
28%
49%
10%
8%
100%
Total
Equity and debt instruments are mainly quoted assets while property and other assets are mainly unquoted. Other assets
include infrastructure funds and private equity funds.
100%
100%
100%
230
2016 Westpac Group Annual Report
Notes to the financial statements
OTHER
Note 39. Auditor’s remuneration
The fees payable to the auditor, PricewaterhouseCoopers (PwC), and overseas firms belonging to the PwC network of firms
were:
$'000
Audit and audit-related fees
Audit fees
PwC Australia
Overseas PwC network firms
Total audit fees
Audit-related fees
PwC Australia
Overseas PwC network firms
Total audit-related fees
Total audit and audit-related fees
Tax fees
PwC Australia
Overseas PwC network firms
Total tax fees
Other fees
PwC Australia
Overseas PwC network firms
Total other fees
Total audit and non-audit fees
Consolidated
Parent Entity
2016
2015
2016
2015
18,233
3,086
21,319
1,485
126
1,611
22,930
23
-
23
2,380
614
2,994
25,947
17,426
3,018
20,444
933
127
1,060
21,504
441
3
444
1,574
-
1,574
23,522
18,189
564
18,753
1,380
-
1,380
20,133
23
-
23
2,176
142
2,318
16,867
439
17,306
726
-
726
18,032
22
-
22
888
-
888
22,474
18,942
Fees payable to the auditor have been categorised as follows:
Audit
The year end audit, half-year review and comfort letters associated with debt issues and capital raisings.
Audit-related
Consultations regarding accounting standards and reporting requirements, regulatory compliance
reviews and assurance related to debt and capital offerings.
Tax
Other
Tax compliance and tax advisory services.
Various services including systems assurance, compliance advice and controls reviews.
It is Westpac’s policy to engage PwC 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.
PwC also received fees of $8.1 million (2015: $9.9 million) for various entities which are related to Westpac but not consolidated.
These non-consolidated entities include entities sponsored by the Group, trusts of which a Westpac Group entity is trustee,
manager or responsible entity, superannuation funds and pension funds.
Note 40. Related party disclosures
Related parties
Westpac’s related parties are those it controls or can exert significant influence over. Examples include subsidiaries,
associates, joint ventures and superannuation plans as well as key management personnel and their related parties.
Key management personnel (KMP)
Key management personnel are those who, directly or indirectly, have authority and responsibility for planning, directing and
controlling the activities of Westpac. This includes all Executive and Non-Executive Directors.
2016 Westpac Group Annual Report
231
3
Note 40. Related party disclosures (continued)
Parent Entity
Westpac Banking Corporation is the ultimate parent company of the Group.
Subsidiaries - Note 35
The Parent Entity has the following related party transactions and balances with subsidiaries:
Type of transaction/balance
Details disclosed in
Balances due to / from subsidiaries
Dividend income / Fee and commission income
Interest income
Tax consolidated group transactions and undertakings
Guarantees and undertakings
Balance Sheet
Note 4
Note 3
Note 7
Note 31
The balances due to / from subsidiaries include a wide range of banking and other financial facilities.
The terms and conditions of related party transactions between the Parent Entity and subsidiaries are sometimes different to
commercial terms and conditions. Related party transactions between the Parent Entity and subsidiaries eliminate
on consolidation.
Associates - Note 35
The Group provides a wide range of banking and other financial facilities and funds management activities to its associates on
commercial terms and conditions.
Superannuation plans
The Group contributed $318 million (2015: $300 million) to defined contribution plans and $61 million to defined benefit plans
(2015: $51 million; see Note 38).
Remuneration of KMP
Total remuneration of the KMP was:
$
Consolidated
2016
2015
Parent Entity
2016
2015
Short-term
Benefits
Post Employment
Benefits
Other Long-term
Benefits
Termination
Benefits
Share-based
Payments
Total
24,423,422
28,292,932
23,265,771
27,074,354
577,061
553,853
500,968
484,294
220,264
-
16,177,450
41,398,197
201,656
2,584,709
16,901,143
48,534,293
220,264
-
15,230,171
201,656
2,584,709
16,601,039
39,217,174
46,946,052
Other transactions with KMP
KMP receive personal banking and financial investment services from the Group in the ordinary course of business. The terms
and conditions, for example interest rates and collateral, and the risks to Westpac are comparable to transactions with other
employees and did not involve more than the normal risk of repayment or present other unfavourable features.
Details of loans provided and the related interest charged to KMP and their related parties are as follows:
$
Interest Payable for
the Year Closing Loan Balance
Number of KMP with
Loans
2016
20151
1 Balances have been restated to include additional individual and related party loans as at 30 September 2015.
709,238
867,564
16,223,402
15,462,500
9
10
Further details of the KMP’s remuneration, share rights and options and other transactions with KMP are included in the
Remuneration report in Section 1.
232
2016 Westpac Group Annual Report
Notes to the financial statements
Note 40. Related party disclosures (continued)
Options and share rights holdings
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 2016 by the CEO and other key management
personnel (including their related parties):
Managing Director & Chief Executive Officer
Brian Hartzer
Ranges from 1 October 2023 to 1 October 2030
Latest Date for Exercise
Group Executives
John Arthur
Lyn Cobley
Philip Coffey
Brad Cooper
David Curran
George Frazis
Ranges from 1 October 2023 to 1 October 2030
1 October 2030
Ranges from 1 October 2023 to 1 October 2030
Ranges from 1 October 2023 to 1 October 2030
Ranges from 1 October 2024 to 1 October 2030
Ranges from 1 October 2023 to 1 October 2030
Alexandra Holcomb
Ranges from 17 December 2017 to 1 October 2030
Peter King
David Lindberg
David McLean
Christine Parker
Ranges from 1 October 2023 to 1 October 2030
Ranges from 1 October 2023 to 1 October 2030
Ranges from 1 October 2022 to 1 October 2030
Ranges from 1 October 2023 to 1 October 2030
Number of
Share Rights
Number
of Options
Exercise Price
of Options
538,990
248,918
90,914
314,438
272,648
135,898
207,708
178,733
192,804
133,486
133,112
177,182
-
-
-
-
-
-
-
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
Further details of the equity holdings of KMP are included in the Remuneration report in Section 1.
Note 41. Notes to the cash flow statements
Accounting policy
Cash and cash equivalents includes cash held at branches and in ATMs, balances with overseas banks in their local currency
and balances with central banks including accounts with the RBA and accounts with overseas central banks.
Cash and balances with central banks
$m
Cash on hand
Balances with central banks
Total cash and balances with central banks
Consolidated
Parent Entity
2016
10,838
6,177
17,015
2015
9,282
5,488
14,770
2014
19,582
6,178
25,760
2016
10,229
4,957
15,186
2015
8,575
4,797
13,372
2016 Westpac Group Annual Report
233
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:
Consolidated
Parent Entity
$m
Net profit for the year
Adjustments1:
Depreciation, amortisation and impairment
Impairment charges
Net (decrease)/increase in current and deferred tax
(Increase)/decrease in accrued interest receivable
(Decrease)/increase in accrued interest payable
(Decrease)/increase in provisions
Other non-cash items
Cash flows from operating activities before changes in
operating assets and liabilities
Net (increase)/decrease in derivative financial instruments
Net (increase)/decrease in life insurance assets and liabilities
(Increase)/decrease in other operating assets:
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:
Other financial liabilities at fair value through income statement
Deposits and other borrowings
Payables due to other financial institutions
Other liabilities
Net cash (used in)/provided by operating activities
1 Comparatives have been revised for consistency.
2016
7,460
1,208
1,261
(285)
25
(47)
(68)
2015
8,068
2014
7,625
1,671
1,020
884
(78)
115
(291)
(31)
756
332
(64)
(53)
(24)
(250)
9,342
(3,329)
(156)
2016
6,307
1,061
1,016
(706)
9
(39)
(64)
(246)
7,338
(3,796)
-
(311)
(1,379)
9,243
(5,107)
(253)
6,755
(38,082)
(896)
(209)
(476)
(4,488)
38,771
(73)
312
5,497
8,959
11,730
(191)
21,538
(39,569)
(1,000)
497
95
(10,027)
8,526
(1,194)
95
(541)
1,724
6,706
(35,734)
(35,852)
3,932
126
121
9,079
34,229
9,419
(382)
28,371
(128)
(219)
4
(4,861)
33,508
459
284
3,443
2015
6,747
1,476
704
(906)
108
(301)
(71)
(4)
7,753
11,497
-
22,668
(38,270)
(2,108)
511
729
(9,945)
6,548
(1,544)
158
(2,003)
234
2016 Westpac Group Annual Report
Notes to the financial statements
Note 41. Notes to the cash flow statements (continued)
Details of assets and liabilities of controlled entities and 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).
$m
Fair value of assets and liabilities of controlled entities and businesses acquired
Assets acquired:
Consolidated
2016
2015
2014
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
2016 Westpac Group Annual Report
235
3
Note 41. Notes to the cash flow statements (continued)
Details of the assets and liabilities over which control was lost
Details of the entities over which control was lost are provided in Note 35.
$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
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 (net of transaction costs)
Less: Cash deconsolidated
Cash consideration (paid)/received (net of transaction costs and cash held)
Non-cash financing activities
Consolidated
Parent Entity
2016
2015
2014
2016
2015
138
-
1
132
5
3
1
1
27
308
264
-
2
1
-
6
273
35
-
35
34
-
34
2
1
34
(138)
(104)
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
138
-
1
132
5
3
1
1
27
308
264
-
2
1
-
6
273
35
-
35
34
-
34
2
1
34
(138)
(104)
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
-
1 The dividend reinvestment plan for 2014 was satisfied in full through purchase of existing shares and transfer of shares to participating shareholders.
2
In 2014, amounts relate to holders of Westpac SPS II who participated in the reinvestment offer to subscribe for WCN2.
1,412
1,412
2015
2016
2015
2016
2014
529
726
726
-
-
-
-
Restricted cash
The amount of cash and cash equivalents not available for use at 30 September 2016 was $48 million (2015: $132 million) for
the Group and nil for the parent entity (2015: nil).
Note 42. Subsequent events
No matters have arisen since the year ended 30 September 2016 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.
236
2016 Westpac Group Annual Report
Statutory statements
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 2016’ 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 2016 and of their performance 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) includes a statement 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.
Lindsay Maxsted
Chairman
Sydney
7 November 2016
Brian Hartzer
Managing Director &
Chief Executive Officer
2016 Westpac Group Annual Report
237
3
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 2016 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 2016 was effective.
The effectiveness of Westpac’s internal control over financial reporting as of 30 September 2016 has been audited by
PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which is included herein.
238
2016 Westpac Group Annual Report
Statutory statements
Independent auditor’s report to the members of Westpac
Banking Corporation
Report on the audit of the Financial Report
Our opinion
In our opinion the accompanying Financial Report of Westpac Banking Corporation (the Parent Entity)
and its controlled entities (together the Group) is in accordance with the Corporations Act 2001,
including:
giving a true and fair view of the Parent Entity’s and Group’s financial position as at 30 September
2016 and of their performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The accompanying Financial Report comprises:
the Consolidated and Parent Entity balance sheets as at 30 September 2016;
the Consolidated and Parent Entity income statements for the year then ended;
the Consolidated and Parent Entity statements of comprehensive income for the year then ended;
the Consolidated and Parent Entity statements of changes in equity for the year then ended;
the Consolidated and Parent Entity cash flow statements for the year then ended;
the notes to the financial statements, which include explanations of significant accounting policies; and
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to
our audit of the Financial Report in Australia. We have also fulfilled our other ethical responsibilities in
accordance with the Code.
Our audit approach
Overview
Set out below is an overview of our audit approach, highlighting key aspects including audit scope,
materiality level, and Key Audit Matters of our audit of the Group. These are described in further detail
later in this report.
Audit scope
The scope of our audit, and the nature, timing and extent of our audit procedures, were
determined by our risk assessment, the financial significance of divisions and other
qualitative factors. We conducted:
an audit of the most significant operations of the Group, being the Consumer Bank,
Business Bank and Westpac Institutional Bank (domestic) divisions; and
specific audit procedures in relation to the Westpac New Zealand and BT Financial
Group (Australia) divisions, the offshore operations of Westpac Institutional Bank and
other account balances
to ensure we obtained sufficient appropriate audit evidence to express an opinion on the
Financial Report as a whole.
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.
2016 Westpac Group Annual Report
239
3
Materiality
Key Audit Matters
Audit scope
For the purposes of our audit we used a threshold for overall Group materiality of $532
million, which represents 5% of the Group’s profit before tax.
The Key Audit Matters, which are those matters which were of the most significance in our
audit, were:
Credit risk and provisions for impairment charges;
Valuation of financial instruments held at fair value; and
Operation of information technology (IT) systems and controls.
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the Financial Report. In particular, we considered where the directors made subjective
judgements, for example, in respect of critical accounting assumptions and estimates that involved
making assumptions and considering future events that are inherently uncertain. As in all our audits, we
also addressed the risk of management override of internal controls, including among other matters
consideration of whether there was evidence of bias that represented a risk of material misstatement due
to fraud.
We tailored the scope of our audit to enable us to provide an opinion on the Financial Report as a whole,
taking into account the following factors: the geographic and management structure of the Group; the
significance and risk profile of each division within the Group; the Group’s accounting processes and controls;
and the financial services industry and broader economies in which the Group operates. We also ensured
that the audit team included the appropriate skills and competencies which are needed for the audit of a
complex banking group. This included industry expertise in consumer, business and institutional
banking and wealth management services, as well as specialists and experts in IT, actuarial, tax, treasury
and valuation.
We conducted an audit of the most significant operations, being the Consumer Bank, Business Bank, and
Westpac Institutional Bank (domestic) divisions. For the purpose of our audit, the Group’s treasury
operations are included in the Westpac Institutional Bank division, given the commonality in systems and
controls. In addition, we performed specific audit procedures in relation to the Westpac New Zealand and
BT Financial Group (Australia) divisions, the offshore operations of Westpac Institutional Bank, and
aspects of the Group Businesses division (in particular, provisions for impairment charges, technology
balances and property). Further audit procedures were performed by the Group engagement team over
the remaining balances and the consolidation process, including substantive and analytical procedures.
The work carried out in the divisions, together with those additional procedures performed at the Group
level, gave us sufficient coverage to express an opinion on the Financial Report as a whole.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to provide
reasonable assurance about whether the Financial Report is free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the Financial Report.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the Financial Report as a whole set out in the table below.
These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both
individually and in aggregate, on the Financial Report as a whole.
Overall Group materiality
$532 million
How we determined it
5% of the Group’s profit before tax
Rationale for the materiality benchmark
applied
We chose ‘profit before tax’ as it is a key financial statement
metric and commonly used benchmark for materiality. We
selected 5% based on our professional judgement, noting that it is
also within the range of commonly accepted profit-related
thresholds.
240
2016 Westpac Group Annual Report
Statutory statements
Key Audit Matters
Key Audit Matters for the Group and Parent Entity are those matters that, in our professional judgement, were of
most significance in our audit of the Financial Report for the current period. We have communicated the Key Audit
Matters to the Board Audit Committee, but they are not a comprehensive reflection of all matters that were
identified by our audit and that were discussed with the Committee. In the table below we have described the Key
Audit Matters and have included a summary of the principal audit procedures we performed to address those
matters.
The Key Audit Matters were addressed in the context of the Financial Report as a whole and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key Audit Matter
How the audit addressed the Key Audit
Matter
Credit risk and provisions for impairment
charges
We focused on this area because of the highly
subjective and complex judgements made by
management in determining the necessity for, and
then estimating the size of, impairment provisions
against loans.
Provisions for impairment of loans that exceed
specific thresholds are individually assessed by
management with reference to the estimated future
cash repayments and proceeds from the realisation of
collateral held by the Group in respect of those loans.
If an individually assessed loan is not impaired, it is
then included in a group of loans with similar risk
characteristics and, along with those loans below the
specific thresholds noted above, is collectively
assessed on a portfolio basis using models developed
by management.
Particularly important elements in the impairment
provisioning processes include:
•
•
•
the identification of impaired loans, and the cash
flow forecasts (including the expected realisable
value of any collateral held), supporting the
calculation of individually assessed provisions. We
consider this to be the most significant inherent
audit risk due to the subjectivity involved in
assessing how much of the debt will be recovered
from, in particular, large institutional impaired
loans;
the design of the models used in the collectively
assessed provision calculations, and the
appropriateness of the key assumptions used in
those models, including the emergence periods (EP)
for unidentified impairments, the probabilities of
default (PD) and the loss given default (LGD)
factors; and
the economic overlays added to the model
calculations, to reflect emerging trends or particular
situations which are not captured by the models
used, such as the current persisting downturn in
various commodity prices.
We assessed the design and tested the operating
effectiveness of the controls over the loan
impairment provisioning processes. The key
controls included:
•
•
•
•
governance, including the continuous re-
assessment by management that impairment
models are calibrated in a way which is
appropriate for the credit risks in the Group’s
loan portfolios;
controls over identification of the deterioration
in credit quality of individual loans;
controls inherent in the IT systems that manage
and transfer the data between underlying
source systems and the impairment models;
and
the review and approval process for the outputs
of the impairment models, and the adjustments
and economic overlays that are applied to the
modelled outputs.
We determined that we could rely on controls over
the loan impairment provisioning processes for the
purposes of our audit.
For a sample of individually assessed
provisions, including the small number of large
institutional names downgraded to impaired status
during the year, we also:
•
•
•
considered the latest developments in relation to
the borrower (as known to the Group) and the
basis of measuring the impairment provision;
examined the forecast cash flows from the
impaired borrowers, as prepared by
management, and in particular challenged the
key assumptions in relation to both the amount
and timing of recoveries; and
compared the valuation of collateral held to
external evidence (where available) and assessed
whether any independent expert advice was: (i)
up to date; (ii) consistent with the strategy being
followed in respect of the particular borrower; (iii)
appropriate for the purpose; and (iv) used in the
2016 Westpac Group Annual Report
241
3
Key Audit Matter
Given the high level of subjectivity involved in
estimating loan impairment provisions, one of our
overriding audit objectives is to assess whether the
calculations and underlying assumptions are consistent
with those applied in the previous year, or that any
changes are appropriate in the circumstances.
See Note 14 to the financial statements which explains
the critical accounting estimates and assumptions in
determining provisions for impairment charges,
including loss rates and emergence periods.
How the audit addressed the Key Audit
Matter
impairment calculations.
In relation to the collectively assessed provisions
which were calculated using models, our work
included:
•
•
•
critically examining management’s model
monitoring processes and, on a sample basis,
conducting in-depth reviews of models used to
calculate the impairment provisions;
using our knowledge of industry practice and the
actual past experience of the Group’s loan
portfolios to challenge the appropriateness of the
key assumptions applied in the models, such as
the EPs, PDs and LGDs; and
performing analyses on key assumptions and
considering key ratios, including provision-to-
loan ratios at product and geographic levels.
For economic overlays to model calculations, we
considered the potential for impairment to be affected
by events not captured by management’s models, and
challenged management to provide objective evidence
that the economic overlays (for example, in relation to
the mining sector and the New Zealand dairy sector)
were appropriate.
We found that the Group’s approach to calculating
loan impairment provisions was consistent with prior
periods and that the underlying key assumptions,
model outputs and overlays were considered to be
reasonable.
242
2016 Westpac Group Annual Report
Statutory statements
How the audit addressed the Key Audit
Matter
We assessed the design and tested the operating
effectiveness of the controls over the valuation of
financial instruments held at fair value. The key
controls included:
•
governance mechanisms and monitoring over the
valuation process, including over derivative
valuation adjustments;
•
• management’s process to ensure valuation models
remain fit-for-purpose (‘model validation’);
controls over the completeness and accuracy of
inputs (including independent market data) to the
valuation models;
the Finance team’s processes to independently
check certain valuations produced by the front
office; and
processes to approve new products.
•
•
We determined that we could rely on controls over
the valuation of financial instruments held at fair
value for the purposes of our audit.
In relation to the positions and valuations as at 30
September 2016, we also:
Key Audit Matter
Valuation of financial instruments held at fair
value
Financial instruments held at fair value are derivative
assets and liabilities, trading securities, available-for-
sale securities, life insurance assets and liabilities,
various debt issues and some other assets and
liabilities designated at fair value.
The Group’s financial instruments predominantly
relate to vanilla (non-structured) contracts and, as
such, are categorised as ‘Level 1’ or ‘Level 2’
instruments in the disclosures in Note 23. This is
consistent with the Group’s core institutional banking
and treasury operations, being the provision of risk
management products to customers (primarily interest
rate and foreign exchange contracts), and the
management of the Group’s borrowings and liquidity;
as opposed to an investment bank which typically holds
a much higher proportion of structured products.
Further, the proportion of the Group’s ‘Level 3’ (or
‘harder to value’) positions has decreased this year,
consistent with similar banks, in response to global
regulatory and business model changes.
Despite the above, there are two factors that led to our
higher focus on this area. First, the magnitude of
financial instruments held at fair value is material,
being 16% of total assets and 13% of total liabilities.
Second, judgement and inherent complexity is involved
in estimating the fair value of financial instruments. In
particular, the valuation of derivative contracts,
including vanilla contracts, has become more complex
in recent years as valuation models attempt to better
capture credit risk and funding costs.
•
•
•
Particularly subjective aspects of the Level 2 valuation
process are the adjustments applied to the
uncollateralised derivative portfolio, such as credit and
debit valuation adjustments (CVA and DVA) and
funding valuation adjustments (FVA). The methods for
calculating some of the adjustments continue to evolve
across the banking industry.
For CVA and DVA, the adjustments are sensitive to
factors such as expected future market volatility and
credit risks. For FVA, the adjustment is sensitive to
funding rates observed in market transactions, which
are difficult to isolate from other elements of pricing.
See Note 23 to the financial statements which explains
the ‘Levels’ and the valuation techniques used.
challenged management to demonstrate the
appropriateness of key inputs to models;
investigated the drivers of movements in fair
value adjustments, and tested certain inputs
against external market observations; and
for a sample of interest rate, foreign exchange,
bond and debt positions, we compared the
valuations to our own independently derived
valuations. This involved sourcing independent
inputs from market data providers, and using our
own valuation models. We investigated variances
where appropriate to assess whether a systemic
bias or error existed.
In those instances where external information
supporting valuations was limited, we sought other
information which, while not always directly
comparable, might be indicative of appropriate
valuation. For example, we:
•
•
•
examined the profit or loss on sales of less liquid
trading positions during the year to assess
whether, on balance, management’s prior
judgements on valuations were close to actual
market prices;
examined collateral disputes to identify possibly
inappropriate valuations; and
compared the methods used for the
uncollateralised derivative portfolio valuation
adjustments with our understanding of current
and emerging global market practice.
We found that the Group’s approach to calculating the
fair value of financial instruments was consistent with
prior periods and that the valuations were considered
to be reasonable.
2016 Westpac Group Annual Report
243
3
Key Audit Matter
How the audit addressed the Key Audit
Matter
Operation of IT systems and controls
We focused on this area because the Group is heavily
dependent on complex IT systems for the processing
and recording of significant volumes of transactions.
Over 80% of the key financial controls we seek to rely
on in our audit are related to IT systems and automated
controls.
For significant financial statement balances we gained
an understanding of the business processes, key
controls and IT systems used to generate and support
those balances. We assessed the design and tested the
operating effectiveness of the key controls over the
continued integrity of the relevant IT systems. This
involved assessing:
In particular, in common with all banks, access rights
to technology are important because they ensure that
changes to applications and data are authorised and
made appropriately. Ensuring staff have appropriate
access to IT systems, and that access is monitored, are
key controls in mitigating the potential for fraud or
error as a result of a change to an application or
underlying data.
In addition, during the current year substantial
changes were made to the Group’s technology as part of
the Service Revolution, such as the commencement of
an infrastructure transformation program which
included:
•
•
•
outsourcing more services from third parties;
continued replacement of some core systems; and
continued refresh of some applications and databases.
There are inherent risks associated with such large-
scale changes to systems, data, processes and controls.
•
•
•
•
•
the technology control environment: i.e. the
governance processes and controls used to monitor
and enforce control consciousness throughout the
Group’s technology teams and third party suppliers;
change management: i.e. the process and controls used
to make, test and authorise changes to the functionality
within systems;
security: i.e. the access controls designed to enforce a
segregation of duties or ensure that data is only
changed through authorised means;
system development: i.e. the project disciplines which
ensure that new systems are developed to meet a
defined business need are appropriately tested before
implementation, and that data is converted and
transferred completely and accurately; and
IT operations: i.e. the controls that ensure key
operations occur when they should and that any issues
that arise are managed to a successful conclusion.
For in-scope IT operations where technology services
are provided by a third party, we:
•
•
obtained assurance from the third party’s auditors on
the design and operating effectiveness of controls;
and/or
tested internal control design and operating
effectiveness ourselves.
We also carried out further direct tests of the
operation of key programs to establish the
accuracy of calculations, the correct generation of
reports, and to assess the correct operation of
automated controls and technology-dependent
manual controls.
In relation to the components of the Group’s
infrastructure transformation program which are
significant to the financial statements, we:
•
•
•
tested the design effectiveness and operating
effectiveness of new key controls;
visited new sites for third party service providers; and
tested the completeness and accuracy of relevant data
migration from old systems to new systems.
While we noted some design and effectiveness issues
with access controls and change controls, some of
which are long-standing, the combination of
compensating control tests and direct tests gave us
sufficient evidence to rely on the continued and
proper operation of the Group’s IT systems for the
purposes of our audit.
244
2016 Westpac Group Annual Report
Statutory statements
We attended all four Board Audit Committee meetings held during the year, each of which included
discussions without management present. Through these meetings and other interactions and
correspondence, among other things we communicated with the Board Audit Committee members
about:
•
•
our audit plan for the year and in particular our areas of focus which, as required by auditing
standards, included specific attention to the risk of management override of internal controls and the
risk of fraud in revenue;
our observations on controls over financial reporting, and how we had responded to any relevant
control matters identified;
• how we had assessed and challenged any alternative accounting treatments considered by
•
•
management;
the results of our audit work in relation to the Key Audit Matters, as described above; and
the results of our audit work in relation to other areas of heightened focus, such as the application of
hedge accounting, the capitalisation and amortisation of technology costs including software, any
accounting and disclosure considerations related to conduct risk, and management’s other critical
accounting estimates (identified in Note 1) including goodwill, superannuation obligations and life
insurance contract liabilities.
Directors’ responsibilities for the Financial Report
The directors of the Parent Entity 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 gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the Financial Report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the Financial Report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Australian Auditing Standards will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the Financial Report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the planning and performance of the audit.
The audit involves us:
•
•
•
•
identifying and assessing the risks of material misstatement of the Financial Report, whether due to
fraud or error, designing and performing audit procedures responsive to those risks, and obtaining
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control;
obtaining an understanding of internal control relevant to the audit 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 Group’s internal control;
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors;
concluding on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the Financial Report or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Group to cease to continue as a going
concern;
2016 Westpac Group Annual Report
245
3
•
•
evaluating the overall presentation, structure and content of the Financial Report, including the
disclosures, and whether the Financial Report represents the underlying transactions and events in a
manner that achieves fair presentation; and
obtaining sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the Financial Report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
As described above, we communicate with the directors regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the Financial Report of the current period and are therefore the Key Audit
Matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Other information
The directors are also responsible for the other information, being the information in the Annual Report
other than the Financial Report and our report thereon. Our opinion on the Financial Report does not
cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the Financial Report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the Financial
Report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Report on the audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in Section 1 of the Annual Report for the year ended
30 September 2016. In our opinion, the Remuneration Report of Westpac Banking Corporation for the
year ended 30 September 2016 complies with section 300A of the Corporations Act 2001.
Responsibilities for the Remuneration Report
The directors of the Company 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.
PricewaterhouseCoopers
Michael Codling
Partner
Sydney
7 November 2016
Andrew Wilson
Partner
246
2016 Westpac Group Annual Report
Statutory statements
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 Chartered Accountants Australia
and New Zealand (NSW) scheme adopted by Chartered Accountants Australia and New Zealand 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 7 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 7 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.
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
judgement 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 judgements are untested.
2016 Westpac Group Annual Report
247
3
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248
2016 Westpac Group Annual Report
Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations and defined terms
4 Westpac ordinary shares
Top 20 ordinary shareholders as at 4 October 2016
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Ltd
National Nominees Limited
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
BNP Paribas
RBC Dexia Investor Services Australia Nominees Pty Limited
AMP Life Limited
Australian Foundation Investment Company Limited
Argo Investments Limited
Bond Street Custodians Limited
Milton Corporation Limited
Navigator Australia Limited
UBS Nominees Pty Ltd
IOOF Investment Management Limited
Nulis Nominees (Australia) Limited
Invia Custodian Pty Limited
ANZ Executors & Trustee Company
Netwealth Investments Limited
Share Direct Nominees Pty Limited
Total of Top 20 registered shareholders
Shareholding information
Num ber of
Fully Paid Ordinary Shares
649,907,415
% Held
19.42
411,679,271
243,646,379
211,759,963
75,156,046
43,910,962
33,938,295
18,538,627
15,545,000
11,116,768
10,878,684
10,451,306
8,329,536
6,425,953
4,899,645
4,742,274
4,300,779
3,690,216
3,657,556
3,460,191
1,776,034,866
12.30
7.28
6.33
2.25
1.31
1.01
0.55
0.46
0.33
0.33
0.31
0.25
0.19
0.15
0.14
0.13
0.11
0.11
0.10
53.06
As at 4 October 2016 there were 622,674 holders of our ordinary shares compared to 615,493 in 2015 and 595,907 in 2014.
Ordinary shareholders with a registered address in Australia held approximately 98% of our fully paid share capital at
4 October 2016 (approximately 98% in 2015 and 98% in 2014).
Substantial shareholders as at 4 October 2016
As at 4 October 2016 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 2016.
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 2016, our Directors and Executive Officers owned beneficially, directly or indirectly, an aggregate of
1,340,102 (0.04%) of the fully paid ordinary shares outstanding.
250
2016 Westpac Group Annual Report
Shareholding information
Analysis by range of holdings of ordinary shares as at 4 October 2016
Num ber of Shares
–
1
–
1,001
–
5,001
–
10,001
100,001 and over
1,000
5,000
10,000
100,000
Totals
Num ber of Holders
of Fully Paid
Ordinary Shares
340,466
217,549
38,613
25,366
680
Num ber of
Fully Paid
Ordinary Shares
132,698,863
486,034,508
266,961,784
531,995,339
1,928,476,359
%
54.68
34.94
6.20
4.07
0.11
%
3.97
14.52
7.98
15.90
57.63
622,674
100.00
3,346,166,853
100.00
Num ber of Holders
of Share Options
and Rights
19
64
19
82
19
203
There were 11,820 shareholders holding less than a marketable parcel ($500) based on a market price of $30.00 at the close
of trading on 4 October 2016.
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 4 October 2016
HSBC Custody Nominees
Navigator Australia Limited
BT Portfolio Services Limited
Nulis Nominees (Australia) Limited
IOOF Investment Management Limited
J P Morgan Nominees Australia Ltd
Netwealth Investments Limited
National Nominees Limited
Austrust Limited
The Australian National University
Dimbulu Pty Ltd
Mrs Linda Anne Van Lieshout
Bond Street Custodians Limited
Citicorp Nominees Pty Limited
Eastcote Pty Ltd
JMB Pty Ltd
Randazzo C & G Developments Pty Ltd
Invia Custodian Pty Limited
Avanteos Investments Limited
Mr Philip William Doyle
Total of Top 20 registered holders
Analysis by range of holdings of Westpac CPS as at 4 October 2016
Num ber of Securities
1
1,001
5,001
10,001
100,001 and over
Totals
1,000
5,000
10,000
100,000
–
–
–
–
Num ber of Holders of
Westpac CPS
18,020
1,306
103
51
7
19,487
%
92.47
6.70
0.53
0.26
0.04
100.00
Num ber of
Westpac CPS
563,557
% Held
4.74
204,833
190,945
190,330
185,059
169,910
148,682
118,724
114,902
90,500
70,000
60,000
53,483
53,306
50,000
50,000
50,000
30,969
30,000
30,000
1.72
1.61
1.60
1.56
1.43
1.25
1.00
0.97
0.76
0.59
0.50
0.45
0.45
0.42
0.42
0.42
0.26
0.25
0.25
2,455,200
20.65
Num ber of
Westpac CPS
5,472,719
2,794,284
796,872
1,404,349
1,425,381
11,893,605
%
46.02
23.49
6.70
11.81
11.98
100.00
There were eight security holders holding less than a marketable parcel ($500) of Westpac CPS based on a market price of
$100.60 at the close of trading on 4 October 2016.
2016 Westpac Group Annual Report
251
4
Westpac Capital Notes
Top 20 holders of Westpac Capital Notes as at 4 October 2016
HSBC Custody Nominees
BT Portfolio Services Limited
IOOF Investment Management Limited
Pejr Pty Ltd
Cogent Nominees Pty Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Ltd
National Nominees Limited
Austrust Limited
Netwealth Investments Limited
Willimbury Pty Ltd
V S Access Pty Ltd
Navigator Australia Limited
Nulis Nominees (Australia) Limited
Tandom Pty Ltd
Royal Freemasons Benevolent Institution
Mr Alexander Shaw
Bond Street Custodians Limited
ADCO Constructions Pty Ltd
RBC Dexia Investor Services
Total of Top 20 registered holders
Analysis by range of holdings of Westpac Capital Notes as at 4 October 2016
Num ber of
Westpac Capital Notes
893,247
% Held
6.46
232,599
187,021
184,462
182,771
180,265
127,668
123,467
109,753
100,813
100,000
90,000
89,888
71,299
65,933
50,000
50,000
40,478
38,000
31,524
1.68
1.35
1.33
1.32
1.30
0.92
0.89
0.79
0.73
0.72
0.65
0.65
0.52
0.48
0.36
0.36
0.29
0.27
0.23
2,949,188
21.30
Num ber of Securities
1
1,001
5,001
10,001
100,001 and over
Totals
1,000
5,000
10,000
100,000
–
–
–
–
Num ber of Holders of
Westpac Capital Notes
17,382
1,714
120
49
10
19,275
%
90.18
8.89
0.62
0.26
0.05
100.00
Num ber of
Westpac Capital Notes
5,710,305
3,564,480
960,875
1,428,163
2,171,867
13,835,690
%
41.27
25.76
6.95
10.32
15.70
100.00
There were eight security holders holding less than a marketable parcel ($500) of Westpac Capital Notes based on a market
price of $99.50 at the close of trading on 4 October 2016.
252
2016 Westpac Group Annual Report
Westpac Capital Notes 2
Top 20 holders of Westpac Capital Notes 2 as at 4 October 2016
HSBC Custody Nominees
BT Portfolio Services Limited
PEJR Pty Ltd
Netwealth Investments Limited
Navigator Australia Limited
Invia Custodian Pty Limited
Nulis Nominees (Australia) Limited
EML Admin Pty Ltd
RBC Dexia Investor Services
Cogent Nominees Pty Limited
Paul Lederer Pty Ltd
IOOF Investment Management Limited
National Nominees Limited
Rakio Pty Ltd
Bond Street Custodians Limited
ALSOP Pty Ltd
Dimbulu Pty Ltd
Baysw ater Car Rental Pty Ltd
Domer Mining Co P/L
Ms Sarah Louise Haddrick
Total of Top 20 registered holders
Shareholding information
Num ber of
Westpac Capital Notes 2
533,615
% Held
4.07
408,882
352,774
153,154
149,929
132,630
128,749
100,000
94,226
92,131
90,540
89,574
88,044
63,000
60,060
60,000
51,000
50,000
50,000
50,000
3.12
2.69
1.17
1.14
1.01
0.98
0.76
0.72
0.70
0.69
0.68
0.67
0.48
0.46
0.46
0.39
0.38
0.38
0.38
2,798,308
21.33
Analysis by range of holdings of Westpac Capital Notes 2 as at 4 October 2016
Num ber of Securities
1
1,001
5,001
10,001
100,001 and over
Totals
1,000
5,000
10,000
100,000
–
–
–
–
Num ber of Holders of
Westpac Capital Notes 2
14,426
1,630
127
79
6
16,268
%
88.68
10.02
0.78
0.48
0.04
100.00
Num ber of
Westpac Capital Notes 2
4,873,067
3,502,909
976,404
2,310,990
1,442,335
13,105,705
%
37.18
26.73
7.45
17.63
11.01
100.00
There were three security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 2 based on a market
price of $93.52 at the close of trading on 4 October 2016.
2016 Westpac Group Annual Report
253
4
Westpac Capital Notes 3
Top 20 holders of Westpac Capital Notes 3 as at 4 October 2016
HSBC Custody Nominees (Australia) Limited
JDB Services Pty Ltd
Navigator Australia Limited
Citicorp Nominees Pty Limited
Invia Custodian Pty Limited
Nulis Nominees (Australia) Limited
Balanced Property Pty Ltd
National Nominees Limited
Netwealth Investments Limited
Tandom Pty Ltd
Seymour Group Pty Ltd
RBC Dexia Investor Services
V S Access Pty Ltd
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
Num ber of
Westpac Capital Notes 3
870,886
272,000
202,181
158,619
125,501
122,017
100,000
95,612
94,454
84,750
76,774
76,421
60,000
51,670
50,000
50,000
50,000
50,000
50,000
50,000
2,690,885
Analysis by range of holdings of Westpac Capital Notes 3 as at 4 October 2016
Num ber of Securities
1
1,001
5,001
10,001
100,001 and over
Totals
1,000
5,000
10,000
100,000
–
–
–
–
Num ber of Holders of
Westpac Capital Notes 3
13,160
1,455
131
92
5
14,843
%
88.66
9.80
0.89
0.62
0.03
100.00
Num ber of
Westpac Capital Notes 3
4,618,255
3,318,841
1,096,864
2,643,918
1,566,402
13,244,280
% Held
6.58
2.05
1.53
1.20
0.95
0.92
0.76
0.72
0.71
0.64
0.58
0.58
0.45
0.39
0.38
0.38
0.38
0.38
0.38
0.38
20.34
%
34.87
25.06
8.28
19.96
11.83
100.00
There were two security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 3 based on a market
price of $100.00 at the close of trading on 4 October 2016.
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2016 Westpac Group Annual Report
Westpac Capital Notes 4
Top 20 holders of Westpac Capital Notes 4 as at 4 October 2016
Shareholding information
BNP Paribas
HSBC Custody Nominees
J P Morgan Nominees Australia Ltd
Citicorp Nominees Pty Limited
PEJR Pty Ltd
Goodridge Nominees Pty Ltd
Netwealth Investments Limited
Mutual Trust Pty Ltd
National Nominees Limited
Zashvin Pty Ltd
Dimbulu Pty Ltd
G Harvey Nominees Pty Ltd
Tandom Pty Ltd
Invia Custodian Pty Limited
Navigator Australia Limited
Willimbury Pty Ltd
Nulis Nominees (Australia) Limited
Austrust Limited
V S Access Pty Ltd
Grannette Pty Ltd
Total of Top 20 registered holders
Num ber of
Westpac Capital Notes 4
3,000,000
952,016
262,372
230,412
218,450
200,000
169,445
123,513
110,755
104,000
100,000
100,000
80,000
76,324
64,558
60,000
56,236
51,748
51,570
50,000
6,061,399
Analysis by range of holdings of Westpac Capital Notes 4 as at 4 October 2016
Num ber of Securities
1
1,001
5,001
10,001
100,001 and over
Totals
1,000
5,000
10,000
100,000
–
–
–
–
Num ber of Holders of
Westpac Capital Notes 4
15,816
1,610
136
74
11
17,647
%
89.63
9.12
0.77
0.42
0.06
100.00
Num ber of
Westpac Capital Notes 4
5,183,097
3,482,372
1,062,003
1,975,739
5,317,323
17,020,534
% Held
17.63
5.59
1.54
1.35
1.28
1.18
1.00
0.73
0.65
0.61
0.59
0.59
0.47
0.45
0.38
0.35
0.33
0.30
0.30
0.29
35.61
%
30.45
20.46
6.24
11.61
31.24
100.00
There was one security holder holding less than a marketable parcel ($500) of Westpac Capital Notes 4 based on a market
price of $102.97 at the close of trading on 4 October 2016.
2016 Westpac Group Annual Report
255
4
Voting rights of Westpac CPS, Westpac Capital Notes,
Westpac Capital Notes 2, Westpac Capital Notes 3 and
Westpac Captial Notes 4
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, Westpac Capital
Notes 3 and Westpac Capital Notes 4 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, Westpac Capital Notes 3 or
Westpac Capital Notes 4 (as applicable) will become holders
of Westpac ordinary shares and have the voting rights that
attach to Westpac ordinary shares.
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;
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
individuals or entities including:
– 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 persons or entities associated with the
Democratic People’s Republic of Korea’s weapons of
mass destruction program or missiles program;
– certain 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 supporting the Syrian
regime or that are responsible for human rights
abuses in Syria; and
– persons who have been instrumental or complicit 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
– 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 certain persons or entities associated
with 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 persons that meet certain thresholds are required
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to be notified to the Treasurer of Australia (through the
Foreign Investment Review Board) and to obtain a no
objections notification under 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 20% or more of the issued shares of an
Australian company or the ability to control 20% or more of
the total voting power. In addition, the legislation applies to
any acquisition by a foreign government investor of 10% or
more of the total voting power or ownership of an Australian
company (or any interest if the foreign government investor
acquires a control element – for example the right to appoint
a director). 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 in the absence of a no objections
notification, the Treasurer has the power to order divestment
if he considers the acquisition to be contrary to Australia’s
national interest.
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:
Shareholding information
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 Westpac, 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
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.
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257
4 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 depends upon the shareholder’s own
circumstances, including the period during which the shares
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, brokers, tax-exempt entities, retirement
plans, certain former citizens or residents of the US, persons
holding ordinary shares as part of a straddle, hedge,
conversion or other integrated transaction, 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 who 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;
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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. We have not maintained and do not plan to
maintain calculations of earnings and profits for US federal
income tax purposes, and as a result, you may need to
include the entire amount of any distribution in income as a
dividend. 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
Shareholding information
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, exchange 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
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
2016 Westpac Group Annual Report
259
4 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.
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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
Additional information
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.
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261
4 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.
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, including the capital
conservation buffer. 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.
262
2016 Westpac Group Annual Report
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.
Additional information
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.
2016 Westpac Group Annual Report
263
4 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
2017²
0.7715
0.7545
n/a
n/a
Year Ended 30 Septem ber
2015
2014
2016
(US$ per A$1.00)
0.7817
0.6855
0.7385
0.7667
0.8904
0.6917
0.7781
0.7020
0.9705
0.8715
0.9155
0.8737
For each of the months indicated, the high and low noon buying rates for Australian dollars were:
High
Low
October
2016²
Septem ber
2016
0.7715
0.7545
0.7676
0.7470
Month
August
2016
July
2016
(US$ per A$1.00)
0.7717
0.7516
0.7632
0.7453
2013
2012
1.0579
0.8901
0.9885
0.9342
June
2016
0.7598
0.7225
1.0806
0.9453
1.0371
1.0388
May
2016
0.7641
0.7184
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
of New York.
2
Through to 21 October 2016. On 21 October 2016, the noon buying rate was A$1.00 = US$0.7597.
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) to the financial statements.
264
2016 Westpac Group Annual Report
Information for shareholders
Financial calendar
Westpac Ordinary Shares (ASX code: WBC)
Westpac Capital Notes 2 (ASX code: WBCPE)
Record date for final dividend
15 November 20161
Record date for quarterly distribution
15 December 2016
Annual General Meeting
9 December 2016
Payment date for quarterly distribution
23 December 2016
Final dividend payable
Financial Half Year end
21 December 2016
Record date for quarterly distribution
15 March 2017
31 March 2017
Payment date for quarterly distribution
23 March 2017
Interim results and dividend announcement 8 May 2017
Record date for quarterly distribution
15 June 2017
Record date for interim dividend
Interim dividend payable
19 May 20172,3
4 July 20173
Financial Year end
30 September 2017
Final results and dividend announcement
6 November 2017
Payment date for quarterly distribution
23 June 2017
Record date for quarterly distribution
15 September 2017
25 September 20171
Payment date for quarterly distribution
1 Next business day when a payment date falls on a non-ASX business day.
Record date for final dividend
Annual General Meeting
Final dividend payable
1
14 November 20174,6
8 December 20175
22 December 20176
Westpac Capital Notes 3 (ASX code: WBCPF)
Record date for quarterly distribution
14 December 2016
Payment date for quarterly distribution
22 December 2016
2
3
4
5
6
Record date for 2016 final dividend in New York – 14 November 2016.
Record date for 2017 interim dividend in New York – 18 May 2017.
Dates will be confirmed at the time of announcing the 2017 interim results.
Record date for 2017 final dividend in New York – 13 November 2017.
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 2017.
Dates will be confirmed at the time of announcing the 2017 final results.
Westpac Convertible Preference Shares
(ASX code: WBCPC)
Record date for quarterly distribution
14 March 2017
Payment date for quarterly distribution
22 March 2017
Record date for quarterly distribution
14 June 2017
Payment date for quarterly distribution
22 June 2017
Record date for quarterly distribution
14 September 2017
Payment date for quarterly distribution
22 September 2017
Record date for semi-annual dividend
23 March 2017
Westpac Capital Notes 4 (ASX code: WBCPG)
Payment date for semi-annual dividend
31 March 2017
Record date for quarterly distribution
22 December 2016
Record date for semi-annual dividend
22 September 2017
Payment date for quarterly distribution
30 December 2016
Payment date for semi-annual dividend
1 Next business day when a payment date falls on a non-ASX business day.
3 October 20171
Record date for quarterly distribution
22 March 2017
Payment date for quarterly distribution
30 March 2017
Westpac Capital Notes (ASX code: WBCPD)
Record date for quarterly distribution
22 June 2017
Record date for quarterly distribution
30 November 2016
Payment date for quarterly distribution
30 June 2017
Payment date for quarterly distribution
8 December 2016
Record date for quarterly distribution
22 September 2017
Record date for quarterly distribution
28 February 2017
Payment date for quarterly distribution
8 March 2017
Record date for quarterly distribution
31 May 2017
Payment date for quarterly distribution
8 June 2017
Record date for quarterly distribution
31 August 2017
Payment date for quarterly distribution
8 September 2017
Payment date for quarterly distribution
1 Next business day when a payment date falls on a non-ASX business day.
3 October 20171
2016 Westpac Group Annual Report
265
4 Westpac Subordinated Notes (ASX code: WBCHA)
Westpac NZD Subordinated Notes (NZX code: WBC010)
Record date for quarterly interest payment 15 November 2016
Record date for quarterly interest payment 21 November 2016
Payment date for quarterly
interest payment
23 November 2016
Payment date for quarterly
interest payment
1 December 2016
Record date for quarterly interest payment 15 February 2017
Record date for quarterly interest payment 17 February 20171
Payment date for quarterly
interest payment
23 February 2017
Payment date for quarterly
interest payment
1 March 2017
Record date for quarterly interest payment 15 May 2017
Record date for quarterly interest payment 22 May 2017
Payment date for quarterly
interest payment
23 May 2017
Payment date for quarterly
interest payment
1 June 2017
Record date for quarterly interest payment 15 August 2017
Record date for quarterly interest payment 22 August 2017
Payment date for quarterly
interest payment
1 The first optional Redemption Date for Westpac Subordinated Notes will be
23 August 2017, subject to APRA’s prior written consent. There can be no
certainty that APRA will provide its consent in respect of any early
redemption.
23 August 20171
Payment date for quarterly
interest payment
1 Immediately preceding business day when a record date does not fall on a
day on which banks are open for general business in Wellington and
Auckland, New Zealand and Sydney, Australia.
1 September 2017
Westpac Subordinated Notes II (ASX code: WBCHB)
Record date for quarterly interest payment 14 November 2016
Payment date for quarterly
interest payment
22 November 2016
Record date for quarterly interest payment 14 February 2017
Payment date for quarterly
interest payment
22 February 2017
Record date for quarterly interest payment 12 May 20171
Payment date for quarterly
interest payment
22 May 2017
Record date for quarterly interest payment 14 August 2017
Payment date for quarterly
interest payment
1 Immediately preceding business day when a record date falls on a non-ASX
business day.
22 August 2017
Annual General Meeting
The Westpac Annual General Meeting (AGM) will be held in Hall L, Ground Floor, Adelaide Convention Centre, North Terrace,
Adelaide, on Friday 9 December 2016, commencing at 10:00am (Adelaide 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 for viewing at a later time.
266
2016 Westpac Group Annual Report
Useful information
Key sources of information for shareholders
We report our full year performance to shareholders, in late
October or early November, in the following forms: an Annual
Review & Sustainability Report; an Annual Report; a
Sustainability Performance Report; an Investor Discussion
Pack and earnings releases.
Electronic communications
Shareholders can elect to receive the following
communications electronically:
Annual Review & Sustainability Report 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
Major company announcements.
Opt for electronic communications by logging into Westpac’s
Share Registrar’s Investor Centre at
www.linkmarketservices.com.au.
Online information
Australia
Westpac’s website 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, market releases and news; and
corporate responsibility and Westpac in the
community activities.
Investors can access the Investor Centre at
www.westpac.com.au/investorcentre. The Centre also
includes the current Westpac share price 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;
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).
Information for shareholders
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
Shareholders can check and update their information in
Westpac’s Share Registrars’ Online Investor Centres, see
details below. In Australia, broker sponsored holders must
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
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 11, Deloitte Centre
80 Queen Street
Auckland 1010, New Zealand
Postal address: P.O. Box 91976, Auckland 1142,
New Zealand
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)
ADS holder enquiries:
Computershare
211 Quality Circle Suite 210 College Station
TX 77845, USA
Postal address: P.O. Box 30170
College Station, TX 77842-3170, USA
Telephone: 1-888-BNY-ADRS (1-888-269-2377)
(toll free number for domestic callers)
International: +1 201 680 6825
Email: shrrelations@bnymellon.com
www.bnymellon.com/shareowner
1
Each ADS represents one fully paid ordinary share
2016 Westpac Group Annual Report
267
4 Glossary of abbreviations and defined terms
6MMA
AAS
AASB
ABS
ACCC
ADI
ADRs
ADSs
Six month moving average
Australian Accounting Standards
Australian Accounting Standards Board
Asset-backed securities
Australian Competition and Consumer
Commission
Authorised Deposit-taking Institution
American Depositary Receipts
American Depositary Shares
Advanced IRB
Advanced Internal Ratings Based
AGM
AIRB
ALCO
ALM
AMA
ANZSIC
APRA
ASIC
ASX
ASXCGC
ATMs
ATO
AUSTRAC
BAC
BankSA
BBSW
BCBS
BOSI
bps
BRCC
BTFG
BTIM
CAPs
Annual General Meeting
Advanced Internal Ratings Based
Westpac Asset & Liability Committee
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
Bank of South Australia
Bank Bill Swap Reference Rate
Basel Committee on Banking Supervision
BOS International Australia Limited
Basis points
Board Risk & Compliance Committee
BT Financial Group (Australia)
BT Investment Management Limited
Collectively Assessed Provisions
Cash EPS
Cash earnings per share
Cash EPS CAGR
Compound Annual Growth in Cash EPS
CCB
CDO
CDS
CEO
CEOPP
CEO RSP
CFAL
CFO
CFTC
CGU
CHF
CLF
COSO
CPM
CRG
CRO
CRS
268
Chief Executive Officer Performance Plan
Moody’s
Capital Conservation Buffer
Collateralised debt obligations
Credit default swap
Chief Executive Officer
Chief Executive Officer Restricted Share Plan
Capital Finance Australia Limited
Chief Financial Officer
Commodity Futures Trading Commission
Cash Generating Unit
Swiss franc
Committed Liquidity Facility
Committee of Sponsoring Organizations of the
Treadway Commission
Credit Portfolio Management
Customer Risk Grade
Chief Risk Officer
Common Reporting Standard
2016 Westpac Group Annual Report
Corporations Act
Corporations Act 2001 (Cth)
CVA
DFAT
DRP
D-SIB
EAD
EPS
ESG
ESP
FCA
FCS
FMA
FSB
FTE
FUA
FUM
FVA
FX
GHG
G-SIBs
Hastings
HKMA
IAPs
IASB
ICAAP
IFRS
IOSCO
IRRBB
IRS
ISDA
JOHCM
LCR
LGBTI
LGD
LIBOR
LTI Plan
LTIFR
LVR
MFI
NaR
NII
NYSE
NSFR
NZX
OBR
OCC
OFAC
OTC
PD
PFIC
PNG
RAMS
RBA
Credit valuation adjustment
Department of Foreign Affairs and Trade
Dividend Reinvestment Plan
Domestic Systemically Important Banks
Exposure at default
Earnings per share
Environmental, social and governance
Employee Share Plan
Financial Conduct Authority
Financial Claims Scheme
Financial Markets Authority
Financial Stability Board
Full time equivalent employees
Funds under administration
Funds under management
Funding Valuation Adjustment
Foreign Exchange
Greenhouse gas
Global Systemically Important Banks
Hastings Funds Management Limited
Hong Kong Monetary Authority
Individually Assessed Provisions
International Accounting Standards Board
Internal Capital Adequacy Assessment
Process
International Financial Reporting Standards
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
Moody’s Investors Service
Net interest income-at-risk
Net interest income
New York Stock Exchange
Net Stable Funding Ratio
New Zealand Exchange Limited
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
Glossary of abbreviations and defined terms
RBNZ
RISKCO
RMBS
ROE
RSP
RWA
S&P
SEC
SME
SOx
SPS
St.George
TLAC
2004 TPS
2006 TPS
TSR
UKSS
UNSC
US
VaR
Reserve Bank of New Zealand
Westpac Group Executive Risk Committee
Residential Mortgage Backed Securities
Return on equity
Restricted Share Plan
Risk-weighted assets
Standard & Poor’s
US Securities and Exchange Commission
Small to medium enterprises
Sarbanes-Oxley Act of 2002
Stapled Preferred Securities
St.George Banking Group
Total Loss Absorbing Capacity
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 CPS
Westpac Convertible Preference Shares
WGP
WHS
WIB
WNZL
WNZS
WPP
WRP
WSNZL
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
2016 Westpac Group Annual Report
269
4 Notes
270
2016 Westpac Group Annual Report
Notes
2016 Westpac Group Annual Report
271
4 Notes
The Westpac Group Annual Report 2016 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.
272
2016 Westpac Group Annual Report
PEFC/21-31-43
ANNUAL REPORT
CONTACT US
WESTPAC GROUP
Head Office
275 Kent Street,
Sydney NSW 2000 Australia
Tel: +61 2 9374 7113
Facsimile: +61 2 8253 4128
International payments
Tel: +61 2 9806 4032
www.westpac.com.au/westpacgroup
Westpac
Telephone – Consumer 132 032
Telephone – Business 132 142
From outside Australia: +61 2 9293 9270
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
RAMS
RAMS Financial Group Pty Ltd
Level 12, 321 Kent Street
Sydney NSW 2000 Australia
Mail: GPO Box 4008
Sydney NSW 2001 Australia
Tel: +61 2 8218 7000
Fax: +61 2 8218 7171
Email: communications@rams.com.au
www.rams.com.au
BT Financial Group
Level 20, 275 Kent Street,
Sydney NSW 2000 Australia
Tel: 132 135
From outside Australia: +61 2 8222 7154
Email: customer.relations@
btfinancialgroup.com
www.bt.com.au
Tel: +61 2 9553 5555
Facsimile: +612 9952 1000
Email: stgeorge@stgeorge.com.au
www.stgeorge.com.au
Westpac Institutional Bank
Tel: 132 032
Email: institutionalbank@westpac.com.au
www.westpac.com.au
Bank of Melbourne
Level 8, 530 Collins Street
Melbourne VIC 3000 Australia
Tel: 13 22 66
From outside Australia: +61 3 9982 4186
Facsimile: +61 3 9296 4371
Email: info@bankofmelbourne.com.au
www.bankofmelbourne.com.au
BankSA
Level 8, 97 King William Street,
Adelaide SA 5000 Australia
Mail: GPO Box 399,
Adelaide SA 5001 Australia
Tel: 131 376
From outside Australia: +61 2 9553 5233
Email: banksa@banksa.com.au
www.banksa.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
Westpac Pacific
Tel: 132 032
From outside Australia: +61 2 9293 9270
www.westpac.com.au/pacific
Pacific Banking Locations
Fiji – Suva
Papua New Guinea – Port Moresby
Westpac New Zealand
16 Takutai Square,
Auckland 1010 New Zealand
Tel: +64 9 912 8000
Email: customer_solutions@westpac.co.nz
www.westpac.co.nz
F
Global locations
Specific contact details for
the many locations globally
can be located on our website
at www.westpac.com.au.
Select ‘About Us’, then
‘Global Locations’ from
the drop down menu.
Share Registrar
Link Market Services Limited
680 George Street
Sydney NSW 2000
Australia
Mail: Locked Bag A6015,
Sydney South NSW 1235
Tel: 1800 804 255
Facsimile: +61 2 9287 0303
Email: westpac@
linkmarketservices.com.au
www.linkmarketservices.com.au
Westpac Investor Relations
Email: investorrelations@westpac.
com.au
Tel: +61 2 8253 3143
www.westpac.com.au/
investorcentre
Sustainability Contacts
Westpac Group Sustainability
contacts
For further information on the
Westpac Group’s sustainability
policies and performance:
Email: sustainability@westpac.
com.au
Visit: www.westpac.com.au/
sustainability
Tel: +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 Sustainability team,
details above.
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www.westpac.com.au