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2017 Westpac Group
Annual Report
On the 8th April 2017 Westpac reached a significant
milestone, celebrating its 200th anniversary.
For 200 years we have helped millions of customers across
Australia and New Zealand manage their finances and
realise their dreams. Much has changed since our company
first began but our commitment to helping our customers,
communities and people to prosper and grow remains at
the heart of everything we do.
ON THE COVER
Bank of New South Wales Sydney
office, 1853, and Barry McGuire,
Managing Director and co-founder
of Redspear Safety and Westpac
customer. Read Barry's story online
via the website address below.
This page
Barry McGuire and
Francois Witbooi from
Redspear Safety with
their local Westpac
business banker
Matt Turnbull.
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Proudly
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Proudly
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200 Years
Proudly
Supporting
Australia for
200 Years
2017 Westpac Group
Sustainability Performance
Report
2017 Westpac Group
Annual Report
2017 Westpac Group
Annual Review &
Sustainability Report
2017 Annual
Report
2017 Annual Review
& Sustainability
Report
2017 Sustainability
Performance
Report
The Westpac Group Annual Report,
Annual Review & Sustainability Report and
Sustainability Performance Report represent
Westpac’s extended reporting framework
and can be found online at
www.westpac.com.au/investorcentre.
Westpac Banking Corporation
ABN 33 007 457 141
Table of contents
In this Annual Report a reference to ‘Westpac’, ‘Group’,
‘Westpac Group’, ‘we’, ‘us’ and ‘our’ is to Westpac Banking
Corporation ABN 33 007 457 141 and its subsidiaries unless it
clearly means just Westpac Banking Corporation.
For certain information about the basis of preparing the financial
information in this Annual Report see ‘Reading this report’ in
Section 2. In addition, this Annual Report contains statements that
constitute ‘forward-looking statements’ within the meaning of
Section 21E of the US Securities Exchange Act of 1934. For an
explanation of forward-looking statements and the risks,
uncertainties and assumptions to which they are subject, see
‘Reading this report’ in Section 2.
Information contained in or accessible through the websites
mentioned in this Annual Report does not form part of this report
unless we specifically state that it is incorporated by reference and
forms part of this report. All references in this report to websites are
inactive textual references and are for information only.
Annual Report
Performance highlights
Section 1
Chairman’s report
Chief Executive Officer’s report
Information on Westpac
Business strategy
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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2017 Westpac Group Annual Report
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Performance highlights
BNet profit after tax $7,990 million, up 7%
BDividends $1.88, unchanged
Net profit after tax1 ($m)
Dividends per ordinary share (cents) Special dividends
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BCash earnings $8,062 million, up 3%
BReturns 13.8%, down 22bps
Cash earnings2,3,4 ($m)
Cash earnings to average ordinary equity2,3,4 (%)
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BCash earnings per ordinary share, up 2%
Cash earnings per ordinary share2,3,4,6 (cents)
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Reported earnings
Net profit after tax1 ($m)
Earnings per share (cents)
Dividends per share (cents)
Return on equity5 (%)
Expense to income ratio (%)
Common Equity Tier 1 capital ratio (%)
Cash earnings basis2
Cash earnings ($m)
Cash earnings per share (cents)
Cash earnings return on equity5 (%)
Economic profit7 ($m)
2017
2016
% change
2017 / 2016
7,990
7,445
238.0
224.6
188
13.6
43.3
10.6
188
13.3
43.9
9.5
8,062
7,822
239.7
235.5
7%
6%
–
33bps
(65bps)
108bps
3%
2%
13.8
14.0
(22bps)
3,774
3,774
–
1
Net profit attributable to ordinary equity holders.
2
The adjustments to our reported results to derive cash earnings are
5
Return on average ordinary equity.
6
Periods prior to 2015 have not been restated for the bonus element
described in Note 2 of our 2017 financial statements.
3
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.
4
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.
of the 2015 share entitlement offer.
7
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 2017 Results (incorporating the requirements
of Appendix 4E) lodged with the ASX on 6 November 2017 (the
‘ASX Announcement’).
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2017 Westpac Group Annual Report
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Chairman’s report
Chief Executive Officer’s report
Information on Westpac
Directors’ report
(including Remuneration Report)
1
Chairman’s report
Lindsay Maxsted
Chairman
It has been an extraordinary year for your company, with
some significant highs and some challenging lows.
Westpac’s 200 year anniversary was the highlight, marking
an important milestone for your company, and for Australia.
Few companies globally have reached this significant
milestone and to do so with perhaps our strongest ever
balance sheet, sound returns, and as the world’s most
sustainable bank, is something shareholders can be very
proud of. The low for the year has been the further
deterioration in the industry’s reputation and the imposition
of a new federal bank levy (Bank Levy) that has impacted
both the value and the returns from your investment in
Westpac. I will speak further on this below.
2017 performance
Our financial performance this year was sound with statutory
net profit up 7%, lifted by good growth across our banking
businesses and a gain on the further sell-down of our
investment in BT Investment Management of $279 million.
Cash earnings (our preferred measure of performance) for
the year ended 30 September 2017 was up 3% compared to
2016.
Growth across lending, deposits and funds under
administration was sound with margins lower, mostly in the
early part of the year. As a result, net interest income was
2% higher although growth was reduced by the Bank Levy,
which became effective from 1 July 2017. The Bank Levy
had a $95 million impact on revenue and reduced cash
earnings by $66 million, or around 1% for Full Year 2017.
Non-interest income was a little lower over Full Year 2017
(less than 1% down) with a strong performance from our
financial markets business early in the year, partially offset
by lower wealth and insurance income and a provision for
customer payments.
The 2% growth in net interest income combined with the
small decline in non-interest income led to a 2% rise in net
operating income.
Expenses also increased 2% over the year. The rise was
mostly associated with investment in the business and rising
regulatory and compliance costs. Ordinary expense growth
(mostly inflationary increases) was largely offset by
$262 million in productivity improvements.
Impairment charges were significantly lower this year, down
$271 million or 24%. The lower charge reflects the high
quality of our loan portfolio and the successful work-out of
some large stressed facilities.
In our assessment of Westpac’s performance for the year,
the Board was pleased with both overall financial outcomes
and progress on the Group’s strategy. Strategically there
have been further developments on the digital
transformation of the organisation, stronger customer
satisfaction results, another significant reduction in
complaints (down 18% in Australia and 21% in New
Zealand) and a lift in employee engagement — all good
indicators of the strength of the Group’s franchise and value.
The Group’s improved financial performance and excellent
strategic progress contributed to a rise in short term
incentives payable to key management personnel this year.
The Board considered that, overall, performance across a
range of measures exceeded documented expectations.
The Board also considered how the executive team
responded to the sector’s reputation issues.
Longer term incentives did not vest this year as the
stretching hurdles set by the Board when the incentives
were first issued in 2014 were not achieved. These long
term incentives would typically comprise around one third of
an executive’s remuneration.
Capital
From a capital perspective, 2017 has been an important
year for the Group. After a 10-year process we have
achieved a level of capital that our regulator, the Australian
Prudential Regulation Authority (APRA), considers to be
‘unquestionably strong’. Our common equity tier 1 capital
now stands at 10.6%, more than a full percentage point
higher than a year earlier. If we convert this on a like-for-like
basis with international peers, it places us comfortably in the
top quartile of banks globally.
There is a similar story on liquidity. Over the past 10 years
our liquid assets have increased more than fourfold to
$138 billion at 30 September 2017.
APRA has consistently sought to be ahead of global
regulatory trends and this saw a Liquidity Coverage Ratio
introduced in January 2015, with a new Net Stable Funding
Ratio coming into effect from 1 January 2018. Today,
Westpac has ratios of 124% and 109% respectively, ahead
of the 100% benchmarks for both.
We are now materially stronger on both capital and liquidity
in absolute terms and relative to global peers. Of course in
banking you can never be complacent on strength, but it
should be of comfort to shareholders that these ratios are
some of the best in the world.
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2017 Westpac Group Annual Report
Chairman’s report
Banking on trust
Last year I spoke about the important role Australia’s banks
play in the economy, and society, and the overwhelming
benefits they have brought. At an economic level, banks
support Australia’s investment requirements and facilitate
the efficient flow of much-needed foreign capital. At a micro
level, banks not only back individual customers and
businesses to help them meet their financial goals, they
facilitate the efficient flow of funds around the economy.
It has been globally acknowledged that Australia and New
Zealand have been well served by their major banks, both
during and since the Global Financial Crisis. 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. Unfortunately the strength of our
banking sector is not always recognised domestically.
In my report last year I sought to address some of the
banking ‘myths’ that have continued to feature in
commentary on the sector. However, unfortunately, the
quality of debate regarding banks has not improved during
the year.
It is clear that some of the criticism of the Australian Banks is
warranted. There have been times over recent years when
issues surrounding the quality of financial advice; the
treatment of insurance claims, and the quality of lending
and/or enforcement decisions have not been consistent with
putting the customer first and/or acting in their best interests.
As a Bank, and an industry, we have also underestimated
the intensity of community, regulatory and government
reaction to the matters where expectations have not been
met.
At the same time the over reaction by many in leadership
positions has been unhelpful and unnecessarily raised the
level of concern in the community relating to trust in the
sector. In part this is why many people respond to the
question that they trust their banker but don’t trust Banks.
Having said that, let me also be perfectly clear that the
Board and management at Westpac understand we must
act. We have to take more responsibility and lift our
standards to an even higher level – and we are. Brian will
talk to developments further but I can say that the Board is
fully behind these initiatives which essentially involve getting
it right for the customer first time and, in those cases where
we fail to do so, calling out the issue and remediating
promptly and appropriately.
The Bank Levy
I wrote to shareholders when the Bank Levy was first
proposed, to make our position clear and seek your
feedback and support. I want to thank the many
shareholders who responded and those who also shared
their views more broadly, including with their local Members
of Parliament.
Building strength however comes at a cost — increasing
shareholders’ equity, lifting shares on issue and holding
additional liquid assets all impact returns. More specifically,
with the increase in shares on issue, our cash earnings per
share of 239.7 cents was up 2% over the year while the
Group’s return on equity (ROE) was 13.8%1, marginally
down from 14.0% in 2016. A further consequence of
building strength is that the Group has held dividends
unchanged over recent halves.
Dividends
This year the Board has determined a final dividend of 94
cents per share, which is unchanged over the prior half and
over the final dividend for 2016. This brings the full year
dividend to 188 cents per share, unchanged from 2016.
In setting the dividend the Group seeks to maintain a payout
ratio that is sustainable over the long term. That is, we aim
to retain sufficient capital for growth and to maintain an
unquestionably strong capital position. At the same time, we
seek to maximise the distribution of franking credits. The
impact of the Bank Levy (which cost an equivalent of 2 cents
per share) was also considered.
The final ordinary dividend represents a payout ratio of
79%2. The 94 cents represents a dividend yield of 5.9%
based on the closing share price at 29 September 2017 of
$31.92, or a yield of over 8% after adjusting for franking.
The final ordinary dividend will be paid on
22 December 2017 with the record date of
14 November 2017.
Board changes
There were two changes to the Board over the year. As
discussed in last year’s report, after an outstanding 10-year
tenure, Elizabeth Bryan retired at the conclusion of our 2016
Annual General Meeting (AGM).
In September 2017, we were pleased to announce the
appointment of Nerida Caesar to the Board. Nerida was
most recently the CEO of Equifax, formerly Veda, in
Australia and brings with her a wealth of experience in
technology and innovation.
After the end of the financial year we announced that Robert
Elstone will be retiring following the 2017 AGM. Robert has
been an exceptional director in his six years on the Board;
he has a sharp mind, an attention to detail and an ability to
distil issues and focus on what is important. In a period of
heightened global volatility, having a financial markets
specialist such as Robert has also been an asset to your
Board.
Succession planning for new directors is a regular item on
the Board’s agenda and discussions with new potential
candidates are ongoing. As a result, we anticipate the
appointment of one or two new non-executive directors to
the Board in 2018. Potential appointees are expected to add
strength and diversity to your Board.
1 On a cash earnings basis.
2 On a cash earnings basis.
2017 Westpac Group Annual Report
5
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Looking ahead, these settings combined with a further
tightening of credit standards and regulatory limits on
elements of mortgage growth, will likely lead to slower
growth in lending and deposits in 2018 relative to 2017. Our
financial settings are in good shape but we will be subject to
the full period impact of the Bank Levy in 2018.
Asset quality is expected to remain sound in the year ahead,
and while there are no signs of material concern we will
remain vigilant, consistent with our low risk approach.
Summary
It has been a landmark year for Westpac. The success we
have achieved, the strength in our balance sheet and the
positive momentum across the Group means we are well
positioned for the future.
As we begin our third century, our biggest challenge lies in
rebuilding our reputation across the communities in which
we operate. If we are to continue prospering in the period
ahead, we must actively demonstrate the value we bring to
society and the value we bring to customers every day. We
will continue to improve on service delivery; genuinely
listening to customers and putting them at the centre of
everything we do. That’s why our service strategy is so
important.
One of the key things our 200th anniversary has shown me
is the passion and commitment of the people of Westpac to
supporting our customers and creating a better future for all
Australians and New Zealanders. It is this passion and
commitment that has seen us through the highs and lows of
the past 200 years and continues to drive us forward and
helps us continue to deliver sustainable returns for you, our
shareholders.
LINDSAY MAXSTED
Chairman
The Bank Levy is now in place, but we must continue to
agitate for its removal. It is a highly inefficient and distortive
tax that places an impost on a small number of Australia’s
largest taxpayers. It discriminates against Australian banks
relative to global peers and it has impacted the value of your
investment and the investments of millions of
superannuation holders across Australia.
Australia’s oldest company
It has been a privilege to be Chairman of Westpac in its
200th year. 2017 has been a special time for the company
and its people and it has given us the opportunity to reflect
on what has been behind our success and our legacy for
the future.
We have created the Westpac Bicentennial Foundation,
and the Businesses of Tomorrow program, and we have
increased community sponsorship. Through each of these
initiatives we have created a stronger connection with the
markets in which we operate. And in so doing we have
created a stronger foundation for your company’s future
success.
It was a real highlight for me to share memories with
shareholders, current and past employees and some of
Westpac’s great leaders over the last 30 years.
It was a particular pleasure to connect with, and speak to,
our last five CEOs, and the last four Chairmen. We had
some great discussions and it is very clear what a great love
all these leaders had, and still have, for your company.
While each leader brought unique skills and experience to
Westpac, what stood out for me was how aligned they were
in their view on strategy and their focus on customer service.
And so as the baton passed between these CEOs it was
invariably a seamless transition. I strongly believe that this
consistency of long-term strategy has played a vital role in
your company’s success.
To mark our 200 years we also published a book filled with
stories about the bank, its people and customers. It is a
great read and I encourage you to see the online version on
our website.
Outlook
We remain very positive about the Australian and New
Zealand economies. Both markets have strong
fundamentals with solid GDP growth, low unemployment
and controlled inflation.
These trends are expected to broadly continue in the year
ahead with Westpac Economics expecting Australia’s GDP
growth to be 3% in 2018. We anticipate that growth will be
supported by an ongoing contribution from exports of
resources and services along with higher public spending,
including for infrastructure and private non-residential
construction. We are however expecting growth to slow
through the year as the construction cycle peaks and weak
income growth continues to weigh on consumers.
6
2017 Westpac Group Annual Report
Chief Executive Officer’s report
Brian Hartzer
Chief Executive Officer
Dear fellow shareholders,
2017 has been a landmark year for the Westpac Group. As
CEO, it has been an immense honour to lead this company
through our 200th year and into our third century of
business.
At events across the country, and in many of our overseas
offices, I have had the pleasure of speaking with thousands
of our customers, community partners, and staff members.
It has given me—and I know many of our people—a
tremendous sense of pride in this company and the role it
has played in the lives of so many Australians and New
Zealanders throughout its history.
There were many special moments during these events. As
a history ‘tragic’, a particular highlight for me was meeting
Bill McRae, a former employee who served as a Lancaster
Bomber Command pilot in the Royal Air Force during the
Second World War. Bill joined the Bank of New South
Wales in 1929, working in Sydney before our legendary
General Manager, Alfred Davidson, sent him to London to
help build our business in the UK (Alfred Davidson helped
restore Australia’s prosperity during the Great Depression by
initiating the devaluation of the Australian pound). Bill
shared anecdotes of his time in the Royal Air Force and at
the bank on both sides of the war—including how he was
chosen to set up the bank’s first training academy, thanks to
his experience training pilots during the War. I will cherish
his stories.
I also enjoyed meeting customers such as the McDonald
family from Cloncurry, who have banked with Westpac (or
the Bank of New South Wales) since the 1860s. One
customer even brought along his ancestor’s Bank of New
South Wales passbook from 1827—still proudly passed
down as a family heirloom.
Another highlight was sharing a stage in April with five of
Westpac’s former leaders: Gail Kelly, David Morgan, Bob
Joss, Frank Conroy, and Bob White (who sadly passed
away in June). As the Chairman writes in his letter, it was
extraordinary to have some of the great minds of Westpac
all in one place. To put it in perspective, since 1992 these
executives have presided over an increase in the value of
your bank from just less than $5 billion to over $108 billion
today — the total shareholder return over that time
averaging 13% per annum.
There aren’t many companies of our size who could get
such an unbroken chain of former leaders together; and
each of them provided interesting insights from their time as
CEO and observations about today’s business. What really
struck me though was the consistency of their message over
time—the focus on customers, the importance of a strong
balance sheet and inclusive culture, and their pride in
Westpac’s broader role in the community. It was also
pleasing to hear each of them endorse our ‘Service
Revolution’ as the natural extension of these principles and
the right strategy for today.
Bringing our vision to life
As I’ve described in previous letters, our ‘Service Revolution’
strategy is designed to bring to life our vision ‘To be one of
the world’s great service companies, helping our
customers, communities, and people to prosper and
grow’. Our strategy has remained consistent over several
years now, and I’m pleased to report that we’ve continued to
build momentum and deliver projects against each of the five
priorities that comprise the strategy: Service leadership,
performance disciplines, digital transformation, targeted
growth, and workforce revolution.
At its heart, this strategy recognises that we’re a service
business, not a product business—which means that our
core purpose is to help customers achieve what’s important
to them. For shareholders, this means that we create value
by building long-term relationships with our customers—
supporting them through thick and thin.
We recognise that our industry, like the economy as a
whole, is currently undergoing a period of substantial
change. That’s why our primary focus as a management
team is on transforming the company—through the ‘Service
Revolution’ program—to make sure we can continue to
compete and grow value successfully over the medium-to-
long term.
In summary then, our long-term strategy to create value is
to:
maintain a strong balance sheet and conservative risk
appetite, focused on serving our home markets of
Australia and New Zealand;
increase the size of our customer base, through the
development of our multiple brands and well-targeted
segment marketing strategies;
2017 Westpac Group Annual Report
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extend the duration and deepen those relationships by
delivering world-class service and using our digital
assets to encourage people to consolidate their
business with us;
reduce costs and fuel innovation by consolidating and
modernising our technology platforms and forming
partnerships with selected fintech companies;
continue to develop a highly-engaged, inclusive culture
and sustainable work practices that help us to attract
and retain the best talent in our market; while
continuing to deliver a disciplined performance, year-in
and year-out, in order to maintain the shareholder
support for the longer-term investments that we are
making.
With this in mind, let me turn now to our 2017 performance.
2017 performance—an overview
At the start of the financial year, with the support of your
Board, the executive team and I agreed three over-arching
goals for our 200th year:
first, to deliver a strong financial result;
second, to deliver substantial improvements in service
quality for our customers; and
third, to make material progress on our culture and
reputation.
Looking back over the year, I’m pleased with the progress
on each of these goals—although we’ve clearly got more
to do.
Financial performance
Our financial performance exceeded the internal earnings
target that we set at the start of the year. Cash earnings
rose 3%, with a 2% increase in operating income, a 2% rise
in expenses, and a substantial reduction in impairment
charges for bad debts. At the same time, we significantly
strengthened our balance sheet, lifting our common equity
tier 1 (CET1) capital ratio above APRA’s benchmark for
banks to be seen as ‘unquestionably strong’. As these
results include the start of the Federal Government’s new
bank levy, increased ‘macro-prudential’ lending
requirements, and a provision to remediate a number of
historical customer issues (I’ll address these shortly), we
consider this to be a good result. (Note too that our cash
earnings exclude the gain on the sale of shares in BT
Investment Management (BTIM) during the period, which
benefits shareholders’ equity. This gain is included in our
reported statutory profit.)
All of our banking divisions performed well, with cash
earnings growth of between 4% and 18%. However,
earnings from BT Financial Group (our wealth management
and insurance business) were 11% down on last year. This
was primarily driven by a number of infrequent items, as well
as significant incremental regulatory and compliance costs.
However, underlying growth in funds under administration,
insurance premiums, and lending within BTFG continued to
be strong.
We sold down our shareholding in BTIM this year from 29%
to 10%, booking a gain of $279 million. It’s worth reflecting
that this has been an outstanding investment for our
shareholders, many of whom also participated in BTIM’s
initial float back in 2007. The decision to sell down reflects
our belief that the future of this business is about ‘open
architecture’ platforms that provide customers and advisors
with a convenient place to manage all of their money,
wherever they choose to invest it. While some of our
competitors are increasingly looking to exit their wealth and
insurance businesses, we continue to believe that having a
strong business in this category will give us an increasing
competitive advantage as Australia’s population ages in the
years ahead.
Within our banking businesses, there were a number of
significant dynamics at play this year that are worth
highlighting.
The first was in Australian mortgages, where APRA
extended its requirements for banks in ways designed to
improve the resilience of the sector to a potential downturn
or substantial increase in interest rates. Specifically, we
were required to maintain investor mortgage growth to less
than 10% per year, and to reduce the proportion of new
mortgage lending with an interest only option to below 30%.
Through a combination of pricing and other actions, both of
these targets were met: Investor mortgage lending grew at
around 6%, and the proportion of interest only lending for the
September 2017 quarter was 26%. However, the
consequence of these and other changes on loan
serviceability assessments was that our overall mortgage
lending grew a little slower than the overall financial system
this year—a result we were comfortable with.
Looking at our balance sheet more broadly, we continued to
prioritise strong growth in deposits while limiting growth in
lending to where returns remain attractive. Total deposits
were up 4% for the year, with high quality household
deposits growing faster than the financial system. Overall
loans grew 3%, with strong growth in small and medium
business as well as the faster-growing service sectors of
health, education, and tourism. However, this was offset by
slower growth in areas such as commercial property, trade
finance and auto finance, where strong competition from
offshore firms has made the returns much less attractive.
We substantially increased the strength of our capital
position this year as well. Our CET1 capital ratio increased
more than a full percentage point to 10.6%, due to
business unit profit growth, our dividend reinvestment plan,
the further sell-down in BTIM, and better capital efficiency.
Although we are still waiting for APRA’s final capital rules, it
is satisfying to know that the strengthening of our balance
sheet required post the GFC is now nearing its end.
Our funding and liquidity position also improved over the
year. We’ve grown deposits, reduced our reliance on
offshore short-term wholesale funding, and further
lengthened the tenor of funding. We also met the new Net
Stable Funding Ratio requirements (essentially a measure of
our longer-term liquidity position) almost a year before the
required 1 January 2018 start date.
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2017 Westpac Group Annual Report
The combination of all of these factors meant that net
interest margin was down 4 basis points over the year,
including one quarter’s impact of the Federal Government’s
Bank Levy (which reduced the margin by 1 basis point).
Most of the margin decline happened early in the year, with
the impact of repricing and a greater focus on return leading
to higher margins in the second half of the financial year.
Asset quality remained strong during the year, with the ratio
of stressed assets to total committed exposures (TCE)
declining 15 basis points to 1.05%, and a significant
reduction in credit impairment charges over the year. This
reflects both a reduction in new impaired assets along with
the work-out of a small number of larger impairments during
the year. Mortgage delinquencies have also been sound
with little change over the year—although we are monitoring
Western Australia and regional Queensland closely, as
these regions continue to be impacted by the slowdown in
mining investment. Fortunately, recent indicators suggest
that the worst may now have passed, especially in WA.
Non-interest income was a little lower over the year (down
$36 million). The Group recorded higher markets income
(particularly in the first half of the year), improved business
line fees, and good funds management and insurance
flows—however these gains were offset by regulatory
reductions to credit card interchange fees as well as
provisions for customer payments that totalled $169 million
(most of which was included in non-interest income).
Operating expenses grew 2% over the year, which was at
the lower end of the 2-3% medium term range that we
expect—a good result. In a challenging revenue
environment, our goal continues to be to offset business-as-
usual expense growth with productivity savings. This year
we generated $262 million in productivity savings—equal to
around 3% of our cost base—and removed over 900 roles.
Some of the productivity initiatives we completed this year
included:
launching new mobile banking features to help
customers do their banking on the go;
installing new call centre technology that speeds up
customer ID verification and provides better functionality
to our call centre team members to help serve
customers better;
streamlining organisation structures and ‘spans of
control’; and
consolidating head office locations and transforming
them into more flexible workspaces.
Thanks to initiatives like these, the overall 2% rise in
expenses was largely driven by investments we are making
in our strategic agenda, along with some increases in cost
for regulatory and compliance activities. The cost to income
ratio for FY17 was 42.2%, which puts us among the most
efficient banks in the world, and we remain committed to
taking this ratio below 40% over the next few years.
Chief Executive Officer’s report
At a cash earnings level, 3% growth in cash earnings
translated to a 2% increase in earnings per share—mostly
due to the impact of additional shares issued under the
dividend reinvestment plan. What this highlights is that
higher capital levels come at a cost: With increased capital
during the year contributing to a 22 basis point decline in
return on equity (ROE) to 13.8% (although that level remains
within the 13% to 14% band the Group is seeking to
achieve).
Customer performance
The best assessment of whether we are achieving our goal
of becoming one of the world’s great service companies
comes from our customers, and given the size and scope of
our businesses we look at a number of different customer
feedback measures to help us evaluate our performance.
Although any sample-based survey of customer feedback
has its drawbacks, one of the best overall measures is the
Net Promoter Score (NPS), which looks at the relationship
between customers who are advocates for the bank versus
customers who are detractors of the bank. Pleasingly, the
NPS of our consumer banking business has gradually
improved over the year, moving from the bottom of our major
bank peer group 12 months ago to being ranked first in
September 2017.
Another measure we track is the volume of complaints we
receive, and the relationship between those complaints and
the compliments received over the same period. This year
customer complaints across Australian operations fell 18%
compared to FY16, continuing a trend that we’ve seen for
the last several years. Meanwhile compliments received by
our branch network outnumbered complaints by 3.5 to 1,
improving from 3 to 1 last year.
Few things frustrate customers more than not having
services available when they need them. This year,
improvements to our infrastructure have led to a material
reduction in system downtime: In the first half of FY17 we
recorded five ‘severity one’ incidents (system outages with a
significant customer impact) in Australia—and we had no
such outages in the second half of the year. This compares
with 19 such incidents in the previous year.
Improvements in our technology and processes are
reinforced by the Our Service Promise program, a Group-
wide initiative that defines excellent service for our people
and reminds them to incorporate this mindset into action
every day. The program is fundamental to our efforts to
build a genuine service culture, and it’s working. Across the
Westpac Group I regularly see examples of our people
taking the initiative to solve a customer’s problem, to find
creative ideas that help our customers to thrive financially,
and to build genuine long-term relationships.
It’s also important that I and my leadership team support our
people to deliver that high standard of service. So this year
we’ve worked to reduce roadblocks for our people and free
up more time for them to spend with customers: We’ve
digitised time-absorbing tasks, improved the usability of staff
tools, and reduced the number products on offer—making it
easier for our people to recommend the right product and
navigate our processes.
2017 Westpac Group Annual Report
9
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In our Consumer Bank, we’ve also removed product-based
sales incentives for our front line tellers and personal
bankers, replacing them with service-based metrics. This
means that our people are now more empowered to deliver
better service to customers and indeed are explicitly
rewarded for doing so.
Culture and reputation
As a service business in a highly competitive market, the
quality of our people and culture is a major determinant of
our success. That’s why we’re so focused on making the
Westpac Group attractive to the best bankers in the market,
and creating an environment where those people can do
their best work.
The 200th anniversary gave us the opportunity to remind our
people of the role our company has played—and continues
to play—in helping our customers and Australia/New
Zealand as a whole to thrive. As a result, we’ve seen a
significant increase in staff pride over the year. This—along
with investments we’ve made in our people’s skills,
leadership training, and a variety of community and
sustainability initiatives during the year—has led to a
significant increase in staff morale, as measured by our
employee survey.
On our preferred measure of ‘staff engagement’, we saw a
10 percentage-point increase over the year to 79%. This is
above the global high-performance benchmark for large
companies, and a remarkable increase in a year for a
company with over 39,000 employees.
As well as investing in our people’s skills, we continue to
work hard to make sure the culture is one where everyone
feels welcome and supported. Our Sustainability
Performance Report sets out a number of the initiatives we
undertook this year, but one milestone deserves special
mention: In 2017 Westpac reached its target of having 50%
of its leadership positions held by women. Of course, we
have more to do to ensure diversity is better reflected across
the organisation, but this is a significant achievement.
Improving our reputation
It’s no secret that bank reputations have been under scrutiny
over the past few years, and Westpac has not been immune.
Given the amount of media attention this has received in
recent months, I’d like to make a few observations about the
causes of this situation and what we’re doing about it.
There are a number of causes, starting with missteps by the
banks themselves—including Westpac. These include high-
profile incidents around poor financial advice, denied
insurance claims, poor service, loose or inadequate risk
controls, and allegations of inappropriate staff behaviour.
Although many of these incidents have been specific to
individual institutions, in the current environment each one
affects the reputation of the industry as a whole.
Compounding these issues has been a significant step-up in
community expectations and regulatory intervention. This
has meant that some policies or business practices that
were acceptable in the past no longer pass muster.
At the same time, the volatile political situation in our State
and Federal Parliaments means that issues which would
previously have been dealt with by the appropriate regulator
are now attracting attention from all sides of politics.
The banking sector is working hard to address these
concerns and has nearly completed implementing a six-point
action plan that addresses issues like sales incentives,
complaint handling, support for whistle-blowers, and the
removal of individuals from the industry who breach the law
or codes of conduct. Westpac is fully committed to this effort
and has completed its work on five of the six points (the final
point, a re-write of the Code of Banking Practice, should be
finished next month).
In Westpac’s case, we have participated in a large number
of formal reviews this year by our various regulators and
political bodies, covering topics such as financial planning,
insurance, superannuation, mortgage lending and pricing
practices, credit cards, systems stability, and anti-money
laundering. The Australian Securities and Investments
Commission (ASIC) has also initiated various legal
proceedings against us, alleging we manipulated the bank
bill swap rate (BBSW), provided inappropriate financial
advice through our ‘scaled advice’ phone channel, and
breached our responsible lending obligations. Our principle
is to accept responsibility when we have done the wrong
thing, but in each of these cases we disagree with ASIC’s
position and are defending our actions.
Regardless of the merits, the reality is that the industry has a
significant challenge ahead to rebuild its reputation. In
particular, we need to address the perception that we put our
own needs ahead of those of our customers.
Getting it right and—when we don’t—putting it right
Across the bank we are proactively reviewing our products
and services and the way we have engaged with our
customers. I call this program ‘Get it Right/Put it Right’. The
idea is to make sure that we align all of our products and
services with our customers’ interests, while making them
simpler, fairer, and more transparent. And, where we
uncover an issue that we need to put right, we ensure that
no customer has been disadvantaged from these past
practices. This work has already led to a number of
important changes and actions.
We’ve introduced our new Westpac Lite credit card, with an
interest rate of 9.9% p.a.—the first card of its kind in the
Australian market. We’ve also reduced everyday transaction
fees on our ‘legacy’ personal transaction accounts, and
removed ATM withdrawal fees when non-customers use one
of our ATMs.
Our reviews of our superannuation disclosure resulted in
payments to some of our customers with pre-existing
conditions who did not have the benefit of our improved
disclosure practices. Similarly, we identified that for some
product packages sold in the past customers did not receive
all the benefits to which they were entitled—and we’re now
going back and rectifying the error for each affected
customer. We’ve also automated these benefits so this can’t
happen again.
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2017 Westpac Group Annual Report
Based on what we know now, we believe we have dealt with
the most significant of these issues in our 2017 result.
However, these reviews will continue for some time and it is
possible that more issues will emerge that we need to
address. In any event I am confident that this is the right
approach to put our business on a more sustainable footing.
In November last year we appointed Adrian Ahern, a highly
respected former senior lawyer, as our first ‘Customer
Advocate’. Mr. Ahern reports through to me separate from
our businesses, and is thus an independent avenue for
customers to seek a fair and balanced outcome for their
complaints. Our new Customer Council and the new
Stakeholder Advisory Panel are both designed to help us
better understand customer and community views and
identify areas where we could do better. We have also
taken steps to encourage our people to speak up when they
see something that isn’t right, including a new anonymous
phone line and additional protections for whistle-blowers. As
a result we have seen a significant (up 10%) increase in
employees confirming they feel it is ‘safe to speak up’1.
The current level of public and political scrutiny is likely to
continue for some time. Hopefully you can see from the
initiatives above that we are committed to taking actions that
will address the substantive issues over time.
Creating a sustainable future
One of the highlights of 2017 was retaining our position as
the most sustainable bank globally in the Dow Jones
Sustainability Index (DJSI). This was the fourth year in a
row and 10th time overall that Westpac has achieved the
global banking sector’s leadership position. The DJSI
assesses companies on a range of criteria including
corporate governance, codes of conduct, HR practices,
community involvement, and environmental policies.
A commitment to sustainable business practices is a big part
of the culture at Westpac: In fact many of our staff have told
me that they were attracted to work at Westpac in large part
because of these policies.
This year we released an updated Climate Change Action
Plan, which attracted significant media and community
attention. In our plan we outlined the steps we will take to
meet our commitment to helping limit global warming to less
than two degrees. This includes our approach to lending to
energy-intensive and renewable sectors, reducing our own
carbon footprint, and helping Australian households to
become more climate-resilient, improve their energy
efficiency and reduce their environmental impact.
The feedback we received on our new climate policy was
overwhelmingly positive. However I know that there are
some shareholders who do not agree with our policy, and
who believe that our actions have overstepped the mark.
Some of you told us that banks should stay out of the
climate debate and just focus on their lending activities. We
respectfully disagree, for two reasons. First, it’s important
that we assess all the risks associated with any lending
proposal, and environmental risks—along with potentially-
related government actions—are increasingly a risk in many
1 2017 Employee Engagement Survey.
Chief Executive Officer’s report
transactions. Second, we believe it is in the best long-term
interest of the economy—and therefore our shareholders—
to support a balanced but deliberate transition towards a two
degree economy.
Preparing for a digital future
The final topic I would like to address is how we’re preparing
Westpac for the rapidly-arriving digital future. As many of
you would recall, 2017 saw the 10-year anniversary of
Apple’s iPhone—and it’s astonishing to reflect on how many
aspects of our economy and our daily life have changed in
10 short years.
The impact of digital technology on banking around the
world has been profound, and the changes aren’t close to
done yet. In early October, I visited our branch in Shanghai,
where the vast majority of customers now use an app on
their mobile phone as their main payment device. And two
of the biggest payment applications—WeChatPay and
AliPay—are operated by companies that aren’t even banks.
The threats—and opportunities—created by mobile banking
are profound.
Meanwhile advances in software development, data storage,
and broadband internet mean that so-called ‘cloud
computing’ is an increasingly viable tool for large companies
to improve efficiency and reduce technology costs.
At Westpac one of the main reasons we have survived 200
years is that we’ve always been willing to adapt—to changes
in the economy, in society, and in technology. So we’re
staring straight into these changes and adapting both our
customer service and our underlying technology to make
sure we stay nimble and competitive—and support our
customers to do the same.
This year we also rolled out numerous technology
innovations to customers, including our new wealth platform
(BT Panorama), a new corporate lending portal for
customers of Westpac Institutional Bank, e-conveyancing for
mortgages, cheque digitisation, Lantern Pay (a new payment
platform that supports the Government’s National Disability
Insurance Scheme), and numerous feature and useability
enhancements for mobile banking across all brands.
Our Panorama wealth platform has been a highlight.
Panorama allows investor customers and their advisors to
manage and protect an individual’s wealth and insurance in
a simple-to-use, mobile-accessible platform that integrates
fully into the Group’s online banking systems. The number
of advisers using the platform has continued to grow, with
around $4 billion of funds added to the platform—nearly
100% growth over the year. Other major projects delivered
this year included a new call centre platform, a new ‘big
data’ platform, and the first phase of our new ‘customer
service hub’—which will ultimately help us to consolidate the
St. George and Westpac back-end systems.
We also recognise that much of the innovation and
advances in technology will emerge from small fintech
companies, and so are working hard to build our links with
potential leaders in this arena. To date our Reinventure
venture capital fund has made early-stage investments in
2017 Westpac Group Annual Report
11
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around 15 fintech startups, giving us an early insight into
emerging innovations in data analysis, payments, and digital
lending. We have also made direct investments in
companies such as zipMoney and Uno Home Loans, which
have the potential to serve as important partners in areas
that are a related but a bit outside of our core businesses.
We must acknowledge that investments in early-stage
companies such as these are inherently risky. However we
have been very pleased so far with the progress these
companies are making. We also find that our involvement
gives us valuable exposure to trends in technology and
some of the emerging business models with which we will
need to compete.
Summary
As you can see, 2017 has been a huge year for the banking
industry, and for the Group. Despite the challenges we
faced, I’m proud of our team and what we have delivered for
you and the future value of your investment in Westpac
shares.
I’ll finish by assuring you that we enter our third century in
great shape, with a clear strategy, growing momentum, and
renewed confidence that we are well on the way to building
one of the world’s great service companies.
All the best,
BRIAN HARTZER
Chief Executive Officer
Westpac Group
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2017 Westpac Group Annual Report
Westpac is one of the four major banking organisations in
Australia and one of the largest banking organisations in
New Zealand. We provide a broad range of banking and
financial services in these markets, including consumer1,
business and institutional banking and wealth
management services.
We have branches, affiliates and controlled entities2
throughout Australia, New Zealand, Asia and 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 2017, our market capitalisation was
$108 billion4 and we had total assets of $852 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 customers5, our focus is on
organic growth, growing customer numbers in our chosen
segments and building stronger and deeper customer
relationships.
A key element of this approach is our portfolio of financial
services brands, which we believe enables us to appeal to a
broader range of customers and provides us with the
strategic flexibility to offer solutions that better meet
individual customer needs.
1 A consumer is defined as a person who 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 2017.
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 2017.
5 All customers with an active relationship (excludes channel only and
potential relationships) as at 30 September 2017.
Information on Westpac
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
seeking to maintain 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 these improvement
efforts also contribute to reducing unit costs that create
capacity for further investment for growth.
Throughout 2017 we continued our focus on delivering
superior outcomes for our customers and shareholders
through our Service Revolution transformation. 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 2017, we delivered significant
outcomes and met key milestones on a number of our
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 continuing to
strengthen our conduct management across the Group. In
addition, work continues on ensuring that we are responding
to our changing regulatory and industry landscape, with
initiatives around a product remediation program,
implementing Australian Bankers’ Association (ABA)
industry initiatives (further information is contained in
‘Significant developments’) and enhancing our remuneration
frameworks.
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.
2017 Westpac Group Annual Report
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Supporting our customer-focused strategy is a strong set of
company-wide values, which are embedded in our culture.
These are:
integrity;
service;
one team;
courage; and
achievement.
Strategic priorities
In delivering our strategy, we have five strategic priorities
that help guide our activities:
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)
c)
Digital transformation
create a 21st century, digitised bank with multi-
brand capabilities;
simplify products and processes by digitising end-to-
end; and
drive efficiency opportunities from digitisation and
consolidation of systems.
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
appropriate provisioning.
d)
Growth highways
focus on stronger growth in:
– small to medium enterprises;
– wealth; and
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.
Organisational structure
Our operations comprise the following key customer-facing
business divisions operating under multiple brands.
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 our
call centres and our extensive network of branches 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 originator.
Business Bank (BB) is responsible for sales and service to
micro, small to medium enterprises (SME) and commercial
business customers in Australia 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
borrowing, payments and transaction needs. In addition,
specialist services are provided for cash flow finance, trade
finance, automotive and equipment finance, property finance
and treasury. The division is also responsible for 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 originator.
BT Financial Group (Australia) (BTFG) is the Australian
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 to
manufacture certain general insurance products. In
managing risk across all insurance classes, the division
reinsures certain risks using external providers. BTFG
operates a range of wealth, funds management and financial
advice brands (including Ascalon which is a boutique
incubator of emerging fund managers) and operates under
the banking brands of Westpac, St.George, Bank of
Melbourne and BankSA for Private Wealth and Insurance.
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 via branches and subsidiaries located in
New Zealand, the US, UK and Asia. WIB is also responsible
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2017 Westpac Group Annual Report
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 (WNZL), which is
incorporated in New Zealand; and
Westpac Banking Corporation (New Zealand Branch),
which is incorporated in Australia.
Westpac New Zealand operates via an extensive network of
branches and ATMs across both the North and South
Islands. Business and institutional customers are also
served through relationship and specialist product teams.
Banking products are provided under the Westpac brand,
while insurance and wealth products are provided under
Westpac Life and BT brands, respectively. Westpac
New Zealand also maintains its own infrastructure, including
technology, operations and treasury.
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 (excluding Westpac New Zealand) within set risk
limits;
Group Technology, which comprises functions for the
Australian businesses, is 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.
Group Technology costs are fully allocated to other divisions
in the Group. Core Support costs are partially allocated to
other divisions in the Group, with costs attributed to
enterprise activity retained in Group Businesses.
Group Businesses also includes 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.
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
Information on Westpac
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, products or services. 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, online financial services providers and
increasingly, technology companies are also developing
competitive offerings.
Like other financial services providers, our competitive
position across customer segments, products and
geographies is determined by a variety of factors. These
include:
the quality, range, innovation and pricing of products
and services offered;
digital and technology solutions;
customer service quality and convenience;
the effectiveness of, and access to, distribution
channels;
brand reputation and preference;
the types of customer served; and
the talent and experience of our employees.
We also operate in an environment where digital innovation
is changing the competitive landscape. In the context of
innovation, we are dependent on our ability to offer new
products and services that match evolving customer
preference and compare favourably to those of our
competitors. The competitive nature of the industry means
that if we are not successful in developing or introducing
new products and services, or in responding or adapting to
changes in customer preferences and habits, we will lose
customers to our competitors.
Competition within Australia’s financial system is evidenced
by both the significant number of providers and the range of
products and services available to customers. In Australia,
we have seen competition for deposits partly driven by
clearer global regulatory requirements for liquidity
management in the post-Global Financial Crisis
environment, such as the introduction of the Liquidity
Coverage Ratio (LCR) in 2015 and the upcoming Net Stable
Funding Ratio (NSFR). 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 business continues to be highly
competitive, with increased regulatory oversight to make the
balance sheets of both borrowers and lenders more resilient.
In particular, the most recent regulatory focus has been on
limiting interest only lending. The high degree of competition
2017 Westpac Group Annual Report
15
1
and regulatory interest 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 the broader competitive
landscape to continue to undergo significant change with
ongoing consolidation in life insurance, continued regulatory
and structural change in financial advice, and increased
overseas interest and participation in superannuation.
In New Zealand, the Group is experiencing strong
competition as banks vie for new customers. Competition for
deposits remains intense and home lending is particularly
competitive on price and switching incentives.
Outlook1
The Australian economy has continued to grow solidly in
2017. GDP increased by 1.8% for the year to June 2017,
being affected by the severe weather along Australia’s
eastern seaboard in the March quarter 2017. As this impact
fades, GDP growth is forecast to increase to around 3% by
the end of calendar 2017.
Recent growth has been supported by continued
employment growth, more confidence around the global
economy, higher commodity prices, a boost in public
spending and a reduced drag from the slowdown in mining
investment. We have also been encouraged by some
improvement in the level of non-mining business investment,
particularly in the construction sector.
Despite this encouraging news, the Reserve Bank has
chosen to keep interest rates on hold. Concerns around the
consumer are a key issue. Income growth has been modest;
household leverage has increased and household budgets
are being impacted by rising energy costs.
The current mix of growth has continued to vary across
Australia. NSW and Victoria are performing particularly well,
benefiting from low interest rates and stronger housing
construction. Conditions have been much more challenging
in areas impacted by the slowdown in mining (WA and
regional Queensland). In both these regions we have seen
rising unemployment, falling house prices, restrained
spending and higher loan delinquencies. More recently,
there are signs of an improvement, particularly in light of
higher commodity prices, although realistically, a full
recovery is likely to take some time.
In New Zealand, the economy has also been sound, with a
solid pipeline of construction projects, strong population
growth and low interest rates all supporting growth. Some
construction delays and capacity constraints have, however,
limited this growth. GDP growth has held at around 3%, with
unemployment of around 5% and inflation near 2%.
The international outlook has improved over the year. The
consensus view at the recent IMF meeting in Washington
was that 2017 has been the best year for synchronised
global growth since the Global Financial Crisis.
Within Australia, the 2018 outlook is for real GDP to grow at
around 2.5%, with growth expected to slow through the year.
That profile reflects the Group’s expectation that ongoing
1 All data and opinions under ‘Outlook’ are generated by our internal
economists and management.
weak income growth will further weigh on the consumer
through 2018. Prospects for a reasonable lift in business
investment are still clouded while housing construction, after
being a contributor to growth, is likely to peak with its impact
slowing in the year ahead. On the other hand, there will be
ongoing contributions from exports, both resources and
services, public demand, including infrastructure and from
private non-residential construction. Consistent with that
growth profile, we expect the recent strength in employment
growth to slow next year, with a small rise in the
unemployment rate likely.
Inflation is also anticipated to remain at the lower end of the
RBA’s target band and this, along with a modest slowdown
in growth, is expected to see the RBA’s cash rate hold at
1.5% through 2018.
Financial system credit grew by just below 6% in the year to
September 2017, with system housing credit rising 6.5%,
and system business credit expanding by 4.5%. Other
consumer credit declined over the year by just over 1% –
this continues a path of no growth in other consumer credit
for a number of years.
Given the economic backdrop, and the further tightening of
credit standards as the full consequences of macro-
prudential measures flow through, growth in financial system
credit in the year to September 2018 is expected to slow to
around 4.5%. In particular, housing credit growth is forecast
to ease to closer to 5.0%, while business credit is expected
to slow to nearer 4.0%.
Westpac Group remains focused on 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, funding and
liquidity; managing returns effectively seeking to
achieve a cash ROE between 13% and 14% and
remaining disciplined on asset growth;
through service leadership, continue to build our
customer base while also increasing the depth of
customer relationships;
digital transformation is utilising technology to materially
improve efficiency and reduce the Group’s cost to
income ratio to below 40% in the medium term;
wealth, small and medium business enterprises will
continue to be our areas of targeted growth. These
include further building on the Group’s 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 further 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 pressure. The Bank Levy
will be fully applied through the year. Following
announcements from our regulator, APRA, we have greater
clarity on what sort of capital levels we require to be
considered ‘unquestionably strong’. APRA have indicated
16
2017 Westpac Group Annual Report
they expect to finalise their updated capital rules by the end
of calendar 2017, which will draw upon the capital
frameworks being developed by the Basel Committee on
Banking Supervision. Banks are expected to be required to
meet these new standards by 1 January 2020. We believe
the Group is already well placed to meet the Net Stable
Funding Ratio (NSFR) which applies from 1 January 2018.
Given the strength of our business, and our balance sheet,
in both absolute terms and relative to peers, we believe
Westpac is 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 for shareholders and customers.
Significant developments
Corporate significant developments
Bank Levy for Authorised Deposit-taking Institutions (ADIs)
On 23 June 2017, legislation was enacted that introduced a
new levy on ADIs with liabilities of at least $100 billion (Bank
Levy). The Bank Levy became effective from 1 July 2017
and the rate is set at 0.06% per annum of certain ADI
liabilities. There is no end date provided for the Bank Levy.
The Bank Levy applies to liabilities of Westpac (including its
offshore branches), but does not apply to liabilities of
Westpac’s subsidiaries. Furthermore, the Bank Levy is not
charged on Additional Tier 1 capital, deposits protected by
the Financial Claims Scheme and RBA exchange settlement
balances. The legislation also provides for inclusion of
derivative liabilities on a net basis and for the Bank Levy to
be tax deductible.
The Bank Levy cost Westpac $95 million in Full Year 2017,
with an after tax impact of $66 million and is estimated to
cost Westpac approximately $405 million in Full Year 2018,
with an after tax impact of approximately $284 million.
House of Representatives Standing Committee on
Economics’ Review of the Four Major Banks and other
reviews
On 16 September 2016, the Chairman of the House of
Representatives Standing Committee on Economics
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 Australian
Bankers’ Association (ABA) action plan. Westpac attended
public hearings of the Parliamentary Review on
6 October 2016, 8 March 2017 and 11 October 2017.
The first report of the Parliamentary Review was published
on 24 November 2016 and contained ten recommendations.
The second report was published on 21 April 2017. In its
second report, the Committee restated its support for the
recommendations in the first report and supported a
recommendation of the Australian Small Business and
Family Enterprise Ombudsman to remove non-monetary
default clauses in small business loan contracts.
Information on Westpac
In May 2017, the Australian Government announced that it
supported nine of the ten recommendations made by the
Committee in its first report and announced a range of
measures designed to implement these recommendations,
such as:
the introduction of the Banking Executive Accountability
Regime (discussed below);
an independent review to recommend the best
approach to implement an open banking regime with
respect to banking product and consumer data; and
the creation of a new dispute resolution framework,
including the establishment of the Australian Financial
Complaints Authority, which is designed to be a single
external dispute resolution body for the handling of
financial and superannuation disputes.
On 29 November 2016, the Senate referred an inquiry into
the regulatory framework for the protection of consumers,
including small businesses, in the banking, insurance and
financial services sector to the Senate Economics
References Committee. The terms of reference for the
inquiry focus on a range of matters relating to the protection
of consumers against wrongdoing in the sector. They also
require the inquiry to examine the availability and adequacy
of redress and support for consumers who have been
victims of wrongdoing. The inquiry is scheduled to produce a
report in the first half of 2018.
Further, there are a number of other reviews commissioned
by the Australian Government, including an independent
review to recommend the best approach to implement an
open banking regime in Australia. The review will advise on
the design of the model and regulatory framework to require
banks to share product and customer data with customers
and third parties, including the scope of data sets to be
shared, data transfer mechanisms, risks such as customer
trust and privacy safeguard requirements, and costs of
implementation. The review will report to the Government by
the end of 2017.
In addition to the reviews and inquiries mentioned above, the
ACCC is undertaking a specific inquiry, until 30 June 2018,
into the pricing of residential mortgages by those banks
affected by the Bank Levy (including Westpac), which
includes monitoring the extent to which the Bank Levy is
passed on to customers.
As these reviews and inquiries progress, they may lead to
further regulation and reform.
Banking Executive Accountability Regime
In May 2017, the Australian Government announced that it
would introduce the Banking Executive Accountability
Regime (BEAR). The Government’s stated intention is to
introduce a strengthened responsibility and accountability
framework for the most senior and influential directors and
executives in ADI groups (referred to as ‘accountable
persons’ under BEAR). The Treasury Laws Amendment
(Banking Executive Accountability and Related Measures)
Bill 2017 was introduced into Parliament on 19 October
2017. The Bill has been referred to the Senate Economics
Legislation Committee, which is expected to report on the
Bill by 24 November 2017.
2017 Westpac Group Annual Report
17
1
If enacted in the form currently proposed, BEAR will involve
a range of new measures, including:
imposing a set of requirements to be met by ADIs and
accountable persons, including accountability
obligations;
requirements for ADIs to register accountable persons
with APRA prior to their commencement in an
accountable person role, to maintain and provide APRA
with a map of the roles and responsibilities of
accountable persons across the ADI group, and to give
APRA accountability statements for each accountable
person detailing that individual’s roles and
responsibilities; and
new and stronger APRA enforcement powers, including
disqualification powers in relation to accountable
persons who breach the obligations of BEAR and a new
civil penalty regime that will enable APRA to seek civil
penalties in the Federal Court of up to $210 million (for
large ADIs, such as Westpac) where an ADI breaches
its obligations under BEAR and the breach relates to
‘prudential matters’.
The proposed commencement date for implementation of
BEAR is 1 July 2018 (with transitional arrangements for
certain aspects of BEAR).
Productivity Commission Inquiry into Competition in the
Australian Financial System
In May 2017, the Australian Government announced a
Productivity Commission inquiry into competition in the
financial system. This review was a recommendation of the
Financial System Inquiry. The terms of reference are broad
and require the Productivity Commission to review
competition in Australia’s financial system with a view to
improving consumer outcomes, and the productivity and
international competitiveness of the financial system and the
economy more broadly, and supporting ongoing financial
system innovation, while balancing these with financial
stability objectives. The review commenced on 1 July 2017
and the Productivity Commission is due to hand its final
report to the Government by 1 July 2018.
Australian Bankers’ Association Banking Reform Program
and industry initiatives
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 reform program includes a number of industry-led
initiatives including:
a review of product sales commissions and product
based payments;
the establishment of an independent customer advocate
in each bank;
supporting the broadening of external dispute resolution
schemes;
evaluating the establishment of an industry-wide,
mandatory, last resort compensation scheme;
strengthening protections available to whistleblowers;
18
the implementation of a new information sharing
protocol to help stop individuals with a history of poor
conduct moving around the industry;
strengthening the commitment to customers in the Code
of Banking Practice; and
supporting ASIC as a strong regulator.
On 20 October 2017, the independent governance expert
overseeing the ABA action plan released his sixth report
titled, Australian banking industry: Package of Initiatives,
which noted that banks are continuing to make good
progress in delivering the initiatives, with a number of the
initiatives now implemented or moving into implementation
stage.
Australian Securities and Investments Commission (ASIC)
Enforcement Review Taskforce
On 19 October 2016, the Australian Government released
the terms of reference for the ASIC Enforcement Review
Taskforce (Taskforce), which will assess the suitability of
ASIC’s existing regulatory tools (including the penalties
available) and whether they need to be strengthened.
The Taskforce has completed consultations on a range of
matters, including proposed reforms to the mandatory
breach reporting framework. These reforms include clarifying
when a reporting obligation is triggered, expanding the class
of reports that must be made to include misconduct by
individual advisers and employees and strengthening the
penalties for failing to report, including through the
introduction of an infringement notice regime.
The Taskforce has also consulted on:
strengthening ASIC’s licensing powers, which would
enable ASIC to take action to refuse to grant, or to
suspend or cancel, a licence where the applicant or
licensee is not considered to be a fit and proper person;
and
proposals to expand ASIC’s powers to ban senior
managers working in financial services businesses.
It is currently consulting on proposals to strengthen penalties
for corporate and financial sector misconduct.
The Taskforce is scheduled to report its recommendations to
the Australian Government in 2017.
Product design and distribution obligations and product
intervention power
As part of a package of reforms announced by the Australian
Government in 2016, the Federal Government announced
that it would accelerate the implementation of certain
recommendations made by the Financial System Inquiry
(FSI), including granting ASIC a product intervention power
and introducing a new ‘principles-based’ product design and
distribution obligation on issuers and distributors.
On 13 December 2016, the Australian Government released
a consultation paper seeking feedback on these proposed
reforms. Submissions on the consultation paper closed on
15 March 2017 and it is anticipated that draft legislation will
be released for consultation in 2018.
2017 Westpac Group Annual Report
Financial benchmarks reform
In October 2016, the Australian Government announced a
package of measures designed to strengthen the regulation
of financial benchmarks. The measures were recommended
to the Australian Government by the Council of Financial
Regulators following a consultation process on financial
benchmark reform.
The key measures to be implemented 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.
These measures are expected to be implemented over the
next 6-12 months.
Residential mortgage lending – reviews by and engagement
with regulators
APRA has been looking at, and speaking publicly about, the
broader issue of bank serviceability standards pertaining to
residential mortgage lending. Westpac is engaging
proactively with APRA in relation to its work in this area.
In the mortgage area, ASIC continues to focus on interest
only mortgage origination and high risk customer groups.
ASIC has also initiated a review into public statements by
some banks (including Westpac) about interest rate
changes. We are working with ASIC on their reviews in
these areas.
BBSW proceedings
Following ASIC’s 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.
Information on Westpac
ASIC’s responsible lending litigation against Westpac
On 1 March 2017, ASIC commenced Federal Court
proceedings against Westpac in relation to home loans
entered into between December 2011 and March 2015,
which were automatically approved by Westpac’s systems.
ASIC has alleged that the way in which Westpac used the
Household Expenditure Measure (HEM) benchmark to
assess the suitability of home loans for customers during
this period was in contravention of the National Consumer
Credit Protection Act 2009 (Cth) (NCCPA). On
26 September 2017, ASIC amended its court documents to
include an additional allegation that the way serviceability
was assessed for interest only loans during the same period
also contravened the NCCPA. ASIC has also raised specific
allegations in respect of seven loan applications. ASIC
alleges that Westpac improperly assessed whether those
loans were unsuitable because of the way Westpac used
HEM, and for five of the loan applications (which are loans
with an interest only period), because of the way Westpac
assessed serviceability. ASIC has not made any criminal
allegations, or allegations against specific individuals.
Westpac is defending the proceedings.
Outbound scaled advice division proceedings
On 22 December 2016, ASIC commenced Federal Court
proceedings against BT Financial Management Limited
(BTFM) and Westpac Securities Administration Limited
(WSAL) in relation to a number of superannuation account
consolidation campaigns conducted between 2013 and
2016. ASIC has alleged that in the course of some of these
campaigns, customers were provided with personal advice
in contravention of a number of Corporations Act 2001 (Cth)
provisions. ASIC has selected 15 specific customers as the
focus of their claim. BTFM and WSAL are defending the
proceedings. The proceedings are scheduled to be heard in
February 2018.
Class action against Westpac Banking Corporation and
Westpac Life Insurance Services Limited
On 12 October 2017, a class action was filed in the Federal
Court of Australia on behalf of customers who, since
October 2011, have obtained insurance issued by Westpac
Life Insurance Services Limited (WLIS) on the
recommendation of financial advisers at Westpac Banking
Corporation, St.George Bank, Bank of Melbourne, BankSA
or BT Advice. The action is in relation to the premiums these
customers have been charged for the WLIS policies. The
plaintiffs have alleged, amongst other things, that in
providing the financial advice Westpac breached the
fiduciary duties it owed to the members of the class, the
conduct was unconscionable and WLIS was knowingly
involved in these breaches. Westpac and WLIS are
defending the proceedings.
Brexit
On 29 March 2017, the Prime Minister of the United
Kingdom (UK) notified the European Council in accordance
with Article 50 of the Treaty on European Union of the UK’s
intention to withdraw from the European Union (EU),
triggering a two year period for the negotiation of the UK’s
withdrawal from the EU.
As Westpac’s business and operations are based
predominantly in Australia and New Zealand, the direct
impact of the UK’s departure from the EU is unlikely to be
2017 Westpac Group Annual Report
19
1
material to Westpac. However, it remains difficult to predict
the impact that Brexit may have on financial markets, the
global economy and the global financial services industry.
Reduction to the corporate tax rate
On 11 May 2017, the Australian Government introduced into
Parliament a bill to reduce the corporate tax rate
progressively from 30% to 25% over the next 10 years for all
corporate entities in a staged approach with reference to
aggregated annual turnover thresholds. If the legislation is
passed in its current form, the benefit will begin to take effect
from 1 July 2023, when the corporate tax rate for Westpac
will reduce to 27.5%. 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 ultimately attached to
franked dividends and distributions to certain security
holders.
Taxation of cross-border financing arrangements
The Australian and New Zealand Governments have each
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. If implemented without grandfathering,
the potential effect of the OECD proposals is to increase the
after-tax cost to Westpac of certain previously issued
Additional Tier 1 capital securities. Neither Government has
released draft legislation.
Comprehensive Credit Reporting (CCR)
On 2 November 2017, the Federal Treasurer announced
that the Australian Government will legislate for a mandatory
comprehensive credit reporting regime to come into effect by
1 July 2018. This would require credit providers to provide a
monthly update to credit reporting agencies of all open
consumer credit accounts, including credit cards, personal
loans, mortgages and auto loans. According to the
announcement, the four major banks will be required to have
50% of their credit data ready for reporting by 1 July 2018,
increasing to 100% a year later.
Westpac is currently moving to implement CCR, as we
recognise that CCR supports our principles for responsible
lending by enhancing transparency of consumers’ existing
liabilities. Westpac is also focused on ensuring the highest
level of security of personal data is maintained within the
data sharing arrangements that will underpin CCR data
supply and use.
Sale of shares in BTIM
On 26 May 2017, Westpac sold 60 million shares in BTIM at
a price of $10.75 per share, pursuant to a fully underwritten
institutional offer. Following completion of the sale,
Westpac’s holding in BTIM decreased to approximately
10%. Westpac has announced that it intends to sell its
remaining 10% shareholding in BTIM in the future, subject to
favourable market conditions. In accordance with escrow
arrangements communicated to BTIM in respect of the
retained shareholding, any sale would not occur prior to the
release of BTIM’s first half 2018 results (expected to be in
May 2018).
Issue of Additional Tier 1 capital securities
On 21 September 2017, Westpac issued US$1.25 billion
Additional Tier 1 capital securities, which qualify as
Additional Tier 1 capital under APRA’s capital adequacy
framework.
Regulatory significant developments
Financial System Inquiry’s (FSI) 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
recommendations.
On 19 July 2017, APRA released an information paper titled,
Strengthening banking system resilience – establishing
unquestionably strong capital ratios. In its release, APRA
concluded that the four major Australian banks, including
Westpac, need to have a CET1 ratio of at least 10.5%, as
measured under the existing capital framework to be
considered ‘unquestionably strong’. Banks are expected to
meet this new benchmark by 1 January 2020.
APRA’s implementation of capital standards to produce
‘unquestionably strong capital ratios’ will also incorporate
changes to the prudential framework, including consideration
of the finalisation of international Basel III reforms. The final
Basel III reforms may result in significant changes in the risk
weighted asset framework including the introduction of a
revised capital floor for internal model-based methods,
based on standardised approaches.
Whilst APRA has signalled that its revisions to the capital
framework will not necessitate further capital increases for
the industry above the 10.5% benchmark, the details of the
changes (including at a product level) remain unclear.
APRA has announced that it intends to release a discussion
paper on proposed revisions to the capital framework later in
2017 and, following release of the discussion paper, that it
expects to consult on draft prudential standards giving effect
to the new framework in 2018, leading to the release of final
prudential standards in 2019. The new framework is
anticipated to take effect in early 2021.
In addition to the risk-based capital ratio, APRA may also
implement other key FSI recommendations, including:
the introduction of a leverage ratio that acts as a
backstop to an ADI’s risk-based capital requirements.
Whilst APRA requires the disclosure of the leverage
ratio on a quarterly basis, it is yet to be implemented as
a minimum requirement; and
the implementation of a framework for additional loss-
absorbing capacity, discussed further below.
Resolution planning including additional loss absorbing
capacity and APRA’s crisis management powers
In response to the FSI recommendations, the Australian
Government also agreed to further reforms regarding crisis
management. In August 2017, Treasury issued draft
legislation to strengthen APRA’s crisis management powers.
This was introduced into Parliament in October 2017. The
intention of these reforms is to strengthen APRA’s powers to
facilitate the orderly resolution of an institution so as to
protect the interests of depositors and to protect the stability
20
2017 Westpac Group Annual Report
of the financial system. The reforms also enhance APRA’s
ability to take actions in relation to resolution planning,
including measures to ensure regulated entities and their
groups are better prepared for resolution.
Consistent with international developments, APRA may also
establish a framework for additional loss absorbing capacity
for the four major Australian banks, including Westpac. The
intention of this would be to facilitate the orderly resolution of
banks and minimise taxpayer support. APRA is yet to
release any consultation on additional loss-absorbing
capacity.
Macro-prudential regulation
From December 2014, APRA has made use of macro-
prudential measures targeting mortgage lending that
continue to impact lending practices in Australia. The
measures include limiting investment property lending
growth to below 10% and imposing additional levels of
conservatism in serviceability assessments.
On 31 March 2017, APRA added to these measures,
requiring ADIs to restrict mortgage lending with interest only
terms to 30% of new mortgage lending. APRA also indicated
that it expects ADIs to place strict internal limits on the
volume of interest only loans with loan-to-valuation ratios
above 80%.
Westpac has implemented steps to achieve these limits,
including introducing differential pricing for investor property
loans and interest only loans, a restriction on the volume of
interest only loans with an LVR of greater than 80%
(includes limit increases, interest only term extension and
switches), no repayment switch fee for customers switching
to principal and interest from interest only loans and no
longer accepting external refinances (from other financial
institutions) for owner occupied interest only loans. Interest
only residential mortgages constituted 26% of new mortgage
lending for the quarter ended 30 September 2017 (currently
46% of Westpac’s overall Australian residential mortgage
portfolio as at 30 September 2017).
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.
Other regulatory developments
Net Stable Funding Ratio
APRA released a revised prudential standard on liquidity
(APS 210) on 20 December 2016. This prudential standard
includes the Net Stable Funding Ratio (NSFR) requirement,
a measure designed to encourage longer-term funding of
assets and better match the duration of assets and liabilities.
The revised APS 210, inclusive of the NSFR, will commence
from 1 January 2018. During Full Year 2017, Westpac
continued to take steps in preparation for the introduction of
the NSFR from 1 January 2018. Based on the latest
guidance from APRA, Westpac had an estimated NSFR at
30 September 2017 which is above that required from
1 January 2018.
OECD Common Reporting Standard
The OECD has developed Common Reporting Standard
(CRS) rules for the automatic exchange of customer tax
Information on Westpac
residency and financial account information amongst
participating CRS countries.
CRS requires the Westpac Group to collect and check 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.
Together with other Australian financial institutions, Westpac
began collecting tax residency information from 1 July 2017
and will report these details and associated financial account
information from July 2018.
Westpac has implemented changes to its business
operations to comply with the CRS requirements in countries
which have implemented the rules prior to 1 July 2017.
European Union General Data Protection Regulation
The European Union General Data Protection Regulation
(the GDPR) contains new data protection requirements that
will apply from 25 May 2018. The GDPR is intended to
‘strengthen and unify’ data protection for individuals across
the EU and supersedes the existing EU Data Protection
Directive. Australian businesses of any size may need to
comply if they have an establishment in the EU, if they offer
goods or services in the EU, or if they monitor the behaviour
of individuals in the EU. Westpac is evaluating the impact of
GDPR on its businesses with a view to implementing the
necessary changes before commencement of the GDPR.
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 variation margin and initial margin
requirements for non-centrally cleared derivatives.
Variation margin requirements in a number of key
jurisdictions for Westpac (being Australia, the EU, US and
Hong Kong) became applicable during Full Year 2017.
Westpac has completed a substantial amount of work to
comply with all applicable variation margin requirements. In
addition, initial margin requirements commenced on
1 September 2016. These requirements are being
introduced in phases through to 1 September 2020.
Westpac currently expects that it will be required to
commence exchanging initial margin by either September
2018 or September 2019.
New Zealand
Regulatory reforms and significant developments in
New Zealand include:
Reserve Bank of New Zealand (RBNZ) – macro-prudential
policy framework
On 8 June 2017, the RBNZ published a consultation paper
seeking feedback on serviceability restrictions such as debt-
to-income ratio (DTI) limits being added to its macro-
prudential toolkit. The RBNZ stated in the consultation paper
that the RBNZ would not utilise a DTI policy in current
market conditions, but considers DTI limits a useful option in
the future.
2017 Westpac Group Annual Report
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1
RBNZ – Review of Outsourcing Policy
On 19 September 2017, the RBNZ released the final version
of its revised Outsourcing Policy (and updated conditions of
registration). These took effect on 1 October 2017. Key
changes under the revised policy are:
banks will need to obtain a non-objection letter from the
RBNZ before entering into outsourcing arrangements
with a parent or other related party;
a bank that outsources certain functions to any third
party will need to have certain prescribed contractual
terms with that third party and ensure that the third party
has adequate disaster recovery and business continuity
plan capability in relation to the outsourced function;
Reform of the regulation of financial advice
The New Zealand Government announced plans for
changes to the regime regulating financial advice in
July 2016. In August 2017, the Financial Services
Legislation Amendment Bill was introduced into Parliament.
Under the proposed new regime, financial advice will be
provided by licensed firms who will employ financial advisers
and nominated representatives. A Code of Conduct will
apply to all advice and advisers and representatives will be
subject to the same duties and ethical standards, including a
duty to give priority to the client’s interests. Firms will be
responsible for ensuring their advisers and representatives
comply with these duties. The reforms will also remove
legislative barriers to the provision of robo-advice.
a bank that outsources certain functions to its overseas
parent or to another non-controlled related party will
need to have robust back-up arrangements in place;
A two stage transition is proposed with all industry
participants being required to be operating under a full
licence by May 2021.
banks will be required to maintain a compendium of
functions and processes that have been outsourced;
and
banks that are members of foreign-owned banking
groups, such as WNZL, will be required to have a
separation plan which describes how they would
operate previously outsourced services if a statutory
manager is appointed or they are otherwise separated
from their overseas parent.
There will be a five year transitional period in relation to
existing outsourcing arrangements.
The key impact of the revised policy will be in respect of
outsourcing arrangements related to institutional products,
settlements, finance, risk management and regulatory
reporting.
RBNZ Capital Review
In March 2017, the RBNZ outlined its plans for its review of
bank capital requirements. The RBNZ’s aim is to agree a
capital regime that ensures a very high level of confidence in
the solvency of the banking system while avoiding economic
inefficiency. The review will look at the three key
components of the regulatory capital regime:
the definition of eligible capital instruments;
the measurement of risk, in particular the risk weights
attached to credit exposures; and
the minimum capital ratio and buffers.
The RBNZ has said that the outcomes of the review will be
heavily influenced by the international regulatory context, the
risk characteristics of the New Zealand system, and the
RBNZ’s regulatory capital approach. The RBNZ released a
high-level Issues Paper in May 2017 and a consultation
paper considering what type of financial instruments should
qualify as bank capital. The RBNZ expects to conclude its
review in the first quarter of 2018. Based on the high level
information released to date, the expectation is that the
RBNZ will likely propose increasing capital ratios and certain
risk weights, with internal ratings-based (IRB) banks having
fewer models to use (to reduce the difference between
standardised and IRB banks).
RBNZ – Review under section 95 of the Reserve Bank of
New Zealand Act 1989
On 10 February 2017, the RBNZ issued WNZL with a notice
under section 95 of the Reserve Bank of New Zealand Act
1989, requiring WNZL to obtain an independent review of its
compliance with advanced internal rating-based aspects of
the RBNZ’s ‘Capital Adequacy Framework (Internal Models
Based Approach) (BS2B)’ (BS2B). WNZL has disclosed
non-compliance with BS2B (compliance with which is a
condition of registration for WNZL) in its quarterly disclosure
statements. WNZL expects to receive the RBNZ’s final
decision in 2017. There are a range of possible
consequences for WNZL, including potential increases in
minimum capital requirements.
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. APRA is expected to have new and
strengthened powers under the proposed new Banking
Executive Accountability Regime. For further information,
refer to ‘Significant developments’ above.
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
22
2017 Westpac Group Annual Report
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 and
consumer protection within the financial sector. Its primary
responsibility is to regulate and enforce company, consumer
credit, financial markets and financial products and 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. There are currently proposals to
strengthen ASIC’s existing powers and to provide ASIC with
a product intervention power. For further information, refer to
‘Significant developments’ above.
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. ASX is now also the benchmark
administrator of BBSW.
The ACCC is the regulator 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 ASIC (for
financial services) and 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
Government’s Treasurer must approve an entity acquiring a
Information on Westpac
stake of more than 15% in a particular financial sector
company.
Proposals for foreign acquisitions of a stake in Australian
banks are subject to the Australian Government’s foreign
investment policy and, where required, approval by the
Australian Government under the Australian Foreign
Acquisitions and Takeovers Act 1975 (Cth). For further
details refer to ‘Limitations affecting security holders’ in
Section 4.
AUSTRAC oversees the compliance of Australian reporting
entities (including Westpac) with 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 Australian
federal law enforcement, national security, human services
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 developing proposals to
replace off-quarter disclosure statements with a ‘dashboard’
of key information about each locally incorporated bank to
be published on the RBNZ’s website.
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
2017 Westpac Group Annual Report
23
1
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.
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. Where appropriate as required by the
accounting standards, 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 9155 7713 and our
international telephone number is (+61) 2 9155 7700.
acceptances, but excluding accrued expenses, and amounts
due and other liabilities to other branches, agencies and
subsidiaries of the foreign bank).
In addition, a US federal branch is subject to periodic onsite
examination by the US Comptroller of the Currency. Such
examination may address risk management, operations,
asset quality, compliance with the record-keeping and
reporting, and any additional requirements prescribed by the
US Comptroller of the Currency from time to time.
A US federal branch of a foreign bank is, by virtue of the
IBA, subject to the receivership powers exercisable by the
US Comptroller of the Currency.
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
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.
Our Anti-Money Laundering and Counter-Terrorism
Financing Policy (AML/CTF Policy) sets out how the
Westpac Group complies with its legislative obligations.
The AML/CTF Policy applies to all business divisions and
employees (permanent, temporary and third party providers)
working in Australia, New Zealand and overseas.
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
24
2017 Westpac Group Annual Report
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 2017 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
2017 Westpac Group Annual Report, the 2017 Westpac
Group Annual Review and Sustainability Report, the 2017
Westpac Group Sustainability Performance Report and
investor discussion packs and presentations can be
accessed at www.westpac.com.au/investorcentre.
2017 Westpac Group Annual Report
25
1
Directors’ report
Our Directors present their report together with the financial statements of the Group for the financial year ended
30 September 2017.
1. Directors
The names of the persons who have been Directors, or appointed as Directors, during the period since 1 October 2016 and up
to the date of this report are: Lindsay Philip Maxsted, Brian Charles Hartzer, Elizabeth Blomfield Bryan (retired as a Director on
9 December 2016), Nerida Frances Caesar (Director from 1 September 2017), 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 2017 and the period for which each directorship has been held, are set out below.
Name: Lindsay Maxsted,
DipBus (Gordon), FCA, FAICD
Age: 63
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 Heart
and Diabetes Institute.
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: 50
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 Australian National
University Business and Industry
Advisory Board (Chairman since
March 2017), 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.
26
2017 Westpac Group Annual Report
Directors’ report
Name: Nerida Caesar,
BCom, MBA, GAICD
Age: 53
Term of office: Director since
September 2017.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office: Nil.
Other principal directorships:
Stone and Chalk Limited and
Genome.One Pty Ltd.
Other interests: Member of the
University of Technology Vice
Chancellor’s Industry Advisory
Board and the Federal
Government’s FinTech Advisory
Group.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Nerida has 30 years
of broad-ranging commercial and
business management
experience. Most recently,
Nerida was Group Managing
Director and Chief Executive
Officer, Australia and New
Zealand, of Equifax (formerly
Veda Group Limited) from
February 2011.
Nerida was formerly Group
Managing Director, Telstra
Enterprise and Government,
responsible for Telstra’s
corporate, government and large
business customers in Australia
as well as the international sales
division. She also worked as
Group Managing Director,
Telstra Wholesale, and prior to
that held the position of
Executive Director National
Sales where she was
responsible for
managing products, services and
customer relationships throughout
Australia.
Prior to joining Telstra, Nerida
held several senior management
and sales positions with IBM
within Australia and internationally
over a 20 year period, including
as Vice President of IBM’s Intel
Server Division for the Asia
Pacific region.
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: Veda
Group Limited (December 2013 –
February 2016). Veda Group
Limited was a listed entity from
December 2013 to February 2016
when it was delisted upon its
acquisition by Equifax Inc.
Name: Ewen Crouch AM,
BEc (Hons.), LLB, FAICD
Age: 61
Term of office: Director since
February 2013.
Date of next scheduled
re-election: December 2019.
Independent: Yes.
Current directorships of listed
entities and dates of office:
BlueScope Steel Limited (since
March 2013).
Other principal directorships:
Sydney Symphony Orchestra
Holdings Pty Limited and Jawun.
Other interests: Member of the
Commonwealth Remuneration
Tribunal, Law Committee of the
Australian Institute of Company
Directors and Corporations
Committee of the Law Council of
Australia.
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.
Ewen served as a director of
Mission Australia from 1995 and
as Chairman from 2009, before
retiring in November 2016. From
2010 to 2015, Ewen was a
member of the Takeovers Panel.
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 Risk & Compliance
Committee. Member of each of
the Board Nominations and
Board Remuneration
Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
2017 Westpac Group Annual Report
27
1
Name: Alison Deans,
BA, MBA, GAICD
Age: 49
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:
Cochlear Limited (since
January 2015).
Other principal directorships:
kikki.K Holdings Pty Ltd and
SCEGGS Darlinghurst Limited.
Other interests: Senior Advisor,
McKinsey & Company and
Investment Committee member
of the CSIRO Innovation Fund
(Main Sequence Ventures).
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Alison has more than
20 years’ experience in senior
executive roles focused on
building digital businesses and
digital transformation across
e-commerce, media and financial
services. During this time, Alison
served as the CEO of eCorp
Limited, CEO of Hoyts Cinemas
and CEO of eBay, Australia and
New Zealand. She was the CEO
of a technology-based
investment company netus Pty
Ltd. 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:
Insurance Australia Group
Limited (February 2013 –
October 2017).
Name: Craig Dunn,
BCom, FCA
Age: 54
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: Chairman of
the Australian Government’s
Fintech Advisory Group and the
International Standards
Technical Committee on
Blockchain and
Distributed Ledger Technologies
(ISO/TC 307). Member of the
ASIC External Advisory Panel,
and the New South Wales
Government’s Quantum
Computing Fund Advisory Panel.
Board member of Jobs for New
South Wales and Consultant to
King & Wood Mallesons.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Craig has more than
20 years’ experience in financial
services, including as CEO of
AMP Limited from 2008 to 2013.
Craig was previously a Board
member of the Australian
Japanese Business Cooperation
Committee and the New South
Wales Government’s Financial
Services Knowledge Hub, 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.
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.
28
2017 Westpac Group Annual Report
Directors’ report
Name: Robert Elstone,
BA (Hons.), MA (Econ.), MCom
Age: 64
Term of office: Director since
February 2012.
Date of next scheduled
re-election: Not applicable.
Robert Elstone will retire
following the 2017 AGM.
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. 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.
Name: Peter Hawkins,
BCA (Hons.), SF Fin, FAIM,
ACA (NZ), FAICD
Age: 63
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).
Other principal directorships:
Liberty Financial Pty Ltd and
Crestone Holdings Limited.
Other interests: Nil.
Name: Peter Marriott,
BEc (Hons.), FCA
Age: 60
Term of office: Director since
June 2013.
Date of next scheduled
re-election: December 2019.
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
Austraclear Limited.
Other Westpac related entities
directorships and dates of
office: Member of the Bank of
Melbourne Advisory Board since
November 2010.
He was also previously a Director
of BHP (NZ) Steel Limited,
ING Australia Limited, Esanda
Finance Corporation, Visa Inc and
Clayton Utz.
Skills, experience and
expertise: Peter’s career in the
banking and financial services
industry spans over 40 years in
Australia and overseas at both
the highest levels of
management and directorship of
major organisations. Peter has
held various senior management
and directorship positions with
Australia and New Zealand
Banking Group Limited from
1971 to 2005.
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
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: MG
Responsible Entity Limited, which
is the responsible entity for ASX
listed MG Unit Trust (April 2015 to
October 2016).
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.
2017 Westpac Group Annual Report
29
1
Company Secretary
Our Company Secretaries as at 30 September 2017 were Rebecca Lim and Tim Hartin.
Rebecca Lim (B Econ, LLB (Hons.)) was appointed as a Group Executive effective 1 October 2016, with her title now being
Group Executive, Compliance, Legal & Secretariat1, as well as Company Secretary. Rebecca joined Westpac in 2002 and has
held a variety of senior leadership roles including General Manager, Human Resources for St.George Bank and General
Manager, St.George Private Clients. She was appointed Group General Counsel in November 2011 and Chief Compliance
Officer from 2013 to 2017. Rebecca held an in-house role in investment banking at Goldman Sachs in London after which she
joined Westpac on her return to Australia. Rebecca was previously with US firm Skadden Arps where she worked in the
Corporate Finance area in both New York and London. Prior to that she worked at Blake Dawson Waldron (now Ashurst) as a
solicitor.
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 2017 our Executive Team was:
Name
Position
Managing Director & Chief Executive Officer
Chief Executive, Westpac Institutional Bank
Chief Executive Officer, BT Financial Group
Chief Information Officer
Chief Executive, Consumer Bank
Brian Hartzer
Lyn Cobley
Brad Cooper
Dave Curran
George Frazis
Alexandra Holcomb Chief Risk Officer
Peter King
Rebecca Lim1
David Lindberg
David McLean
Christine Parker
Gary Thursby
Chief Financial Officer
Group Executive, Compliance, Legal & Secretariat
Chief Executive, Business Bank
Chief Executive Officer, Westpac New Zealand Limited
Group Executive, Human Resources, Corporate Affairs & Sustainability
Group Executive, Strategy & Enterprise Services
Year Joined
Group
Year Appointed
to Position
2012
2015
2007
2014
2009
1996
1994
2002
2012
1999
2007
2008
2015
2015
2010
2014
2015
2014
2014
2016
2015
2015
2011
2016
There are no family relationships between or among any of our Directors or Executive Team members.
1 Prior to 2 October 2017, Rebecca Lim’s title was Group General Counsel & Chief Compliance Officer.
30
2017 Westpac Group Annual Report
Directors’ report
Brian Hartzer BA, CFA. Age 50
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.
Lyn Cobley BEc, SF FIN, GAICD. Age 54
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 as well as Westpac’s
International and Pacific Island businesses.
Lyn has over 25 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 Board member of the Australian Financial Markets Association (AFMA), the Banking & Finance
Oath and the Westpac Foundation. She is Chairman of Westpac’s Asia Advisory Board and 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 55
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.
Dave Curran BCom. Age 52
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.
Since 2015, Dave has been on the Board of the Westpac Bicentennial Foundation, a $100 million
scholarship fund with exclusive focus on Australian education and leadership.
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.
2017 Westpac Group Annual Report
31
1
George Frazis B Eng (Hons.), MBA (AGSM/Wharton). Age 53
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. George is a Governor of the St.George Foundation and is Chair of the Prime
Minister’s Industry Advisory Committee on Veterans’ Employment.
Alexandra Holcomb BA, MBA, MA. Age 56
Chief Risk Officer
Alexandra was appointed Chief Risk Officer in August 2014. As Westpac Group’s Chief Risk Officer,
Alexandra is responsible for key risk management activities across the enterprise.
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, Group Strategy, Head of Westpac
Institutional Bank Strategy, and until August 2014 was the 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 Deputy Chairman of the Asia Society Australia and serves on the Westpac Foundation Board.
She is a member of Chief Executive Women and a Fellow of the Australian Institute of Company Directors.
Alexandra 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 47
Chief Financial Officer
Peter was appointed Chief Financial Officer in April 2014, with responsibility for Westpac’s Finance, Group
Audit, Tax, Treasury and Investor Relations functions. Prior to this appointment, Peter was the Deputy
Chief Financial Officer for three years.
Since joining Westpac in 1994, Peter has held senior finance positions across the Group, including in
Group Finance, Business and Consumer Banking, Business and Technology Services, Treasury and
Financial Markets.
Peter commenced his career at Deloitte Touche 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.
Rebecca Lim B Econ, LLB (Hons). Age 45
Group Executive, Compliance, Legal & Secretariat
Rebecca was appointed as Westpac’s Group Executive responsible for compliance, legal and secretariat
functions globally from October 2016. She was appointed Group General Counsel in November 2011 and
was Chief Compliance Officer from 2013 to 2017.
Rebecca joined Westpac in 2002 and has held a variety of other senior leadership roles including General
Manager, Human Resources for St.George Bank and General Manager, St.George Private Clients.
Rebecca began her career at Blake Dawson Waldron (now Ashurst) before joining the US firm Skadden
Arps where she worked in both New York and London. Rebecca then moved into an in-house role in
investment banking at Goldman Sachs in London before returning to Australia and joining Westpac.
Rebecca is Deputy Chair of the GC100 Executive Committee and a member of Chief Executive Women.
32
2017 Westpac Group Annual Report
Directors’ report
David Lindberg HBA (Hons. Economics). Age 42
Chief Executive, Business Bank
David was appointed Chief Executive, Business Bank in June 2015. He manages the Group’s end to end
relationships with business customers for the Westpac, St.George, BankSA and Bank of Melbourne
brands. The Business Bank provides a wide range of banking and financial products and services to
Australia’s small, commercial, corporate and agri businesses.
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 59
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
‐
Christine Parker BGDipBus (HRM). Age 57
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 and Sustainability, and Customer Advocacy.
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.
Christine is a Governor of the St.George Foundation and also a Director of Women’s Community Shelters.
Gary Thursby BEc, DipAcc, FCA. Age 55
Group Executive, Strategy & Enterprise Services
Gary was appointed Group Executive Strategy & Enterprise Services in October 2016. In addition to
leading the Group’s strategy function, his role is designed to accelerate the delivery of the Group’s Service
Revolution and provide services to support the Group’s operating businesses.
Gary’s responsibilities also include banking operations, procurement, property, analytics, and enterprise
investments. In addition, Gary oversees the Group’s mergers & acquisitions and business development
portfolios.
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 Touche 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.
2017 Westpac Group Annual Report
33
1
3. Report on the business
Principal activities
a)
The principal activities of the Group during the financial year ended 30 September 2017 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 2017.
Operating and financial review
b)
The net profit attributable to equity holders of Westpac for the financial year ended 30 September 2017 was $7,990 million, an
increase of $545 million or 7% compared to 2016. Key features of this result were:
a 4% increase in net operating income before operating expenses and impairment charges with:
– net interest income of $15,516 million, an increase of $368 million or 2% compared to 2016, with total loan growth of 3%
and a 4 basis point decrease in net interest margin to 2.06%; and
– non-interest income of $6,286 million, an increase of $449 million or 8% compared to 2016, primarily due to a $279
million gain associated with the sale of shares in BT Investment Management Limited (BTIM), a rise in trading income of
$78 million and the impact of volatility in economic hedges of $140 million. These increases were partly offset by
provisions for customer refunds and lower wealth management and insurance income;
operating expenses were $9,434 million, an increase of $217 million or 2% compared to 2016 due to annual salary and
rental increases, higher technology expenses related to the Group’s investment program, a rise in regulatory and
compliance costs and expenses associated with the sale of shares in BTIM. These increases were partially offset by
productivity benefits; and
impairment charges were $853 million, a decrease of $271 million or 24% compared to 2016. Asset quality remained
sound, with stressed exposures as a percentage of total committed exposures at 1.05%, down 15 basis points over the
year. The decrease in impairment charges was primarily due to significantly lower large individual provisions. Additional
provisioning for these larger facilities was required in 2016, following the downgrade to impaired.
A review of the operations of the Group and its divisions and their results for the financial year ended 30 September 2017 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 2017, Westpac has announced a final ordinary dividend of 94 cents per Westpac ordinary share, totalling
approximately $3,191 million for the year ended 30 September 2017 (2016 final ordinary dividend of 94 cents per Westpac
ordinary share, totalling approximately $3,145 million). The dividend will be fully franked and will be paid on 22 December 2017.
An interim ordinary dividend for the current financial year of 94 cents per Westpac ordinary share for the half year ended
31 March 2017, totalling $3,156 million, was paid as a fully franked dividend on 4 July 2017 (2016 interim ordinary dividend of
94 cents per Westpac ordinary share, totalling $3,136 million). The payment comprised direct cash disbursements of
$2,031 million with $1,125 million being reinvested by participants through the DRP.
Further, in respect of the year ended 30 September 2016, a fully franked final dividend of 94 cents per ordinary share totalling
$3,145 million was paid on 21 December 2016. The payment comprised direct cash disbursements of $2,818 million with
$327 million being reinvested by participants through the DRP.
New shares were issued to satisfy the DRP for each of the 2016 final ordinary dividend and the 2017 interim ordinary dividend.
Significant changes in state of affairs and events during and since the end of the 2017 financial year
d)
Significant changes in the state of affairs of the Group were:
34
introduction of the Federal Government’s Bank Levy for ADIs. The Bank Levy cost Westpac $95 million in Full Year 2017,
with an after tax impact of $66 million and is estimated to cost Westpac approximately $405 million in Full Year 2018, with
an after tax impact of approximately $284 million;
the sale by Westpac of 60 million shares in BTIM for $10.75 per share;
the issuance of US$1.25 billion AT1 securities, which qualify as Additional Tier 1 capital under APRA’s capital adequacy
framework;
the proposed sale by Westpac of its interest in Hastings Management Pty Limited, which is subject to confirmatory due
diligence and regulatory approvals; and
2017 Westpac Group Annual Report
Directors’ report
ongoing regulatory changes and developments, which have included changes relating to liquidity, capital, financial
services, taxation, executive accountability 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 of the Annual Report under ‘Information on Westpac’, including
under ‘Outlook’ and ‘Significant developments’.
Further information on our business strategies and prospects for future financial years and likely developments in our
operations and the expected results of operations have not been included in this report because the Directors believe it would
be likely to result in unreasonable prejudice to us.
4. Directors’ interests
Directors’ interests in securities
a)
The following particulars for each Director are set out in the Remuneration Report in Section 10 of the Directors’ report for the
year ended 30 September 2017 and in the tables below:
their relevant interests in our shares or the shares of any of our related bodies corporate;
their relevant interests in debentures of, or interests in, any registered managed investment scheme made available by us
or any of our related bodies corporate;
their rights or options over shares in, debentures of, or interests in, any registered managed investment scheme made
available by us or any of our related bodies corporate; and
any contracts:
– to which the Director is a party or under which they are entitled to a benefit; and
– that confer a right to call for or deliver shares in, debentures of, or interests in, any registered managed investment
scheme made available by us or any of our related bodies corporate.
2017 Westpac Group Annual Report
35
1
Directors’ interests in Westpac and related bodies corporate as at 6 November 2017
Number of Relevant Interests in
Westpac
Ordinary Shares
Number of Westpac
Share Rights
Westpac
CPS
Westpac Banking Corporation
Current Directors
Lindsay Maxsted
Brian Hartzer
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
Peter Marriott
1 Brian Hartzer’s interest in Westpac ordinary shares includes 20,222 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 850 Westpac Capital Notes 3 and 882 Westpac Capital Notes 4.
-
569,426 2
-
-
-
-
-
-
-
20,689
77,427 1
-
36,450 3
9,392
8,869
12,096
15,880 4
20,870
-
-
-
-
-
-
-
1,370
-
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), BT Wholesale Enhanced Cash
Fund (ARSN 088 863 469), Advance Cash Multi-Blend Fund (ARSN 094 113 050) or BT Cash (ARSN 164 257 854).
36
2017 Westpac Group Annual Report
Directors’ report
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 (other than a liability for legal costs) 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 2017, 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 256,840 share options outstanding and 5,107,825 share rights outstanding in relation to
Westpac ordinary shares. The expiry date of the share options range between 17 December 2017 and 1 October 2018 and the
weighted average exercise price is $26.36. The latest dates for exercise of the share rights range between 17 December 2017
and 1 October 2032.
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.
2017 Westpac Group Annual Report
37
1
5. Environmental disclosure
6. Human rights supply chain disclosure
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:
Westpac’s overall approach to human rights is set out in our
Westpac Group Human Rights Position Statement, and this
references our Responsible Sourcing Code of Conduct as
the primary framework for managing human rights in our
supply chain.
The Group is subject to the United Kingdom’s Transparency
in Supply Chains provisions under the Modern Slavery Act
2015, which came into effect in March 2015. Westpac
releases an annual statement each year for the period
ended 30 September to disclose the steps taken during the
year to help prevent modern slavery from occurring within
the Group’s operations and supply chain.
7. Rounding of amounts
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.
8. Political expenditure
In line with Westpac policy, no cash donations were made to
political parties during the financial year ended
30 September 2017.
In Australia, political expenditure for the financial year ended
30 September 2017 was $162,726. 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.
In New Zealand, political expenditure for the financial year
ended 30 September 2017 was NZD$2,756. In line with
Westpac policy, no cash donations were made to political
parties in New Zealand during the year.
our Westpac Group Environment Policy, which has
been in place since 1992;
our Sustainability Risk Management Framework;
our Responsible Sourcing Code of Conduct; 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 14,964GJ, carbon
savings of 2,858 tCO2e and cost savings of $791,544 per year.
38
2017 Westpac Group Annual Report
9. Directors’ meetings
Each Director attended the following meetings of the Board and Committees of the Board during the financial year ended
30 September 2017:
Notes
Board
Audit
Committee
Risk & Compliance
Committee
Nominations
Committee
Remuneration
Committee
Technology
Committee
Directors’ report
Number of meetings
held during the year
Director
Lindsay Maxsted
Brian Hartzer
Elizabeth Bryan
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
1
2
3
4
5
6
7
8
9
Peter Marriott
10
A
B
9
9
2
1
9
9
9
9
9
9
9
9
2
1
9
9
9
9
9
9
A
4
-
-
-
-
-
-
4
4
4
B
4
-
-
-
-
-
-
4
4
4
A
4
-
1
-
4
4
4
4
4
4
B
4
-
1
-
4
4
4
4
3
4
A
B
A
B
4
-
1
-
4
-
3
-
4
4
4
-
1
-
4
-
3
-
4
4
-
-
2
-
6
-
6
6
-
-
-
-
2
-
6
-
6
6
-
-
A
-
4
-
-
-
4
-
-
4
4
B
-
4
-
-
-
4
-
-
4
4
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
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 2016.
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 Elizabeth Bryan retired from the Board and its Committees on 9 December 2016.
4 Nerida Caesar was appointed as a Director on 1 September 2017. Member of the Board Risk & Compliance Committee and Board Technology
Committee from 28 September 2017.
5 Chairman of the Board Risk & Compliance Committee from 9 December 2016. Chairman of the Board Remuneration Committee, and member of the
Board Risk & Compliance Committee, until 9 December 2016. Member of the Board Nominations Committee and from 9 December 2016, a member
of the Board Remuneration Committee.
6 Member of the Board Risk & Compliance Committee and the Board Technology Committee.
7 Chairman of the Board Remuneration Committee from 9 December 2016. Member of the Board Remuneration Committee until 9 December 2016.
Member of the Board Risk & Compliance Committee, and from 9 December 2016, a member of the Board Nominations Committee.
8 Member of the Board Remuneration Committee, the Board Risk & Compliance Committee and the Board Audit Committee.
9 Chairman of the Board Technology Committee. Member of the Board Audit Committee, the Board Nominations Committee and the Board Risk &
Compliance Committee.
10 Chairman of the Board Audit Committee. Member of the Board Risk & Compliance Committee, the Board Technology Committee and the Board
Nominations Committee.
2017 Westpac Group Annual Report
39
1
10. Remuneration Report
Introduction from the Chairman of the Board Remuneration Committee
Dear Shareholder,
We are pleased to present Westpac’s 2017 Remuneration Report (Report).
The past year has seen significant developments in the banking industry relating to remuneration. The Banking Executive
Accountability Regime (BEAR) will be put before Parliament and the Retail Banking Remuneration Review commissioned by
the Australian Banker’s Association (known as the Sedgwick report) was released earlier this year.
A comprehensive review is being undertaken in anticipation of the enactment of the BEAR legislation to ensure that our CEO
and Group Executive remuneration framework and principles remain consistent with both the letter and spirit of legislative
developments. While this review is underway in 2018, the remuneration framework will remain unchanged and be consistent
with the 2017 structures outlined in this Report.
We are also committed to implementing fully the recommendations of the Sedgwick report, which we are addressing in a
phased manner over the next three years. To date we have made significant progress on implementing around three quarters
of the recommendations, with good progress made on implementation of the remaining recommendations as we develop
appropriate support systems, frameworks and metrics. For example, in November 2016 we removed all product-related
incentives from around 2,000 tellers in the Westpac branch network.
2017 Remuneration outcomes – the link to Group performance
Each year the Board assesses a number of factors when determining remuneration outcomes. In addition to the financial
results included in Short-term Incentive (STI) balanced scoreboards, 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 returns to shareholders.
In what continues to be a challenging and competitive business environment, the Group’s financial performance was sound.
There was moderate growth in cash earnings and earnings per share, with marginal declines in return on equity and economic
profit, as capital and funding positions were strengthened further to position the Group to meet APRA’s unquestionably strong
benchmark. Significant improvements were achieved in net promoter scores (NPS) for customers, with Westpac being rated
with the highest overall NPS among major Australian banks for the first time in September 2017; employee engagement scores
also increased significantly, with outcomes achieved above the high performing global norm. This year we also retained our
position as the most sustainable bank globally in the 2017 Dow Jones Sustainability Indices for the fourth year running.
STI outcomes
It is against these outcomes that the short and long-term incentives were determined. STI outcomes during the year for the
CEO and the Group Executive team averaged 109% of target, up by an average of 14% on last year, and were within a range
of 96% to 116%. Different incentive outcomes across the Group Executive team reflect the performance of each division and
the quality of the performance delivered by the accountable executive.
Long-term Incentive (LTI) outcomes
In 2017, the 2014 LTI reached its test date. As the minimum performance vesting thresholds were not met, none of the 2014
LTI will vest.
More specifically:
Westpac’s LTI plan Total Shareholder Return (TSR) over the last three years was 11.791%, which was below the 50th
percentile vesting threshold, so none of the 2014 TSR hurdled rights vested. This is the third consecutive year where the
TSR hurdle has not been met; and
Westpac’s Cash Earnings per Share (EPS) growth over the last three years was also below the vesting threshold of 15.8%
(5.0% compound annual growth), so none of the 2014 EPS hurdled rights vested.
40
2017 Westpac Group Annual Report
Directors’ report
Changes to Key Management Personnel in 2017
The appointment effective 1 October 2016 of Rebecca Lim as the Group General Counsel & Chief Compliance Officer1 and
Gary Thursby as Group Executive, Strategy & Enterprise Services was advised in last year’s Report, and their remuneration
details for the full 2017 period have been disclosed.
Philip Coffey retired during the year, after 21 years with Westpac.
This year we have made some minor changes to the way that we have presented the information in our Report, with the aim of
improving its format and layout.
We welcome your feedback as we continue to improve the disclosure of our remuneration policies, practices and outcomes.
Craig Dunn
Chairman – Board Remuneration Committee
1 Rebecca Lim’s title was amended to Group Executive, Compliance, Legal & Secretariat effective 2 October 2017.
2017 Westpac Group Annual Report
41
1
Topics covered in this Report
Section 1
List of 2017 Key Management Personnel
Section 2
Summary of 2017 CEO and Group Executive remuneration strategy and framework
Section 3
Summary of 2017 remuneration outcomes including:
remuneration paid and vested;
equity awarded;
LTI and STI outcomes; and
further details on the link to Group performance
Section 4
Further detail on 2017 executive remuneration structure
Section 5
Remuneration governance
Section 6
Non-executive Director remuneration structure
Section 7
Statutory remuneration disclosures including:
Non-executive Director remuneration;
CEO and Group Executive remuneration; and
additional statutory disclosures
Note: All references to Return on Equity (ROE) in this remuneration report are on a cash ROE basis. Refer to the
Glossary of abbreviations and defined terms for more detail.
42
2017 Westpac Group Annual Report
1. Key Management Personnel remuneration disclosed in this Report
The remuneration of Key Management Personnel (KMP) for the Group is disclosed in this Report. In 2017, KMP comprised
Non-executive Directors, the CEO and Group Executives who reported to the CEO.
Directors’ report
CEO and Group Executives
Name
Position
Managing Director & Chief Executive Officer
Brian Hartzer
Managing Director & Chief Executive Officer
Current Group Executives
Lyn Cobley
Chief Executive, Westpac Institutional Bank
Brad Cooper
Chief Executive Officer, BT Financial Group
Dave Curran
Chief Information Officer
George Frazis
Chief Executive, Consumer Bank
Alexandra Holcomb Chief Risk Officer
Peter King
Chief Financial Officer
Term as KMP
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Rebecca Lim
Group General Counsel & Chief Compliance Officer
Commenced 1 October 2016
David Lindberg
Chief Executive, Business Bank
David McLean
Chief Executive Officer, Westpac New Zealand Limited
Full Year
Full Year
Christine Parker
Group Executive, Human Resources, Corporate Affairs & Sustainability
Full Year
Gary Thursby
Group Executive, Strategy & Enterprise Services
Commenced 1 October 2016
Former Group Executive
Philip Coffey
Deputy Chief Executive Officer
Ceased role 31 May 2017
Non-executive Directors
Name
Current Non-executive Directors
Position
Lindsay Maxsted
Chairman
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Director
Director
Director
Director
Robert Elstone
Director
Peter Hawkins
Peter Marriott
Director
Director
Former Non-executive Director
Elizabeth Bryan
Director
Term as KMP
Full Year
Appointed 1 September 2017
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Retired 9 December 2016
2017 Westpac Group Annual Report
43
1
2. Summary of the 2017 CEO and Group Executive remuneration framework
Remuneration Principles
Westpac’s remuneration strategy is designed to attract and retain talented employees by rewarding them for achieving high
performance and delivering superior long term results for our customers and shareholders, while adhering to sound management
and governance principles and reflecting accountability.
The remuneration framework is designed to:
align remuneration with customer and shareholder interests;
support appropriate risk culture and employee conduct;
differentiate pay for behaviour and performance in line with our
provide market competitive and fair remuneration;
enable recruitment and retention of talented employees;
provide the ability to risk adjust remuneration; and
be simple, flexible and transparent.
strategy and vision;
Total Reward Framework
At Risk Remuneration (Variable Reward)
Target
pay mix
Purpose
Fixed Remuneration
Short-term Incentive (STI)
Cash STI
Deferred STI
Long-term Incentive (LTI)
34%
34%
32%
Provided to attract and retain
executives, and takes into
account the size and complexity
of the role, individual
responsibilities, experience and
skills.
Rewards financial and non-financial
performance consistent with the
Group’s strategy over the short to
medium term. The deferred
component provides:
alignment with shareholders over the
medium term; and
at risk pay with malus provisions.
Aligns executive accountability
and remuneration outcomes with
the delivery of sustained group
performance and shareholder
interests over the long term. The
LTI is also subject to adjustments
via malus provisions during the
performance period if required.
Delivery
Fixed remuneration comprises:
STI delivered as:
cash salary;
salary sacrificed items; and
superannuation contributions.
50% cash; and
50% restricted ordinary shares or
share rights (for Group Executives
outside Australia).
LTI comprises:
performance share rights which
may vest to varying degrees if
performance hurdles are achieved.
FY17
approach
Fixed remuneration is set with
reference to relevant market
benchmarks in the financial
services industry.
STI performance measures include
economic profit, earnings, risk,
strategic programs, customer
outcomes, people and sustainability.
The STI performance measures have
been selected to ensure focus in these
key areas.
LTI performance measures (50:50):
TSR is a comparative measure of
Westpac’s performance relative to
peers; and
ROE aims to reward achievement
of returns above the cost of capital
while generating shareholder value.
Performance, governance and risk-adjustment overlay
All performance is assessed by the Board with reference to Group and divisional risk management policies. The Board retains the
ultimate discretion to adjust remuneration outcomes and/or unvested variable reward (including to zero). This applies to equity granted
under both the deferred STI and LTI plans if information comes to light that all or part of the award was not justified (malus).
Timeline of potential 2017 remuneration
FY17
FY18
FY19
FY20
Fixed
remuneration
Base salary
Cash STI (50%)
STI
Deferred STI (25%)
Deferred STI (25%)
LTI subject to Relative TSR performance (50%) – measured over 4 years
LTI
LTI subject to ROE performance (50%) – measured over 3 years
+1 year holding
All equity based
remuneration is
subject to:
reduction via malus (if
required); and
potential further
restrictions to ensure
minimum shareholder
requirements are met.
Date paid
Date earned
Date granted
Vesting date
44
2017 Westpac Group Annual Report
Directors’ report
3. Summary of remuneration outcomes
Executive KMP remuneration – paid and vested in 20171
3.1.
The following table shows the actual remuneration paid or vested to each executive KMP in 2017 compared to 2016
(unaudited) and includes:
fixed remuneration earned during the year;
cash STI awarded and paid in respect of the 2017 and 2016 performance years;
deferred STI amounts awarded in prior years that vested at the end of 2017 and 2016 respectively; and
LTI originally granted in 2014 and 2013 that vested or was forfeited at the end of 2017 and 2016 respectively.
This table shows actual remuneration paid, vested or forfeited while Section 7 represents outcomes prepared in accordance
with Australian Accounting Standards (AAS).
Fixed
Remuneration
$
Name
Managing Director & Chief Executive Officer
Brian Hartzer
2017
2016
2,686,000
2,686,000
1,490,730
1,302,710
1,280,114
949,349
Cash STI
awarded
and paid
$
Prior year
Deferred STI
vested
$
Prior year LTI
vested2
$
Total realised
remuneration
$
Prior year LTI
forfeited2
$
Current Group Executives
Lyn Cobley, Chief Executive, Westpac Institutional Bank
2017
2016
1,122,000
1,122,000
640,000
492,500
Brad Cooper, Chief Executive Officer, BT Financial Group
2017
2016
1,102,517
1,102,517
792,500
735,000
Dave Curran, Chief Information Officer
2017
2016
952,000
952,000
George Frazis, Chief Executive, Consumer Bank
2017
2016
1,150,000
1,150,000
Alexandra Holcomb, Chief Risk Officer
2017
2016
1,003,000
1,003,000
Peter King, Chief Financial Officer
2017
2016
1,088,000
1,088,000
552,500
467,500
872,500
815,000
532,500
492,500
615,000
545,000
Rebecca Lim, Group General Counsel & Chief Compliance Officer
2017
2016
750,000
412,500
244,864
-
779,625
733,887
510,291
258,810
876,225
798,746
498,536
400,492
536,202
410,367
248,227
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,456,844
4,938,059
3,046,592
2,610,944
2,006,864
1,614,500
2,674,642
2,571,404
2,014,791
1,678,310
2,898,725
2,763,746
2,034,036
1,895,992
2,239,202
2,043,367
-
-
2,206,129
1,350,495
-
-
1,155,565
990,344
772,487
450,134
1,132,480
270,075
1,410,727
388,674
---------------------------------------------------------------------Not a KMP in 2016-----------------------------------------------------------------------
David Lindberg, Chief Executive, Business Bank
2017
2016
952,000
901,000
532,500
477,500
David McLean, Chief Executive Officer, Westpac New Zealand Limited
864,889
2017
854,565
2016
412,570
363,050
419,808
314,033
430,410
285,422
-
-
-
-
1,904,308
1,692,533
1,707,869
1,503,037
709,083
405,142
-
-
2017 Westpac Group Annual Report
45
1
Fixed
Remuneration
$
Cash STI
awarded
and paid
$
Prior year
Deferred STI
vested
$
Name
Current Group Executives (cont.)
Christine Parker, Group Executive, Human Resources, Corporate Affairs & Sustainability
2017
2016
481,816
457,952
517,500
450,000
850,000
850,000
Gary Thursby, Group Executive, Strategy & Enterprise Services
485,000
2017
2016
840,000
371,764
Prior year LTI
vested2
$
Total realised
remuneration
$
Prior year LTI
forfeited2
$
-
-
-
1,849,316
1,757,952
1,365,665
630,225
1,696,764
409,680
---------------------------------------------------------------------Not a KMP in 2016-----------------------------------------------------------------------
Former Group Executive
Philip Coffey, Deputy Chief Executive Officer3
2017
2016
908,741
1,363,112
457,500
597,500
669,828
694,327
-
-
2,036,069
2,654,939
2,237,655
1,530,554
1
We have adopted a new approach for this table regarding equity disclosures, where we show equity that vests at the end of the performance year as
being part of the remuneration for that performance year (i.e. the 1 October 2017 vesting of deferred STI and LTI is one day after the completion of
the 2017 performance year and is shown as vested or forfeited against 2017 in the table below). This is different from the approach adopted in prior
years, where equity was disclosed as being part of remuneration in the year in which it vested or was forfeited.
2
The value shown is calculated by multiplying the number of equity instruments by the closing share price on the date of vesting or forfeiture.
3
See Section 1 for details.
Summary of Group LTI vesting outcomes
The vesting outcomes for LTI awards to the CEO (CEO LTI Plan) and Group Executives (Westpac LTI Plan) that reached the
completion of the performance period in 2017 and 2016 appear below:
Performance
measure
Performance
start date
2014
LTI
grant
2013
LTI
grant
TSR
(50% of award)
EPS
(50% of award)
TSR
(50% of award)
EPS
(50% of award)
1 October 2014
1 October 2014
1 October 2013
1 October 2013
Test date
1 October
2017
1 October
2017
1 October
2016
1 October
2016
Performance range
Threshold
50th percentile
Maximum
75th
percentile
5.0% CAGR
7.0% CAGR
50th percentile
75th
percentile
4.0% CAGR
6.0% CAGR
Outcome
20th
percentile
(0.8%)
CAGR
20th
percentile
1.10%
CAGR
%
Vested
%
Lapsed
0%
100%
0%
100%
0%
100%
0%
100%
Other equity that vested during 2017
Lyn Cobley had 16,696 restricted shares which vested in July 2017 which were allocated in respect of equity forfeited from her
previous employer on joining Westpac.
46
2017 Westpac Group Annual Report
Directors’ report
Executive KMP remuneration – equity awarded in 2017
3.2.
The following table shows the fair value of equity awarded in 2017 and 2016 (unaudited) which is due to vest in future years,
subject to performance hurdles, tenure and malus conditions as applicable including:
deferred STI awards, being restricted shares valued as 50% of the STI allocated in the year divided by the 5 day volume
weighted average price (VWAP)1 to date of grant; and
LTI awards, showing fair value of share rights granted in the year, where fair value is 40% of face value at date of grant for
the 2017 award, and 41.5%2 of face value at the date of grant for the 2016 award. LTI share rights are subject to
performance conditions – see Section 4.3 for more detail.
The final value of equity that vests will depend on the proportion of shares or share rights that vest and the share price at the
time of vesting. The values differ from those in Section 7 which represent outcomes prepared in accordance with AAS.
This table can be read in conjunction with table 7.3 which shows the number of securities granted in 2017.
Name
Managing Director & Chief Executive Officer
Brian Hartzer3
Group Executives
Lyn Cobley
Chief Executive, Westpac Institutional Bank
Brad Cooper
Chief Executive Officer, BT Financial Group
Dave Curran
Chief Information Officer
George Frazis
Chief Executive, Consumer Bank
Alexandra Holcomb
Chief Risk Officer
Peter King
Chief Financial Officer
Rebecca Lim
Group General Counsel & Chief Compliance 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
Gary Thursby
Group Executive, Strategy & Enterprise Services
Deferred STI
$
LTI (Fair value)
$
1,490,730
1,302,710
640,000
492,500
792,500
735,000
552,500
467,500
872,500
815,000
532,500
492,500
615,000
545,000
2,528,000
2,528,000
1,056,000
1,056,000
1,050,000
1,050,000
896,000
896,000
1,000,000
1,000,000
944,000
944,000
1,024,000
1,024,000
412,500
700,000
----------------- Not a KMP in 2016 --------------
532,500
477,500
412,570
363,050
517,500
450,000
912,000
848,000
810,138
804,296
750,000
750,000
485,000
700,000
----------------- Not a KMP in 2016 --------------
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Former Group Executive
Philip Coffey4
Deputy Chief Executive Officer
1
The 2017 award 5 day VWAP was $29.87, and the 2016 award 5 day VWAP was $29.87.
2
The fair value of 2016 TSR and EPS rights was 40% and 43% respectively.
3
The 2016 LTI opportunity for Brian Hartzer does not include the part year award for 2015 following his appointment as CEO that was awarded at the
1,280,000
1,280,000
457,500
597,500
2017
2016
same time as the 2016 LTI award.
4
See Section 1 for details.
2017 Westpac Group Annual Report
47
1
Summary of 2017 STI outcomes - How Group performance impacted CEO and Group Executive STI outcomes
3.3.
STI scoreboard targets provide the basis of short term variable reward and communicate the areas of focus for the year, which
includes the management of risk and demonstrating behaviours which are aligned to the Group values.
Application of discretion
The Board and the Remuneration Committee recognise that the scoreboard approach, while embracing a number of
complementary performance objectives, may not always enable a complete assessment of overall performance. The Board and
Remuneration Committee may therefore make discretionary adjustments, positive and negative, to the scoreboard outcomes
for the CEO and Group Executives. The Board and Remuneration Committee use 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 including its composition and sustainability;
whether there have been major positive or negative aspects regarding the quality of leadership and/or behaviours
consistent with our values; and
any other relevant under or over performance or other matter not captured.
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.
Group balanced scoreboard – CEO performance objectives
The structure of the Group balanced scoreboard (which forms the CEO scoreboard), performance measures, weightings,
assessment and the resulting STI outcomes are detailed in the following tables. The Group balanced scoreboard is also used in
part for the Group Executive STI outcomes, in combination with individual scoreboard measures which contribute to
determining the overall Group outcome.
The STI outcomes for individual executives have been determined using both quantitative and qualitative inputs including: the
overall Group performance relative to the external competitive environment, individual performance against stretching targets,
and judgement of individual’s capability and contribution to the Group relative to peer executives including demonstrated
leadership behaviours.
48
2017 Westpac Group Annual Report
Group balanced scoreboard – CEO performance objectives (cont.)
Measure
Weighting Assessment Considerations
Directors’ report
Economic profit
Delivering
underlying returns
that create value
for shareholders
Core earnings
growth
Delivering
consistent and
sustainable
growth in core
earnings
Capital
management
Providing a
strong, stable and
sustainable capital
base on which to
grow the business
Adherence to
Group Risk
Appetite
Statement
Ensuring we
operate within
accepted risk
tolerances
s
e
n
i
l
p
i
c
s
i
d
e
c
n
a
m
r
o
f
r
e
P
revolution
Putting customers
at the centre of
everything we do
Service
e
g
n
a
h
c
c
i
g
e
t
a
r
t
s
g
n
v
i
i
r
D
30%
TARGET
MAX
10%
TARGET
MAX
10%
TARGET
MAX
10%
TARGET
MAX
10%
TARGET
MAX
Delivered economic profit of $3,774 million with ROE at 13.8%
within the 13-14% range we are seeking to achieve. Cash
earnings growth of 3% was offset by a 5% increase in capital
charge as we boosted capital levels in preparation for APRA
‘unquestionably strong’ capital requirements.
The Group prioritised return over growth, and capital
requirements were managed actively with credit risk weighted
assets down 3%.
Increased 1%.
Revenues grew 2% supported by a 5% lending growth and 4%
deposit growth partly offset by 4bps margin compression.
Expenses rose just below 2% with productivity largely offsetting
operating costs, with the increase due to investment and higher
regulatory and compliance costs.
Capital and liquidity positions are well placed to meet new
regulatory requirements.
Common equity tier 1 ratio of 10.6% was over a full percentage
point higher over the year. Ended the year above the
‘unquestionably strong’ capital requirement set by APRA which
does not come into effect until 2020.
The Group is well placed for the introduction of the Net Stable
Funding Ratio from 1 January 2018, with the
30 September 2017 ratio at 109%.
The external risk, regulatory and compliance environment
continues to be increasingly complex and challenging. Overall
we have remained within the Group Risk Appetite.
Financial risk classes have been managed well including
capital, funding and credit risk. We have continued to tighten
underwriting standards in the residential and commercial
property portfolios.
Improvements have been made to the control environment
across fraud, financial crime and conduct risk. Responsible
lending, financial advice and sales practices have been a key
focus, with management accelerating the pace of customer
remediation programs. We have also made provisions for
customer refunds and payments where we’ve identified
instances where we need to take action so that our customers
are not at a disadvantage from certain past practices. Ongoing
programs of work are underway to address and enhance
management of system and data related risks.
Finished the year as No 1 in the Australian ranking for both
consumer and business Net Promoter Score (Roy Morgan);
with Westpac finishing the year ranked No 2 for Customer
Satisfaction in the DBM survey.
Complaints reduced by 18%.
Continued to roll out multiple technology innovations to
customers, including Panorama (our wealth management
platform), e-conveyancing, Corporate Lending portal and faster
on-boarding, Collections web portal, LOLA (our Live Online
Lending Application), and numerous feature and useability
enhancements for mobile banking across all brands.
2017 Westpac Group Annual Report
49
1
Measure
Weighting Assessment Considerations
10%
TARGET
MAX
10%
TARGET
MAX
Service
revolution (cont.)
Building growth
highways
Securing future
growth in earnings
Digital
transformation
Delivering
solutions that
anticipate the
needs and
expectations of
our customers
)
.
t
n
o
c
(
e
g
n
a
h
c
c
g
e
t
a
r
t
s
g
n
i
v
i
r
D
i
Continued to receive external recognition with some of the
awards won this year being: Retail Financial Institution of the
year, Best Private Bank in Australia, Best use of technology in
Private Banking/Wealth Management, and Best Digital Bank
(NZ).
Grew ahead of expectations on deposits and SME lending and
in target segments of health and professional services.
In Wealth maintained a market share of #1 on all retail
platforms with positive net flows in funds under administration.
Delivered $262 million in productivity savings, through digitising
activities and transactions, reducing manual activity and
increasing eStatements.
Good progress on a number of major investments - Customer
Service Hub, launched a Big Data platform and installed a new
call centre platform. Major milestones included implementation
of the Oracle Banking platform and Group Customer Master
within the Westpac Technology environment.
All programs on track, delivering committed milestones and
outcomes.
Continued our focus on using technology to drive
transformation. We have used process automation and
simplification initiatives across ~500 processes and the
management of ~32 million customer activities annually.
Upgraded our Cybersecurity Coordination Centre (further
improving our ability to detect and respond to global threats
24x7).
Installed new call centre infrastructure that will materially
improve the experience of calling Westpac as well as providing
the foundation for a range of new customer service initiatives.
10%
TARGET
MAX
People and
sustainability
Providing an
environment that
encourages our
employees to be
the best they can
be and drives the
right behaviours
l
e
p
o
e
P
We were awarded the Dow Jones Sustainability Index’s most
sustainable bank for 4th year in a row, with our highest score
ever achieved of 94 out of 100 points.
Achieved our target of 50% of women in leadership roles.
Group employee engagement was 79%, 2% above the Global
High Performing Norm, with employee pride in the organisation
increasing 11 points to 91%.
Strengthened our incident management and whistleblowing
processes to help our employees ‘feel safe to speak up’ (latest
employee survey result being 80% and above the Global High
Performing Norm of 79%).
Our Health, Safety and Wellbeing metrics continue to be market
leading with Lost Time Injury Frequency rates of 0.65 relative to
a target of 0.75 and our same day incident reporting exceeding
90%.
CEO STI outcome for 2017
The CEO outcome for 2017 was determined by the Board with reference to the Group balanced scoreboard outcome and the
principles of discretion detailed overleaf.
Name and position title
Brian Hartzer
Managing Director & Chief Executive Officer
Target STI
STI outcome
% of target
STI outcome
% of max
Actual Cash
STI
(50%)
Actual Deferred
STI
(50%)
$2,686,000
111%
74%
$1,490,730
$1,490,730
50
2017 Westpac Group Annual Report
Individual Group Executive STI outcomes for 2017
Directors’ report
Name and position title
Current Group Executives
Lyn Cobley
Chief Executive, Westpac Institutional Bank
Brad Cooper
Chief Executive Officer, BT Financial Group
Dave Curran
Chief Information Officer
George Frazis
Chief Executive, Consumer Bank
Alexandra Holcomb
Chief Risk Officer
Peter King
Chief Financial Officer
Rebecca Lim
Group General Counsel & Chief Compliance
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
Gary Thursby
Group Executive, Strategy & Enterprise
Services
Former Group Executive
Philip Coffey1
Deputy Chief Executive Officer
1
See Section 1 for details.
Target STI
STI outcome %
of target
STI outcome
% of max
Actual Cash
STI
(50%)
Actual
Deferred STI
(50%)
$1,122,000
114%
76%
$640,000
$640,000
$1,600,000
99%
66%
$792,500
$792,500
$952,000
116%
77%
$552,500
$552,500
$1,600,000
109%
73%
$872,500
$872,500
$1,003,000
106%
71%
$532,500
$532,500
$1,088,000
113%
75%
$615,000
$615,000
$750,000
110%
73%
$412,500
$412,500
$969,000
110%
73%
$532,500
$532,500
$860,772
96%
64%
$412,570
$412,570
$900,000
115%
77%
$517,500
$517,500
$860,000
113%
75%
$485,000
$485,000
$906,667
101%
67%
$457,500
$457,500
Group financial performance – five year perspective
3.4.
The following table provides the Group’s economic profit, ROE, TSR, dividends per share, cash earnings per share and share
price performance each year from 2013 for the past five years including 2017 and the STI outcomes for the CEO over the same
period:
CEO STI outcome (% target)
Economic profit ($m)
ROE
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
Years Ended 30 September
2017
111%
3,774
13.77%
11.79%
81.32%
188
$2.40
$35.39
$28.92
$31.92
2016
97%
3,774
14.00%
15.24%
100.72%
188
$2.35
$33.74
$27.57
$29.51
2015
108%
4,418
15.80%
62.30%
92.78%
187
$2.48
$40.07
$29.10
$29.70
2014
127%
4,491
16.40%
102.03%
103.74%
182
$2.45
$35.99
$30.00
$32.14
2013
123%
4,068
15.90%
66.09%
90.91%
174
$2.28
$34.79
$24.23
$32.73
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.
2017 Westpac Group Annual Report
51
1
4. Further detail on 2017 executive remuneration structure
Fixed remuneration
4.1.
Fixed remuneration takes into account the size and complexity of the role, individual responsibilities, experience and skills.
Fixed remuneration is set based on relevant market benchmarks within the financial services industry.
Short-term incentive
4.2.
STI provides the opportunity for participants to earn cash and deferred equity incentives where specific outcomes have been
achieved in the financial year. The STI outcomes for 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.
Plan structure 50% cash, 50% deferred equity in the form of restricted ordinary shares (or share rights for Group
2017 STI Plan
Target
opportunity
Maximum
opportunity
Performance
conditions
Executives based outside of Australia).
The equity portion of the STI award vests over the following schedule: 50% at the end of year 1, and 50% at
the end of year 2.
The CEO’s STI target for 2017 was $2,686,000, unchanged from 2016.
STI targets for the CEO and 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 2017 performance year did not increase
for those Group Executives whose fixed remuneration was unchanged in 2017.
The maximum STI opportunity is 150% of target (the minimum opportunity being nil).
Performance is measured against risk-adjusted financial targets and non-financial targets which support the
Group’s strategy. Performance measures are based on performance at Group, divisional and individual
level. The deferred STI awards recognise past performance and are not subject to further performance
hurdles (other than continued service) and receive dividends over the vesting period.
See Section 3.3 for the Group balanced scoreboard.
Assessment of
performance
outcomes
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 Board has the capacity to adjust
STI outcomes (and reduce STI outcomes to zero if appropriate) in the assessment process.
Long-term incentive
4.3.
The 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.
LTI structure 2017 (awarded at the beginning of the 2017 performance year)
CEO LTI Plan and Westpac LTI Plan
Equity
instrument
LTI award
opportunity
Determining
the number of
securities
Performance share rights - One share right entitles the holder to one ordinary share at the time of vesting at
a nil exercise cost. Share rights do not attract the payment of dividends.
The CEO was granted an LTI award of $2,528,000 (at fair value) in the form of share rights for 2017 under
the CEO LTI Plan.
At the beginning of each year, the Board, advised by the Remuneration Committee, sets the dollar value of
the LTI award target for the CEO and each Group Executive.
The number of share rights each individual receives is determined by dividing the dollar value of the LTI
award by the fair value of the share rights at the beginning of the performance assessment period
(performance period).
The fair value of share rights is determined by an independent valuer taking as a starting point the market
price of Westpac shares at grant and using 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 Remuneration Committee caps the valuation
at a maximum discount of 60% of the relevant share price. The value of a TSR hurdled share right may be
different to an ROE hurdled share right.
52
2017 Westpac Group Annual Report
Performance
hurdles
Directors’ report
CEO LTI Plan and Westpac LTI Plan
2017 LTI (Awarded in December 2016)
TSR
50% of the allocation
ROE
50% of the allocation
The TSR performance hurdle measures Westpac’s
TSR against a composite TSR index over the four
year performance period, providing an arms-length
assessment of our comparative performance against
peers.
At the end of the performance period, TSR
performance of each of the index companies will be
multiplied by its index TSR weighting, and the total of
the 10 scores will comprise the composite index
performance measure.
Performance levels required for vesting of TSR share
rights are detailed in the table below:
TSR performance
(2017 to 2020 inclusive)
At or exceeding the index
growth by 21.551
Between meeting index and
exceeding the index growth
by 21.55
Equal to index
Below index
% vesting
100%
Straight line
vesting
50%
0%
1 21.55 (5% average compound annual growth rate)
The companies in the 2017 peer group for the
Westpac LTI Plan and their relative weightings are:
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.
The ROE performance hurdle measures the
average cash return on average ordinary equity
over the three year performance period.
ROE rights which satisfy the ROE 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.
Performance levels required for vesting of ROE
share rights are detailed in the table below:
ROE performance
(2017 to 2019 inclusive)
At or above 14.5%
Between 13.5% and 14.5%
Equal to 13.5%
Below 13.5%
% vesting
100%
Straight line
vesting
50%
0%
For the 2017 grant, the share rights will be tested
against the performance hurdles on
30 September 2019. Share rights that qualify for
vesting will have a one year holding lock applied
and will vest on 30 September 2020.
Company
ANZ Banking Group
Commonwealth Bank
National Australia Bank
AMP
Bank of Queensland
Bendigo and Adelaide Bank
Challenger
Macquarie Group
Perpetual
Suncorp Group
TSR weighting
16.67%
16.67%
16.67%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
Who
measures the
performance
hurdle
outcomes?
For the 2017 grant, the TSR share rights will be
tested against the performance hurdle on 30
September 2020.
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 ROE outcome will be determined by the Board
based on the ROE 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.
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.
2017 Westpac Group Annual Report
53
1
Early vesting
is possible in
limited cases
Treatment of
securities
CEO LTI Plan and Westpac LTI Plan
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.
The Board has discretion in relation to performance share rights where the CEO or a Group 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.
Details for other LTI awards currently on foot (CEO and Group Executives) can be found in the following Reports:
2015 LTI award, vesting on 30 September 2018 – 50% of award subject to ranked TSR performance against a peer group,
and 50% of the award subject to cash EPS CAGR performance condition. Refer to the 2015 Annual Report; and
2016 LTI award, vesting on 30 September 2019 – 50% of award subject to TSR performance against a weighted
composite index of comparator companies, and 50% of the award subject to cash EPS CAGR performance condition.
Refer to the 2016 Annual Report.
LTI structure 2018 (awarded at the beginning of 2018 performance year)
The LTI structure for the 2018 award will retain the same design features as the 2017 award.
The TSR hurdle, as detailed above, will remain unchanged in 2018.
The performance range for the ROE component of the 2018 LTI has been set at an average ROE of between 13.25% and
14.25%. The range is 25 basis points lower than the 2017 LTI ROE target as it reflects updated information on regulatory
capital requirements, and the likely prospects of a more competitive business environment and higher impairment charges. The
ROE target range also takes into account the Group’s risk appetite whilst incentivising the delivery of stretching performance
outcomes.
The Board retains ultimate discretion to ensure that vesting outcomes deliver alignment between performance and shareholder
outcomes.
54
2017 Westpac Group Annual Report
Directors’ report
Shareholding requirements and hedging policy
4.4.
To align further 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.
CEO
Five times annual fixed remuneration ($13.43 million)
Group Executives
$1.2 million each
Minimum shareholding requirement
All Group Executives who have been in a Group Executive role for more than five years meet these shareholding requirements.
Executives that have been in Group Executive roles for less than five years are working towards, or have already satisfied,
these requirements.
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.
Employment agreements
4.5.
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 FY17 Executive KMP are summarised below:
Term
Who
Duration of agreement
CEO and all Group Executives
Notice to be provided by the
executive or the Group to terminate
the employment agreement
CEO and Group Executives
(excluding Philip Coffey)
Philip Coffey
Termination payments to be made
on termination without cause2
CEO and all Group Executives
Termination for cause
CEO and Group Executives
(excluding Brad Cooper and Philip
Coffey)
Brad Cooper and Philip Coffey
Conditions
Ongoing until notice given by either
party
12 months1
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
Post-employment restraints
1
Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period.
2
The maximum liability for termination benefits for the CEO and other Executive KMP at 30 September 2017 was $13.4 million (2016: $13 million).
12 month non-solicitation restraint
CEO and all Group Executives
2017 Westpac Group Annual Report
55
1
5. Remuneration governance
The Group’s remuneration policy supports Westpac’s vision and strategy by:
requiring the design and management of remuneration to align with customer and shareholder interests;
supporting financial soundness; and
encouraging prudent risk management.
The role of the Board is to provide strategic guidance for the Group and effective oversight of management. As part of this role,
the Board has overall accountability for remuneration.
The Remuneration Committee assists the Board to fulfil its remuneration responsibilities to shareholders by monitoring 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. The Charter was last reviewed and amended in
March 2016.
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 law and high standards of governance. The performance
of each division is reviewed and measured with reference to how risk is managed and the results influence remuneration
outcomes for accountable employees.
In carrying out its duties, the Remuneration Committee can access risk and financial control personnel and engage external
advisors who are independent of management. The Chairman of the Board Risk & Compliance Committee is also a member of
the Remuneration Committee, and members of the Remuneration Committee are also members of the Board Risk &
Compliance Committee.
The executive Total Reward framework (outlined in Section 2 of this Report) specifically includes features to take account of
risk.
Members of the Remuneration Committee during 2017
All members of the Remuneration Committee are independent Non-executive Directors. During 2017, the members were:
Craig Dunn (Chairman from 9 December 2016);
Ewen Crouch (Chairman to 9 December 2016);
Elizabeth Bryan (retired on 9 December 2016); and
Robert Elstone.
Independent remuneration consultant
In 2017, the Board retained Guerdon Associates as its independent consultant to provide specialist information on executive
remuneration and other remuneration matters, the services being 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 2017 included the provision of information relating to the benchmarking of
Non-executive Director, CEO and Group Executive remuneration. No remuneration recommendations, as prescribed under the
Corporations Act, were made by Guerdon Associates in 2017.
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.
56
2017 Westpac Group Annual Report
Directors’ report
6. Non-executive Director remuneration
Structure and policy
6.1.
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.
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. Non-executive Director remuneration consists of the following components:
Remuneration Component
Paid as
Detail
Base fee
Cash
Committee fees
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 and are
paid by the relevant subsidiary.
Non-executive Director remuneration in 2017
Non-executive Director fee review – Effective 1 October 2016
The Board reviewed the Non-executive Director fee framework in late 2016. On the basis of market data provided by Guerdon
Associates, the Board approved an increase to the member fees for the Board Technology Committee recognising the
workload associated with these roles.
Changes to Board and Committee composition
The following changes were made to Board and Committee composition:
Elizabeth Bryan retired on 9 December 2016 following the 2016 Annual General Meeting;
Ewen Crouch was appointed Chairman of the Board Risk & Compliance Committee effective 9 December 2016 stepping
down as Chairman of the Board Remuneration Committee on the same date (remaining a member of that Committee);
Craig Dunn was appointed as Chairman of the Board Remuneration Committee and member of the Board Nominations
Committee effective 9 December 2016; and
Nerida Caesar was appointed as a Non-executive Director to the Westpac Board effective 1 September 2017 and
appointed to the Board Risk & Compliance and Board Technology Committees effective 28 September 2017.
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 2017, $2.94 million (65%) of this fee pool was used. The fee pool is inclusive of employer
superannuation contributions.
2017 Westpac Group Annual Report
57
1
Fee framework
This section details the current Non-executive Director fee framework.
Base and Committee fees
The following table sets out the Board and standing Committee fees:
Base Fee
Chairman
Non-executive Directors
Committee Chairman Fees
Audit Committee
Risk and Compliance Committee
Remuneration Committee
Technology Committee
Committee Membership Fees
Audit Committee
Risk and 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
20,000
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 superannuation maximum compulsory contributions base prescribed under the Superannuation Guarantee
legislation.
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.
Minimum shareholding
Non-executive Directors are required to build and maintain their individual holdings of Westpac ordinary shares to align their
interests with the long-term interests of shareholders. The Board Chair and each Non-executive Director are required to hold an
interest in shares in Westpac with a market value not less than the Board base fee within five years of appointment to the
Board. Details of Non-executive Directors’ Westpac (and related bodies corporate) shareholdings are set out in Section 7.4.
58
2017 Westpac Group Annual Report
7. Statutory remuneration details
Details of Non-executive Director remuneration
7.1.
Details of Non-executive Director remuneration are set out in the table below:
Directors’ report
Name
Current Non-executive Directors
Lindsay Maxsted, Chairman
2017
2016
Nerida Caesar2
2017
Ewen Crouch
2017
2016
Alison Deans
2017
2016
Craig Dunn
2017
2016
Robert Elstone
2017
2016
Peter Hawkins
2017
2016
Peter Marriott
2017
2016
Former Non-executive Director
Elizabeth Bryan2
2017
2016
Total fees
2017
20163
1
Short-Term Benefits
Post-Employment Benefits
Westpac Banking
Corporation Board
Fees1
$
Subsidiary and
Advisory Board Fees
$
Superannuation
$
810,000
810,000
18,921
323,719
320,800
277,000
273,000
314,221
286,000
318,000
318,000
324,200
324,200
347,400
343,400
62,214
324,400
-
-
-
-
-
-
-
-
-
-
-
35,000
35,000
-
-
-
-
2,795,675
2,999,800
35,000
35,000
19,734
19,540
1,619
19,734
19,540
19,734
19,540
19,734
19,540
19,734
19,540
19,658
19,465
19,734
19,540
3,709
19,540
143,390
156,245
Total
$
829,734
829,540
20,540
343,453
340,340
296,734
292,540
333,955
305,540
337,734
337,540
378,858
378,665
367,134
362,940
65,923
343,940
2,974,065
3,191,045
Includes fee paid to the Chairman and members of Board Committees.
2
Refer to Section 1 of the Report for details.
3
The total fees for 2016 reflect the prior year remuneration for the 2016 reported Non-executive Directors.
2017 Westpac Group Annual Report
59
1
Remuneration details – CEO and Group Executives
7.2.
This section sets out details of remuneration for the CEO and Group Executives for the 2017 financial year, calculated in
accordance with AAS.
Post-
Employment
Benefits
Superann-
uation
Benefits5
$
Other
Long-
Term
Benefits
Long
Service
Leave
$
Other
Short-Term
Benefits4
$
Share-Based Payments
Restricted
Shares6
$
Share
Rights78
$
Total9
$
Short-Term Benefits
Fixed
Remu-
neration1
$
STI (Cash)2
$
Name
Managing Director & Chief Executive Officer
Brian Hartzer
2017
2016
1,490,730
1,302,710
2,665,249
2,774,879
Non-
Monetary
Benefits3
$
19,494
21,349
Current Group Executives
Lyn Cobley, Chief Executive, Westpac Institutional Bank
2017
2016
1,089,650
1,097,409
640,000
492,500
4,014
1,850
Brad Cooper, Chief Executive Officer, BT Financial Group
2,924
2017
4,089
2016
1,064,384
1,060,435
792,500
735,000
Dave Curran, Chief Information Officer
2017
2016
941,632
914,905
552,500
467,500
George Frazis, Chief Executive, Consumer Bank
2017
2016
1,127,559
1,131,541
872,500
815,000
Alexandra Holcomb, Chief Risk Officer
2017
2016
950,564
949,671
532,500
492,500
Peter King, Chief Financial Officer
2017
2016
1,047,360
1,041,344
615,000
545,000
4,014
4,089
4,014
3,039
2,924
3,039
4,014
4,089
Rebecca Lim, Group General Counsel & Chief Compliance Officer
2017
412,500
756,722
3,512
David Lindberg, Chief Executive, Business Bank
928,528
2017
880,296
2016
532,500
477,500
11,901
17,070
David McLean, Chief Executive Officer, Westpac New Zealand Limited
2017
2016
412,570
363,050
736,628
760,848
39,739
33,753
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
41,226
36,522
40,697
40,722
1,287,590
1,128,139
1,136,724
1,447,696
6,681,710
6,752,017
37,818
27,480
16,995
17,005
767,014
977,182
591,601
307,514
3,147,092
2,920,940
39,503
36,727
(41,160)
16,730
754,634
831,388
347,391
800,145
2,960,176
3,484,514
28,451
25,921
14,424
14,424
487,089
428,244
404,406
461,898
2,432,516
2,316,981
40,509
37,090
17,419
17,451
842,782
925,520
401,563
591,094
3,306,346
3,520,735
39,645
36,936
4,669
16,199
520,145
587,415
386,131
566,909
2,436,578
2,652,669
34,421
31,072
16,485
48,728
537,796
499,345
405,875
661,789
2,660,951
2,831,367
28,201
45,641
425,776
206,069
1,878,421
27,244
23,103
18,507
15,069
453,174
403,624
398,655
464,140
2,370,509
2,280,802
76,082
76,093
-
-
39
14,322
837,360
932,957
2,102,418
2,181,023
Christine Parker, Group Executive, Human Resources, Corporate Affairs & Sustainability
2017
2016
517,500
450,000
824,006
849,556
4,604
4,650
26,643
24,279
-
-
(3,479)
(5,013)
464,335
518,374
260,141
558,680
2,093,750
2,400,526
Gary Thursby, Group Executive, Strategy & Enterprise Services
2017
485,000
820,262
2,924
Former Group Executive
Philip Coffey, Deputy Chief Executive Officer10
844,753
2017
1,289,796
2016
457,500
597,500
3,053
4,105
-
-
-
29,819
12,642
372,119
225,354
1,948,120
28,654
41,497
13,750
20,678
780,444
766,988
2,811,904
913,187
4,940,058
3,633,751
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
2017 STI figures reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2017. STI awards are
paid in the December pay cycle.
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.
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 2017 reporting
year (and 2016 year as comparison). See footnote 10 for the treatment of Philip Coffey’s equity.
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2017 Westpac Group Annual Report
Directors’ report
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 2017. Details of prior years’ grants have
been disclosed in previous Annual Reports. The value for David McLean includes 53% attributed to deferred STI. See footnote 10 for the treatment of
Philip Coffey’s equity.
8
The expensed value of the December 2015 LTI EPS hurdled rights has been reduced to 0% and the expensed value of the December 2016 LTI EPS
hurdled rights and 2017 LTI ROE hurdled rights have been reduced to 50%. This reflects the Board’s current assessment of the probability of the
threshold ROE (2017 grant) or EPS hurdles (2015 and 2016 grants) being met and share rights vesting over time. See footnote 10 for the treatment
of Philip Coffey’s equity.
9
The percentage of the total remuneration which is performance related (i.e. STI cash plus share-based payments) was: Brian Hartzer 59%,
Lyn Cobley 64%, Philip Coffey 82%, Brad Cooper 64%, Dave Curran 59%, George Frazis 64%, Alexandra Holcomb 59%, Peter King 59%,
Rebecca Lim 56%, David Lindberg 58%, David McLean 59%, Christine Parker 59% and Gary Thursby 56%. The percentage of total remuneration
delivered in the form of options (including share rights) was: Brian Hartzer 17%, Lyn Cobley 19%, Philip Coffey 57%, Brad Cooper 12%,
Dave Curran 17%, George Frazis 12%, Alexandra Holcomb 16%, Peter King 15%, Rebecca Lim 11%, David Lindberg 17%, David McLean 40%,
Christine Parker 12% and Gary Thursby 12%.
10
Refer Section 1 of the Report for details. The share based payment values for Philip Coffey reflect the accruals for all unvested equity granted for the
entire period up to the end of each performance period. For example, the 2017 LTI will include the accrual for four years until the vesting date in lieu
of a single year accrual value for 2017. While the full value is being accrued for all unvested equity held by Philip Coffey, the awards may or may not
vest subject to the relevant performance hurdles.
2017 Westpac Group Annual Report
61
1
Movement in equity-settled instruments during this year
7.3.
This table shows the details of movements during 2017 in the number and value of equity instruments for the CEO and Group
Executives under the relevant plans:
Name
Type of Equity-Based Instrument
Managing Director & Chief Executive Officer
Number
Granted1
Number
Vested2
Number
Exercised3
Value
Granted4
$
Value
Exercised5
$
Value
Forfeited or
Lapsed5,6
$
Brian Hartzer
CEO Performance share rights
211,548
Performance share rights
-
-
-
Shares under the CEO Restricted
40,444
19,746
Share Plan
Shares under Restricted Share Plan
-
12,075
Current Group Executives
Lyn Cobley
Performance share rights
88,368
-
Shares under Restricted Share Plan
15,290
16,696
Brad Cooper
Performance share rights
87,866
-
Shares under Restricted Share Plan
22,819
24,599
Dave Curran
Performance share rights
Shares under Restricted Share Plan
George Frazis
Performance share rights
74,978
14,514
83,682
-
8,675
-
Shares under Restricted Share Plan
25,302
26,773
Alexandra Holcomb
Performance share rights
Performance options
78,994
-
-
-
Shares under Restricted Share Plan
15,290
19,268
Peter King
Performance share rights
85,690
-
Shares under Restricted Share Plan
16,920
13,755
Rebecca Lim
Performance share rights
58,576
-
Shares under Restricted Share Plan
7,619
8,433
David Lindberg
Performance share rights
76,316
-
Shares under Restricted Share Plan
14,824
11,849
David McLean
Performance share rights
Unhurdled share rights
67,094
-
12,332
14,623
Shares under Restricted Share Plan
-
1,327
Christine Parker
Performance share rights
62,760
-
Shares under Restricted Share Plan
13,970
15,350
Gary Thursby
Performance share rights
58,576
-
Shares under Restricted Share Plan
11,176
11,609
Former Group Executive
Philip Coffey
Performance share rights
107,112
-
Shares under Restricted Share Plan
18,550
23,273
-
-
-
-
-
-
-
-
-
-
-
-
-
4,226,729
-
1,302,187
-
1,693,573
492,296
1,683,952
734,710
1,436,953
467,311
1,603,766
814,655
1,513,920
-
-
-
-
-
-
-
-
-
-
-
-
-
38,847
-
65,509
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
492,296
1,642,249
544,778
1,122,609
245,311
1,462,596
477,292
1,285,857
356,629
-
1,202,795
449,796
1,122,609
359,837
2,052,801
597,259
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,610,944
-
-
-
-
1,350,495
-
-
-
990,344
-
450,134
-
-
270,075
-
252,066
-
405,142
-
-
-
-
630,225
-
351,085
-
1,503,554
-
1
No performance options were granted in 2017. Deferred STI in the form of restricted shares or unhurdled share rights (David McLean) are awarded in
December. David McLean’s unhurdled deferred STI share rights allocated in December 2016 were allocated at a fair value of $30.28 (rights vesting
on 1 October 2017) and $28.47 (rights vesting on 1 October 2018).
2
No hurdled share rights granted in 2013 vested in October 2016 as assessed against the TSR and EPS performance hurdles.
3
Vested options and share rights that were awarded prior to October 2009 can be exercised up to a maximum of 10 years from their commencement
date. Vested rights awarded between October 2009 and July 2015 are automatically exercised at vesting. Vested rights granted after July 2015 may
be exercised at will up to a maximum of 15 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.
62
2017 Westpac Group Annual Report
Directors’ report
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 VWAP 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 CEO and Group Executives in 2017, do not reconcile with the amount
shown in the table in Section 7.2 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
VWAP 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.
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 2017
calculated in accordance with AASB 2 (Share-based Payment) and is used for accounting purposes only. The LTI grants will
vest on satisfaction of performance and/or service conditions tested in future financial years.
Equity Instrument
Granted to
Hurdle
Grant Date
Date1
Test Date
Expiry
Performance
Commencement
CEO Long-Term
Incentive Plan
Brian Hartzer
Westpac Long-Term
Incentive Plan
All Group
Executives
TSR Index
ROE
TSR Index
ROE
9 December 2016
9 December 2016
1 October 2016
1 October 2016
1 October 2020
1 October 2019
1 October 2031
1 October 2031
1 December 2016
1 December 2016
1 October 2016
1 October 2016
1 October 2020
1 October 2019
1 October 2031
1 October 2031
Fair
Value2 per
Instrument
$14.09
$25.87
$13.33
$25.00
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 ROE 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 $25.00 is
four years to the 1 October 2019 vesting date. For the purpose of allocating rights with ROE hurdles, the valuation also takes into account the
average ROE 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.
Movement in equity-settled instruments during this year
7.4.
Equity holdings
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 20171:
Name
Current Non-executive Directors
Lindsay Maxsted
Nerida Caesar2
Ewen Crouch3
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins4
Peter Marriott
Former Non-executive Director
Elizabeth Bryan2
Number Held at
Start of the Year
Other Changes
During the Year
Number Held at
End of the Year
19,550
n/a
40,245
9,392
8,869
11,384
15,880
20,870
27,967
1,217
-
19
-
-
712
-
-
-
20,767
-
40,264
9,392
8,869
12,096
15,880
20,870
n/a
1
None of these share interests include non-beneficially held shares.
2
The information relates to the period these individuals were Non-executive Directors. Refer Section 1 for details.
3
4
In addition to holdings of ordinary shares, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2 at year end.
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.
2017 Westpac Group Annual Report
63
1
Details of Westpac equity holdings of Executive Key Management Personnel
7.5.
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 20171:
Number
Held at
Start of
the Year
Number
Granted
During the
Year as
Remuneration
Received on
Exercise
and/or
Exercised
During the
Year
Number
Lapsed
During
the Year
Other
Changes
During
the Year
Number
Held at
End of the
Year
Number
Vested and
Exercisable
at End of
the Year
Name
Type of Equity-based
Instrument
Managing Director & Chief Executive Officer
Brian Hartzer
Ordinary shares
CEO Performance
share rights
53,722
323,615
40,444
211,548
Performance share rights
215,375
-
Current Group Executives
Lyn Cobley
Ordinary shares
Performance share rights
Brad Cooper
Ordinary shares
Performance share rights
Dave Curran
Ordinary shares
Performance share rights
George Frazis
Ordinary shares
Alexandra Holcomb
Performance share rights
Ordinary shares
Performance options
Performance share rights
Peter King
Ordinary shares
Performance share rights
Rebecca Lim
Ordinary shares
Performance share rights
David Lindberg
Ordinary shares
Performance share rights
David McLean
Ordinary shares
Performance share rights
Unhurdled share rights
Christine Parker
Ordinary shares
Performance share rights
Gary Thursby
Ordinary shares
Performance share rights
Former Group Executive
Philip Coffey2
Ordinary shares
Performance share rights
56,360
90,914
83,973
272,648
17,350
135,898
136,267
207,708
27,188
38,847
178,733
61,323
192,804
27,084
51,228
41,202
133,486
9,613
102,608
30,504
23,408
177,182
65,853
65,601
15,290
88,368
22,819
87,866
14,514
74,978
25,302
83,682
15,290
-
78,994
16,920
85,690
7,619
58,576
14,824
76,316
-
67,094
12,332
13,970
62,760
11,176
58,576
350,253
314,438
18,550
107,112
-
-
-
-
-
-
-
-
-
-
-
-
-
(16,739)
-
77,427
535,163
(85,828)
-
129,547
-
-
-
(44,394)
-
-
-
-
-
-
-
-
71,650
179,282
106,792
316,120
31,864
210,876
-
(32,555)
(90,000)
-
71,569
258,835
38,847
(38,847)
-
-
-
(14,797)
(58,115)
-
-
23,210
-
242,930
78,243
269,616
26,270
101,518
48,026
196,484
9,613
169,702
42,836
-
(8,878)
-
(8,286)
-
(13,318)
-
-
-
-
-
(8,433)
-
(8,000)
-
-
-
-
-
(20,717)
(15,350)
-
22,028
219,225
-
(11,541)
-
-
77,029
112,636
-
(100,076)
(50,313)
-
n/a
n/a
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,148
19,770
-
-
-
-
-
-
1
The highest number of shares held by an individual in the table is 0.0031% of total Westpac ordinary shares outstanding as at 30 September 2017.
2
The information relates to the period the individual was a Key Management Personnel. Refer Section 1 for details.
64
2017 Westpac Group Annual Report
Directors’ report
Loans to Non-executive Directors and Executive Key Management Personnel disclosures
7.6.
All financial instrument transactions that occurred during the financial year between Directors or Executive 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 Non-executive Directors and Executive KMP (including their related parties) of the Group:
Non-executive Directors
Executive KMP
Balance at Start of
the Year1,2
$
Interest Paid
and Payable
for the Year
$
Interest Not
Charged During
the Year
$
3,932,987
14,912,791
18,845,778
163,646
575,820
739,466
-
-
-
Balance at
End of the
Year
$
3,199,593
12,090,727
15,290,320
Number in
Group at End of
the Year
2
7
9
1
Some opening balances have been restated to include additional individual loans.
2
Opening balances are reflective of changes to Key Management Personnel effective from 1 October 2016.
Individuals (including their related parties) with loans above $100,000 during the 2017 financial year:
Directors
Lindsay Maxsted
Ewen Crouch
Executive KMP
Brian Hartzer
Philip Coffey3
Brad Cooper
Alexandra Holcomb
Rebecca Lim
David McLean
Christine Parker
Gary Thursby
Balance at Start of
the Year1,2
$
Interest Paid
and Payable
for the Year
$
Interest Not
Charged During
the Year
$
Balance at
End of the
Year
$
Highest
Indebtedness
during the Year
$
2,598,160
1,334,827
106,748
2,394,000
867,571
3,665,374
2,856,283
475,551
2,619,094
1,928,170
111,846
51,800
6,544
78,148
73,943
183,799
18,096
24,414
111,610
79,266
-
-
-
-
-
-
-
-
-
-
2,061,911
1,137,682
2,971,831
1,516,138
83,617
n/a
2,037,998
4,114,727
711,642
534,828
2,647,386
1,960,529
191,366
2,399,831
2,058,343
4,122,365
2,863,432
597,442
2,776,565
2,088,080
1
Some opening balances have been restated to include additional individual loans.
2
Opening balances are reflective of changes to Key Management Personnel effective from 1 October 2016.
3
The information relates to the period the individual was a Key Management Personnel. Refer Section 1 of this Report for details.
2017 Westpac Group Annual Report
65
1
11. 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:
Auditor’s Independence Declaration
As lead auditor for the audit of Westpac Banking Corporation for the year ended 30 September 2017, 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.
Lona Mathis
Partner
PricewaterhouseCoopers
Sydney
6 November 2017
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, BARANGAROO NSW 2000
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation
66
2017 Westpac Group Annual Report
Directors’ report
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 2016 and 2017
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 $6 million in total (2016 $8.1 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 2017 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.
12. 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 2017, 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 Guidance and Transparency
Rules 4.1.8R to 4.1.11R of the United Kingdom Financial Conduct Authority, together with a description of the principal
risks and uncertainties faced by the Group.
Signed in accordance with a resolution of the Board.
Lindsay Maxsted
Chairman
6 November 2017
Brian Hartzer
Managing Director & Chief Executive Officer
6 November 2017
2017 Westpac Group Annual Report
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68
2017 Westpac Group Annual Report
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 $m unless otherwise indicated)
Income statements for the years ended 30 September2
Net interest income
Non-interest income
Net operating income before operating expenses
and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac
Banking Corporation
Balance sheet as at 30 September2
Loans
Other assets
Total assets
Deposits and other borrowings
Debt issues
Loan capital
Other liabilities
Total liabilities
Total shareholders' equity and non-controlling interests
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)3
Return on average ordinary equity (%)
Basic earnings per share (cents)
Net tangible assets per ordinary share ($)4
Share price ($):
High
Low
Close
Business performance
Operating expenses to operating income ratio (%)
Net interest margin (%)
Capital adequacy
Total equity to total assets (%)
Total equity to total average assets (%)
APRA Basel III:
Common equity Tier 1 (%)
Tier 1 ratio (%)
Total capital ratio (%)
2017
2016
2015
2014
2013
15,516
6,286
15,148
5,837
14,267
7,375
13,542
6,395
21,802
(9,434)
(853)
11,515
(3,518)
(7)
20,985
(9,217)
(1,124)
10,644
(3,184)
(15)
21,642
(9,473)
(753)
11,416
(3,348)
(56)
19,937
(8,547)
(650)
10,740
(3,115)
(64)
7,990
7,445
8,012
7,561
684,919
166,956
851,875
533,591
168,356
17,666
70,920
790,533
61,342
661,926
177,276
839,202
513,071
169,902
15,805
82,243
781,021
58,181
623,316
188,840
812,156
475,328
171,054
13,840
98,019
758,241
53,915
580,343
190,499
770,842
460,822
152,251
10,858
97,574
721,505
49,337
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
188
-
79.28
13.65
238.0
14.66
35.39
28.92
31.92
43.27
2.06
7.2
7.1
10.56
12.66
14.82
188
-
84.19
13.32
224.6
13.90
33.74
27.57
29.51
43.92
2.10
6.9
6.9
9.48
11.17
13.11
187
-
73.39
16.23
255.0
13.02
40.07
29.10
29.70
43.77
2.09
6.6
6.8
9.50
11.38
13.26
182
-
74.68
16.27
242.5
11.51
35.99
30.00
32.14
42.87
2.09
6.4
6.7
8.97
10.56
12.28
174
20
79.71
15.22
217.2
11.02
34.79
24.23
32.73
42.89
2.14
6.8
6.9
9.10
10.65
12.25
4.08
73
35,894
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)5
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been
35,096
35,484
36,596
35,580
1.29
1.80
2.49
1.79
45
53
60
54
revised and may differ from results previously reported.
2 The above income statement extracts for 2017, 2016 and 2015 and balance sheet extracts for 2017 and 2016 are derived from the consolidated
financial statements included in this Annual Report. The above income statement extracts for 2014 and 2013 and balance sheet extracts for
2015, 2014 and 2013 are derived from financial statements previously published.
3 Excludes special dividends and adjusted for Treasury shares.
4 Total equity attributable to owners of Westpac Banking Corporation, after deducting intangible assets divided by the number of ordinary shares
outstanding, less Treasury shares held.
5 Full-time equivalent employees includes full-time, pro-rata part-time, overtime, temporary and contract staff.
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2017 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, including as a result
of our failure to comply with laws (such as financial crime laws), regulations or regulatory policy;
internal and external events which may adversely impact Westpac’s reputation;
information security breaches, including cyberattacks;
reliability and security of Westpac’s technology and risks associated with changes to technology systems;
the stability of Australian and international financial systems and disruptions to financial markets and any losses or
business impacts Westpac or its customers or counterparties may experience as a result;
adverse asset, credit or capital market conditions;
the conduct, behaviour or practices of Westpac or its staff;
market volatility, including uncertain conditions in funding, equity and asset markets;
market liquidity and investor confidence;
levels of inflation, interest rates, exchange rates and market and monetary fluctuations;
changes to Westpac’s credit ratings or to the methodology used by credit rating agencies;
changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and in other
countries in which Westpac or its customers or counterparties conduct their operations and Westpac’s ability to maintain or
to increase market share, margins and fees, and control expenses;
the effects of competition in the geographic and business areas in which Westpac conducts its operations;
the timely development and acceptance of new products and services and the perceived overall value of these products
and services by customers;
the effectiveness of Westpac’s risk management policies, including internal processes, systems and employees;
the incidence or severity of Westpac insured events;
the occurrence of environmental change (including as a result of climate change) or external events in countries in which
Westpac or its customers or counterparties conduct their operations;
changes to the value of 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.
2017 Westpac Group Annual Report
71
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 2017 and
30 September 2016 and income statements, statements of comprehensive income, changes in equity and cash flows for each
of the years ended 30 September 2017, 2016 and 2015 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 2017
is referred to as 2017 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$0.7840, 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, 29 September 2017. The Australian dollar equivalent of New Zealand
dollars at 29 September 2017 was A$1.00 = NZ$1.0867, 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 2013 to 30 September 2017.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to rounding.
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2017 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 2017,
2016, 2015, 2014 and 2013 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 2017, 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 $101,923 million (2016: $102,595 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 $64,317 million
(2016: $67,643 million). The fair value of outstanding derivatives was a net liability of $1,342 million (2016: $3,849 million net
liability). The fair value of financial assets and financial liabilities determined by valuation models that use unobservable market
prices was $1,399 million (2016: $1,587 million) and $9 million (2016: $17 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 2017, gross loans to customers were $687,785 million (2016: $665,256 million) and the provision for
impairment on loans was $2,866 million (2016: $3,330 million).
2017 Westpac Group Annual Report
73
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 2017, the carrying value of goodwill was $9,012 million (2016: $9,030 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 2017 were $43 million (2016: $282 million).
One plan had a superannuation surplus as at 30 September 2017 of $48 million (2016: $32 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. Refer Note 29.
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.
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2017 Westpac Group Annual Report
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 2017, the carrying value of goodwill was $9,012 million (2016: $9,030 million).
Superannuation obligations
directly in retained profits.
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
Income statement review
Consolidated income statement1
For the years ending 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
The aggregate superannuation deficits across all our plans as at 30 September 2017 were $43 million (2016: $282 million).
One plan had a superannuation surplus as at 30 September 2017 of $48 million (2016: $32 million).
Net profit for the year
Profit attributable to non-controlling interests
Review of Group operations
2017
US$2
24,486
(12,321)
12,165
4,928
17,093
(7,396)
(669)
9,028
(2,758)
6,270
(6)
2017
A$
31,232
(15,716)
15,516
6,286
21,802
(9,434)
(853)
11,515
(3,518)
7,997
(7)
2016
A$
31,822
(16,674)
15,148
5,837
20,985
(9,217)
(1,124)
10,644
(3,184)
7,460
(15)
2015
A$
32,295
(18,028)
14,267
7,375
21,642
(9,473)
(753)
11,416
(3,348)
8,068
(56)
2014
A$
32,248
(18,706)
13,542
6,395
19,937
(8,547)
(650)
10,740
(3,115)
7,625
(64)
2013
A$
33,009
(20,188)
12,821
5,774
18,595
(7,976)
(847)
9,772
(2,947)
6,825
(74)
Net profit attributable to owners of Westpac
Banking Corporation
Weighted average number of ordinary shares (millions)
Basic earnings per ordinary share (cents)
Diluted earnings per share (cents)3
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)4
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been
7,990
3,355
238.0
229.3
188
-
79.28
7,561
3,114
242.5
237.6
182
-
74.68
7,445
3,313
224.6
217.8
188
-
84.19
8,012
3,140
255.0
248.2
187
-
73.39
6,264
3,355
186.6
179.8
147
-
79.28
6,751
3,103
217.2
212.5
174
20
79.71
revised 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$0.7840, the
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. Refer Note 29.
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.
Overview of performance – 2017 v 2016
Net profit attributable to owners of Westpac Banking Corporation for 2017 was $7,990 million, an increase of $545 million or 7%
compared to 2016. Features of this result included a $817 million or 4% increase in net operating income before operating
expenses and impairment charges, a $217 million or 2% increase in operating expenses and a $271 million or 24% decrease in
impairment charges.
Net interest income increased $368 million or 2% compared to 2016, with total loan growth of 3%, primarily from Australian
housing which grew 6%. Reported net interest margin decreased 4 basis points to 2.06% from higher funding costs, the impact
of lower interest rates, and lower treasury earnings, partly offset by loan repricing.
Non-interest income increased $449 million or 8% compared to 2016 primarily due to a $279 million gain associated with sale
of shares in BT Investment Management Limited (BTIM), a rise in trading income of $78 million and the impact of volatility in
economic hedges of $140 million. These increases were partly offset by provisions for customer refunds, and lower wealth
management and insurance income.
Operating expenses increased $217 million or 2% compared to 2016. The rise in operating expenses includes annual salary
and rental increases, higher technology expenses related to the Group’s investment program, a rise in regulatory and
compliance costs and expenses associated with the sale of shares in BTIM. These increases were partially offset by
productivity benefits.
Impairment charges were $271 million lower or 24% compared to 2016. Asset quality remained sound, with stressed exposures
as a percentage of total committed exposures (TCE) at 1.05%, down 15 basis points over the year. The decrease in impairment
charges was primarily due to significantly lower large individual provisions. Additional provisioning for these larger facilities was
required in 2016, following the downgrade to impaired.
The effective tax rate of 30.6% in 2017 was higher than the 2016 effective tax rate of 29.9% as 2016 benefited from the
finalisation of some prior period taxation matters.
2017 basic earnings per share were 238.0 cents per share compared to 224.6 cents per share in 2016.
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2017 Westpac Group Annual Report
2017 Westpac Group Annual Report
75
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.
noon buying rate in New York City on 29 September 2017.
2
The Board has determined a final dividend of 94 cents per ordinary share. The full year ordinary dividends of 188 cents is
unchanged over ordinary dividends declared in 2016 and a pay-out ratio of 79.3%. The full year ordinary dividend is fully
franked.
The Board considered the impact of the Bank Levy on shareholders (which equated to 2 cents per share in 2017), and decided
to leave the dividend unchanged.
Income statement review – 2017 v 2016
Net interest income – 2017 v 2016
$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
2017
2016
2015
31,232
31,822
32,295
(15,716)
(16,674)
(18,028)
15,516
15,148
14,267
855
(487)
368
1,313
(432)
881
878
(153)
725
Net interest income increased $368 million or 2% compared to 2016. Key features include:
4% increase in average interest-earning assets, primarily from growth in Australian housing. Third party liquid assets
increased $11 billion or 13% in response to a $10 billion lower Committed Liquidity Facility (CLF), which reduced from $59
billion to $49 billion on 1 January 2017;
Group net interest margin decreased 4 basis points. Higher funding costs primarily from term deposit competition, the
impact of lower interest rates and lower Treasury earnings were, partly offset by loan repricing and economic hedge
volatility.
Total loans increased $23.0 billion or 3% compared to 2016. Excluding foreign currency translation impacts, total loans
increased $26.0 billion or 4%.
Key features of total loan growth were:
Australian housing loans increased $23.0 billion or 6%. During the year, the Group further tightened origination standards,
reduced new lending discounts and adjusted interest rates on different loan categories. Based on the APRA definition of
investor lending, the Group’s investor property lending grew 6%, below the 10% cap. Fixed rate loans increased from 17%
of the portfolio in 2016 to 21% in 2017;
Australian business loans increased $0.3 billion, with growth in Business Bank (BB) across SME, professional services and
health, largely offset by lower institutional lending including a decline in the utilisation of mortgage warehouse facilities; and
New Zealand lending increased NZ$2.1 billion or 3%. Housing loans grew at 4% and business lending increased 1%
primarily from growth in SME and agriculture. Following the Loan to Value Ratio (LVR) restrictions imposed by the RBNZ
on investor property loans (with an LVR of greater than 60%), the proportion of new flows for investor property lending
decreased by 9 percentage points to 22%.
Total customer deposits increased $20.1 billion or 4% compared to 2016. Excluding foreign currency translation impacts,
customer deposits increased $22.3 billion or 5%.
Key features of total customer deposits growth were:
Australian customer deposits increased $23.8 billion or 6%, with above system1 growth in household deposits and growth
in institutional deposits. Customers continued to direct funds to mortgage offset accounts, supporting 8% growth in
Australian non-interest bearing deposits. The Group continues to focus on growing higher quality deposits in preparation
for the introduction of the Net Stable Funding Ratio (NSFR) on 1 January 2018;
New Zealand customer deposits increased NZ$0.9 billion or 2%, with a 14% increase in non-interest bearing deposits from
growth in business and consumer transaction accounts; and
Other overseas deposits decreased $2.6 billion or 18% due to a decline in Asian deposits.
Certificate of deposits increased $0.5 billion or 1%, with lower balances offshore more than offset by growth in Australia.
1 Source: Australian Prudential Regulation Authority (APRA)
76
2017 Westpac Group Annual Report
Interest spread and margin – 2017 v 2016
$m
Group
Net interest income
Average interest earning assets
Average interest earning 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
Review of Group operations
2017
2016
2015
15,516
15,148
14,267
752,294
721,843
683,814
694,924
667,276
640,628
57,370
54,567
43,186
1.89%
0.17%
2.06%
1.91%
0.19%
2.10%
1.91%
0.18%
2.09%
1
Interest spread is the difference between the average yield on all interest earning assets and the average yield on all interest bearing
liabilities.
2 The benefit of net non-interest bearing assets, liabilities and equity is determined by applying the average yield paid on all interest bearing
liabilities to the average level of net non-interest bearing funds as a percentage of average interest earning assets.
3 Net interest margin is calculated by dividing net interest income by average interest earning assets.
Net interest margin was 2.06% in 2017, down 4 basis points compared to 2016. Key drivers of the margin decrease were:
9 basis points increase from loan spreads primarily from the full year impact of Australian mortgage and business lending
repricing in 2016 and changes to Australian mortgage rates for interest-only and investor loans during 2017. This was
partly offset by broad based competition and higher short term funding costs;
5 basis points decrease from customer deposit spreads, driven by increased competition for term deposits in late 2016 and
early 2017 and the impact of lower interest rates on the hedging of transaction deposits;
2 basis points decrease from higher term wholesale funding costs as the Group lengthened average tenors in preparation
for the implementation of NSFR on 1 January 2018 and an increase in Additional Tier 1 and Tier 2 capital balances and the
higher cost of these instruments;
1 basis point decrease from the introduction of the Bank Levy;
Capital and other decreased 2 basis points primarily from the impact of lower interest rates;
2 basis points decrease from liquidity, due to increased holdings of third party liquid assets; and
1 basis point decrease from Treasury and Markets, with lower market volatility impacting returns from interest rate risk
management.
Non-interest income – 2017 v 2016
$m
Fees and commissions
Wealth management and insurance income
Trading income
Other income
Non-interest income
2017
2,755
1,800
1,202
529
6,286
2016
2,755
1,899
1,124
59
5,837
2015
2,942
2,228
964
1,241
7,375
Non-interest income was $6,286 million in 2017, an increase of $449 million or 8% compared to 2016. The increase was
impacted by a number of infrequent items ($136 million), including the profit on the further sale of BTIM shares ($279 million),
provisions for customer refunds and payments related to Advice and wealth products1 ($111 million) and a revaluation loss on
the Group’s investments in boutique funds ($32 million). Excluding these items, non-interest income increased $313 million or
5% due to the impact of hedging New Zealand future earnings, higher Westpac Institutional Bank (WIB) markets income,
increase in operating lease rental income and higher business lending fees, partly offset by lower wealth management and
insurance income and a reduction in Australian credit card interchange fees.
Fees and commissions of $2,755 million in 2017 were flat compared to 2016, due to:
lower Advice income including provisions for customer refunds and payments ($55 million);
lower Australian credit card income ($39 million) primarily from lower revenue associated with rewards programs and
regulatory impacts on interchange rates from 1 July 2017; partly offset by
1 Some of the items provided for include: payments to superannuation customers with pre-existing conditions who did not have the benefit of our
improved disclosure practices and had their claims denied; payments to customers who did not receive all the benefits to which they were entitled
under their ‘packaged accounts’; and refunds where ongoing advice fees were paid but we were unable to demonstrate that advice service was
provided in the relevant period.
2017 Westpac Group Annual Report
77
2
increased business lending fees ($50 million) supported by higher line fees from business growth;
higher New Zealand credit card income ($41 million) primarily from a change to accounting treatment for credit card
rewards scheme to align with Group practice; and
higher transaction fees ($15 million) from an increase in account numbers, pricing changes, and transaction volumes
across the Group.
provisions for customer refunds and payments related to wealth products ($56 million);
Wealth management and insurance income was $1,800 million in 2017, a decrease of $99 million or 5% compared to 2016
with:
insurance income decreased $29 million, primarily from;
- general insurance income reduced $32 million from higher claims, including the impact of Cyclone Debbie, partly offset
by a 2% increase in net earned premiums; and
- life insurance income was little changed (down $3 million) with higher claims partly offset by a 6% increase in net
earned premiums; partly offset by
- higher Lenders mortgage insurance (LMI) income ($6 million) related to arrangements for mortgages with an LVR
>90%;
lower contribution from investments in boutique funds ($26 million); and
a decrease in funds under management (FUM) and funds under administration (FUA) income ($13 million), with the benefit
from higher asset markets and positive net flows more than offset by margin compression from the transfer of legacy
products to lower fee ‘MySuper’ products; partly offset by
increase in WIB wealth management income ($6 million).
Trading income was $1,202 million in 2017, an increase of $78 million or 7% compared to 2016. This was primarily driven by
higher WIB markets income from an increase in risk management income across fixed income, foreign exchange and
commodities and higher derivative valuation adjustments.
Other income was $529 million in 2017, an increase of $470 million compared to 2016. This result was driven by the profit on a
further sale of BTIM shares ($279 million), the impact of hedging New Zealand future earnings ($140 million) and higher rental
income on operating leases ($34 million) from portfolio growth.
Operating expenses – 2017 v 2016
$m
Staff expenses
Occupancy expenses
Technology expenses
Other expenses
Total operating expenses
Total operating expenses to net operating income ratio
2017
4,701
1,073
2,008
1,652
2016
4,601
1,032
1,929
1,655
2015
4,704
954
2,288
1,527
9,434
43.27%
9,217
43.92%
9,473
43.77%
growth in regulation and compliance expenses of $84 million;
Operating expenses increased $217 million or 2% compared to 2016. The key factors of the result were:
productivity benefits of $262 million largely offset growth in other operating costs.
separation costs related to the sale of shares in BTIM of $35 million; and
higher investment related expenses of $82 million;
Staff expenses were $4,701 million, an increase of $100 million or 2% compared to 2016. Annual salary increases, higher
investment costs and separation costs related to the further sale of shares in BTIM were partly offset by productivity benefits,
lower restructuring costs and reduced share based payments.
Occupancy expenses increased $41 million or 4% compared to 2016 due to higher expenses relating to annual rental
expenses and exit costs associated with retail property consolidation and branch network optimisation.
Technology expense increased $79 million or 4% compared to 2016 largely from the completion of key elements of the Group’s
investment programs. This included higher amortisation of software assets ($57 million) and higher software maintenance and
licensing costs ($36 million) from programs including the Customer Service Hub, Panorama, new payment platform and
systems for regulatory and compliance purposes.
78
2017 Westpac Group Annual Report
Other expenses decreased $3 million compared to 2016. The increase in regulatory and compliance costs have been mostly
offset by lower outsourced operational costs. In addition, non-lending losses were $8 million lower from reduced credit card and
digital fraud, which has benefitted from recent enhancements to early detection capability and additional security.
Review of Group operations
Impairment charges – 2017 v 2016
$m
Impairment charges
Impairment charges to average gross loans (basis points)
2017
853
13
2016
1,124
17
2015
753
12
Asset quality improved through 2017 with stressed assets to total committed exposures reducing 15 basis points to 1.05%. The
reduction in stress mostly reflects the work-out or return to health of a number of watchlist and substandard facilities. Impaired
assets were also lower, with gross impaired assets to gross loans reducing 10 basis points to 0.22%. The reduction in impaired
assets principally related to the work-out or write-off of a small number of institutional facilities. Where stress in the portfolio has
emerged it can mostly be traced back to the slowdown in mining investment, sectors undergoing structural change, along with a
rises in delinquencies and properties in possession in these regions, particularly in Western Australia and Queensland.
The improved asset quality and the write-off of a small number of larger impaired facilities led to a reduction in provisions which
were down $483 million. IAPs were $389 million lower while collectively assessed provisions were $94 million lower. Within
collectively assessed provisions the economic overlay was reduced by $66 million, ending at $323 million as at 30 September
2017.
This trend of improved asset quality and work-out of existing stressed facilities has contributed to the reduction in impairment
charges in 2017.
Impairment charges of $853 million were down $271 million or 24% compared to 2016.
Key movements included:
total new IAPs less write-backs and recoveries were $226 million lower than 2016. New IAPs decreased $117 million
primarily due to a small number of large impairments in WIB in 2016 whereas there were only two larger facilities that
migrated to impaired over 2017. This was partially offset by higher new IAPs in the Business Bank and in mortgages. 2017
also benefited from a larger number of write-backs and recoveries which were $109 million higher than 2016 as impaired
facilities were worked out; and
CAPs were $45 million lower due to a $66 million reduction in the economic overlay provision and a $45 million benefit
from improvement in asset quality, partially offset by a $66 million lift in write-offs principally in personal lending associated
with changes to reporting of customers granted hardship assistance.
Income tax expense – 2017 v 2016
$m
Income tax expense
Tax as a percentage of profit before income tax expense (effective tax rate)
2017
2016
2015
3,518
30.55%
3,184
29.91%
3,348
29.33%
The effective tax rate of 30.6% in 2017 was higher than the 2016 effective tax rate of 29.9% as 2016 benefited from the
finalisation of some prior period taxation matters. The effective tax rate above the Australian corporate tax rate of 30% reflects
several Additional Tier 1 instruments whose distributions are not deductible for Australian taxation purposes.
2017 Westpac Group Annual Report
79
2
Balance sheet review
Selected consolidated balance sheet data1
The detailed components of the balance sheet are set out in the notes to the financial statements.
As at 30 September
Cash and balances with central banks
2017
US$m2
14,423
2017
A$m
2016
A$m
2015
A$m
2014
A$m
2013
A$m
18,397
17,015
14,770
25,760
11,699
Receivables due from other financial institutions
5,588
7,128
9,951
9,583
7,424
11,210
Trading securities and financial assets designated at
fair value and available-for-sale securities
67,451
86,034
81,833
82,287
81,933
79,100
Derivative financial instruments
18,842
24,033
32,227
48,173
41,404
28,356
Loans
Life insurance assets
All other assets
Total assets
536,976
684,919
661,926
623,316
580,343
536,164
8,344
10,643
14,192
13,125
11,007
13,149
16,246
20,721
22,058
20,902
22,971
21,419
667,870
851,875
839,202
812,156
770,842
701,097
Payables due to other financial institutions
17,175
21,907
18,209
18,731
18,636
8,836
Deposits and other borrowings
418,335
533,591
513,071
475,328
460,822
424,482
Other financial liabilities at fair value through
income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
3,180
4,056
4,752
9,226
19,236
10,302
19,894
25,375
36,076
48,304
39,539
32,990
131,991
168,356
169,902
171,054
152,251
144,133
7,071
9,019
12,361
11,559
9,637
11,938
8,282
10,563
10,845
10,199
10,526
11,549
Total liabilities excluding loan capital
605,928
772,867
765,216
744,401
710,647
644,230
Total loan capital
Total liabilities
Net assets
Total equity attributable to owners of Westpac
Banking Corporation
Non-controlling interests
Total shareholders' equity and non-
controlling interests
Average balances
Total assets
Loans and other receivables3
Total equity attributable to owners of Westpac
13,850
17,666
15,805
13,840
10,858
9,330
619,778
790,533
781,021
758,241
721,505
653,560
48,092
61,342
58,181
53,915
49,337
47,537
48,050
61,288
58,120
53,098
48,456
46,674
42
54
61
817
881
863
48,092
61,342
58,181
53,915
49,337
47,537
677,788
864,525
843,555
798,703
737,124
688,295
515,917
658,058
629,159
594,200
559,789
516,482
Banking Corporation
Non-controlling interests
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been
46,477
862
58,556
20
49,361
854
55,896
575
45,908
16
44,350
1,972
revised 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$0.7840,
3
the noon buying rate in New York City on 29 September 2017.
Includes interest earning balances. Other receivables include cash and balances with central banks and other interest earning assets.
80
2017 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 ratios (%)
Average total equity to average total assets
Common equity Tier 1
Tier 1 ratio
Total capital ratio
Earning ratios
Basic earnings per ordinary share (cents)6
Diluted earnings per ordinary share (cents)7
Dividends per ordinary share (cents)
Special dividends per ordinary share (cents)
Dividend payout ratio (%)
Credit quality ratios
Review of Group operations
2017
US$1
2017
A$
2016
A$
2015
A$
2014
A$
2013
A$
2.06
0.92
13.65
13.64
6.78
10.56
12.66
14.82
186.6
179.8
147
-
2.06
0.92
13.65
13.64
6.78
10.56
12.66
14.82
238.0
229.3
188
-
2.10
0.88
13.32
13.18
6.69
9.48
11.17
13.11
224.6
217.8
188
-
2.09
1.00
16.23
15.96
6.29
9.50
11.38
13.26
255.0
248.2
187
-
2.09
1.03
16.27
15.97
6.42
8.97
10.56
12.28
242.5
237.6
182
-
2.14
0.98
15.22
14.57
6.73
9.10
10.65
12.25
217.2
212.5
174
20
79.28
79.28
84.19
73.39
74.68
79.71
Impairment charges on loans written off (net of recoveries)
1,167
1,488
1,052
1,107
1,302
1,323
Impairment charges on loans written off (net of recoveries) to
average loans (bps)
22
22
16
18
23
25
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$0.7840, the
noon buying rate in New York City on 29 September 2017.
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 Based on the weighted average number of fully paid ordinary shares.
7 Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion
of dilutive potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary
shares.
Balance sheet review
Assets – 2017 v 2016
Total assets as at 30 September 2017 were $851.9 billion, an increase of $12.7 billion or 2% compared to 30 September 2016.
Significant movements during the year included:
receivables due from other financial institutions decreased $2.8 billion or 28% mainly due to reduction in collateral posted
with derivative counterparties;
cash and balances with central banks increased $1.4 billion or 8% reflecting higher liquid assets;
trading securities and financial assets designated at fair value and available-for-sale securities increased $4.2 billion or 5%
in response to a CLF reduction on 1 January 2017;
derivative assets decreased $8.2 billion or 25% mainly driven by the closing out of positions via cash settlement, partly
offset by movements in foreign currency translation impacts on cross currency swaps and forward contracts;
loans grew $23.0 billion or 3%. Refer to loan quality – 2017 v 2016 below for further information; and
life insurance assets decreased $3.5 billion or 25% mainly due to the deconsolidation of 16 managed funds as a result of a
decline in the Group’s unit holdings.
2017 Westpac Group Annual Report
81
2
Liabilities and equity – 2017 v 2016
Total liabilities as at 30 September 2017 were $790.5 billion, an increase of $9.5 billion or 1% compared to 30 September 2016.
Significant movements during the year included:
payables due to other financial institutions increased $3.7 billion or 20% due to increased funding of securities through
repurchase agreement and interbank borrowings, partially offset by lower offshore central bank deposits;
deposits and other borrowings increased $20.5 billion or 4%;
other financial liabilities at fair value through the income statement decreased $0.7 billion or 15% reflecting reduced
securities sold through repurchase agreements;
derivative liabilities decreased $10.7 billion or 30% mainly driven by the closing out of positions via cash settlement, partly
offset by movements in foreign currency translation impacts on cross currency swaps and forward contracts;
debt issues decreased $1.5 billion or 1% ($1.7 billion or 1% increase excluding foreign currency translation impacts);
life insurance liabilities decreased $3.3 billion or 27% mainly due to the deconsolidation of 16 managed funds as a result of
a decline in the Group’s unit holdings; and
loan capital increased $1.9 billion or 12% mainly due to issuances of $1.6 billion of USD Additional Tier 1 securities and
net issuances of $0.3 billion of Tier 2 subordinated notes. During the year $2.5 billion of Tier 2 Basel III fully compliant
subordinated notes were issued, mostly offset by the redemption of $2.2 billion of Tier 2 Basel III transitional subordinated
notes (including foreign currency translation impacts).
Equity attributable to owners of Westpac Banking Corporation increased $3.2 billion reflecting additional retained profits less
dividends paid during the period and shares issued under the 2017 interim DRP and 2016 final DRP.
Loan quality – 2017 v 2016
$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
2017
2016
2015
687,785
665,256
626,344
588,920
562,633
526,378
72,269
67,686
62,508
12,837
674,026
15,112
645,431
15,906
604,792
Total gross loans represented 81% of the total assets of the Group as at 30 September 2017, compared to 79% in 2016.
Australia average gross loans were $588.9 billion in 2017, an increase of $26.3 billion or 5% from $562.6 billion in 2016. This
increase was primarily due to growth in housing lending.
New Zealand average gross loans were $72.3 billion in 2017, an increase of $4.6 billion or 7% from $67.7 billion in 2016. This
increase was primarily due to growth in housing lending.
Other overseas average loans were $12.8 billion in 2017, a decrease of $2.3 billion or 15% from $15.1 billion in 2016. This was
primarily due to a decline in Asia.
Approximately 13.1% of the loans at 30 September 2017 mature within one year and 18.9% mature between one year and five
years. Retail lending comprises the majority of the loan portfolio maturing after five years.
82
2017 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 facilities 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
Review of Group operations
As at 30 September
2017
2016
2015
2014
2013
1,142
(507)
635
1,851
(885)
966
1,593
(689)
904
2,030
(862)
1,168
3,249
(1,363)
1,886
27
(12)
15
373
(195)
178
828
31
(16)
15
39
(16)
23
93
(44)
49
156
(56)
100
277
(166)
111
263
(172)
91
217
(141)
76
1,092
1,018
1,293
195
(135)
60
2,046
480
2,639
869
2,733
669
2,663
867
2,614
1,364
2,585
3,119
3,602
3,332
3,481
3,949
46.30%
0.22%
49.42%
0.32%
46.28%
0.30%
44.76%
0.40%
43.17%
0.67%
to total loans
0.45%
0.54%
0.53%
0.60%
0.73%
Total provisions for impairment on loans and credit commitments to total
impaired loans
202.3%
166.8%
175.8%
148.8%
109.7%
1 Non-performing loans are loans with an impaired internal risk grade, excluding restructured assets.
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 $234 million as at 30 September 2017 (2016: $198 million, 2015: $208 million, 2014: $180 million,
2013: $190 million). This sum is compared to the total gross impaired loans to determine this ratio.
The credit quality of the portfolio improved over 2017, with total stressed exposures to TCE remaining low. Total impaired loans
as a percentage of total gross loans were 0.22% at 30 September 2017, a decrease of 0.10% from 0.32% at 30 September
2016.
At 30 September 2017, we had one impaired counterparty with exposure greater than $50 million, accounting for 5% of total
impaired loans. This compares to four impaired counterparties with exposure greater than $50 million in 2016 accounting for
30% of total impaired loans. There were four impaired exposures at 30 September 2017 that were less than $50 million and
greater than $20 million (2016: seven impaired exposures).
At 30 September 2017, 78% of our exposure was to either investment grade or secured consumer mortgage segment (2016:
78%, 2015: 77%, 2014: 77%) and 96% of our exposure as at 30 September 2017 was in Australia, New Zealand and the
Pacific region (2016: 96%, 2015: 95%, 2014: 95%).
We believe that Westpac remains appropriately provisioned. Total impairment provisions for impaired loans to total impaired
loans coverage at 46.3% at 30 September 2017 compared to 49.4% at 30 September 2016. Total provisions for impairment on
loans and credit commitments to total impaired loans represented 202.3% of total impaired loans as at 30 September 2017, up
from 166.8% at 30 September 2016. Total provisions for impairments on loans and credit commitments to total loans were
0.45% at 30 September 2017, down from 0.54% at 30 September 2016 (2015: 0.53%).
Group mortgage loans 90 days past due at 30 September 2017 were 0.62% of outstandings, up from 0.61% of outstandings at
30 September 2016 (2015: 0.42%).
Group other consumer loan delinquencies (including credit card and personal loan products) were 1.57% of outstandings as at
30 September 2017, an increase of 46 basis points from 1.11% of outstandings as at 30 September 2016 (2015: 1.07%).
Potential problem loans as at 30 September 2017 amounted to $1,247 million, a decrease of 13% from $1,436 million at
30 September 2016. The decrease in potential problem loans was mainly due to the upgrade of loans that were impacted by
the downturn in the New Zealand dairy portfolio.
2017 Westpac Group Annual Report
83
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
APRA measures an ADI’s regulatory capital using three measures:
Common Equity Tier 1 Capital (CET1) comprises the highest quality components of capital that consists of paid-up share
capital, retained profits and certain reserves, less certain intangible assets, capitalised expenses and software, and
investments and retained profits in insurance and funds management subsidiaries that are not consolidated for capital
adequacy purposes;
Tier 1 Capital being the sum of CET1 and Additional Tier 1 Capital. Additional Tier 1 Capital comprises high quality
components of capital that consists of certain securities not included in CET1, but which include loss absorbing
characteristics; and
Total Capital being the sum of Tier 1 Capital and Tier 2 Capital. Tier 2 Capital includes subordinated instruments and other
components of capital that, to varying degrees, do not meet the criteria for Tier 1 Capital, but nonetheless contribute to the
overall strength of an ADI and its capacity to absorb losses.
Under APRA’s Prudential Standards, Australian ADIs, including Westpac, are required to maintain a minimum CET1 ratio of at
least 4.5%, Tier 1 ratio of at least 6.0% and Total Regulatory Capital of at least 8.0%. APRA may also require ADIs, including
Westpac, to meet Prudential Capital Requirements (PCRs) above the minimum capital ratios. APRA does not allow the PCRs
for individual ADIs to be disclosed.
APRA also requires ADIs to hold additional CET1 buffers comprising of:
a capital conservation buffer (CCB) of 3.5%, for ADI’s designated by APRA as domestic systemically important banks
(D-SIBs) (unless otherwise determined by APRA), which includes a 1.0% surcharge for D-SIBs. APRA has determined that
Westpac is a D-SIB; and
a countercyclical buffer. The countercyclical buffer is set on a jurisdictional basis and APRA is responsible for setting the
requirement in Australia. The countercyclical buffer requirement is currently set to zero for Australia and New Zealand.
Collectively, the above buffers are referred to as the "Capital Buffer". Should the CET1 capital ratio fall within the capital buffer
range, restrictions on the distributions of earnings will apply. This includes restrictions on the amount of earnings that can be
distributed through dividends, Additional Tier 1 Capital distributions and discretionary staff bonuses.
Capital management strategy
Westpac’s approach to capital management 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 an Internal Capital Adequacy Assessment Process (ICAAP), the key features
of which include:
the development of a capital management strategy, including consideration of regulatory minimums, capital buffers and
contingency plans;
consideration of both economic and regulatory capital requirements;
a stress testing framework that challenges the capital measures, coverage and requirements including the impact of
adverse economic scenarios; and
consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors.
In light of APRA’s announcement on ‘unquestionably strong’ capital on 19 July 2017, Westpac has ceased to use its preferred
range of 8.75% to 9.25% as a guide to managing capital levels. Westpac will revise its preferred range for the CET1 ratio once
APRA finalises its review of the capital adequacy framework. In the interim, Westpac will seek to operate with a CET1 ratio of at
least 10.5% in March and September as measured under the existing capital framework. This also takes into consideration:
84
current regulatory capital minimums and the CCB, which together are the total CET1 requirement;
stress testing to calibrate an appropriate buffer against a downturn; and
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
2017 Westpac Group Annual Report
Review of Group operations
Basel Capital Accord
APRA’s risk-based capital adequacy standards are generally consistent with the International Regulatory Framework for Banks,
also known as Basel III, issued by the Basel Committee on Banking Supervision (BCBS), except where APRA has exercised
certain discretions. On balance, the application of these discretions acts to reduce capital ratios reported under APRA’s
Prudential Standards relative to the BCBS approach and to those reported in some other jurisdictions.
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).
Westpac’s Level 2 regulatory capital ratios as at 30 September are summarised in the table below. As the table summarises
Westpac’s Level 2 regulatory capital structure, the capital amounts shown are not the same as the Westpac Group’s
consolidated financial statements. Westpac’s Pillar 3 Report provides further details regarding Westpac’s capital structure.
$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
2017
2016
60,520
57,235
(17,850)
(18,360)
42,670
38,875
8,505
6,910
51,175
45,785
8,952
(217)
8,735
8,201
(218)
7,983
59,910
53,768
349,258
358,812
8,094
7,861
31,229
33,363
11,101
4,553
5,373
4,644
404,235
410,053
10.56%
2.10%
12.66%
2.16%
14.82%
9.48%
1.69%
11.17%
1.94%
13.11%
Refer to ‘Significant developments’ in Section 1 for a discussion on future regulatory developments that may impact upon
capital requirements.
2017 Westpac Group Annual Report
85
2
Divisional performance
Divisional performance – 2017 v 2016
Westpac reports under 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 Group has completed an update to its capital allocation framework. The update further improves the alignment of capital
held by divisions with regulatory capital requirements. Divisional results have been restated for 2016 and 2015 to ensure
comparability with 2017 results (refer to Note 2 to the financial statements for the disclosure of the Group’s reportable operating
segments and revisions to capital allocation).
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 Group uses a measure of performance referred to as ‘cash earnings’. 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, including
dividends. Cash earnings is neither a measure of cash flow nor 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. Management believes this allows the Group to more effectively assess performance for the current period against prior
periods and to compare performance across business divisions and across peer companies.
A reconciliation of cash earnings to net profit attributable to owners of Westpac Banking Corporation for each business division
is set out in Note 2 to the financial statements.
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.
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:
amortisation of intangible assets: The merger with St.George and the acquisition of select Lloyds' Australian businesses
resulted in the recognition of identifiable intangible assets. Notional identifiable intangible assets were also recognised
within the carrying value of BTIM during the period this investment was equity accounted. The intangible assets recognised
relate to core deposits, customer relationships, management contracts and distribution relationships. These intangible
items are amortised over their useful lives, ranging between four and twenty years. This amortisation (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;
86
acquisition, transaction and integration expenses: Costs associated with the acquisition of select Lloyds' Australian
businesses were treated as a cash earnings adjustment as they do not reflect the earnings expected from the acquired
businesses following the integration period;
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 in 2015 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;
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
2017 Westpac Group Annual Report
Divisional performance
-
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;
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;
sale of BTIM shares: 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. During 2017 the Group recognised a gain, net of costs, following the further sell down of the Group's
shareholding in BTIM. Consistent with previous treatment this gain has been treated as a cash earnings adjustment given
its size and that it does not reflect ongoing operations. The Group has indicated that it may sell the remaining 10%
shareholding in BTIM at some future date. Any future gain or loss on the sale will similarly be excluded from the calculation
of cash earnings;
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 cannot 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;
accounting reclassifications between individual line items that do not impact reported results comprise:
-
-
-
in 2017 the Group changed the accounting treatment for Westpac New Zealand credit card rewards scheme to align
with Group practice. This change has no impact on cash earnings or reported profit but it has led to the restatement of
non-interest income and operating expenses, within cash earnings, in prior periods. Components of reported profit
have not been changed;
policyholder tax recoveries: Income and tax amounts that are grossed up to comply with the AAS accounting standard
covering Life Insurance Business (policyholder tax recoveries) are reversed in deriving income and taxation expense
on a cash earnings basis; and
operating leases: Under AAS rental income on operating leases is presented gross of the depreciation of the assets
subject to the lease. These amounts are offset in deriving non-interest income and operating expenses on a cash
earnings basis.
The guidance provided in Australian Securities and Investments Commission (ASIC) Regulatory Guide 230 has been followed
when presenting this information.
2017 Westpac Group Annual Report
87
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 2017, 2016 and 2015. 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
2017
3,104
2,099
771
2016
2,984
1,975
868
2015
2,625
1,957
906
1,304
1,106
1,357
916
(132)
8,062
825
64
7,822
863
112
7,820
2017
369.5
161.1
35.2
102.9
81.3
101.9
851.9
2016
351.5
156.8
38.2
110.4
82.1
100.2
839.2
2015
328.6
149.3
35.8
127.3
71.5
99.7
812.2
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.
88
2017 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 originator.
Divisional performance
Financial performance
$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
2017
2016
2015
7,509
7,175
6,403
802
850
8,311
8,025
940
7,343
(3,337)
(3,270)
(3,113)
(541)
(492)
4,433
4,263
(478)
3,752
(1,329)
(1,279)
(1,127)
3,104
(116)
2,988
$bn
191.8
362.5
2,984
(116)
2,868
$bn
180.6
344.8
2,625
(116)
2,509
$bn
168.2
320.7
369.5
40.15%
351.5
40.75%
328.6
42.39%
2017 v 2016
The 4% rise in cash earnings to $3,104 million, was due to balance sheet growth and disciplined expense management.
Net interest
income up $334
million, 5%
Non-interest
income down
$48 million, 6%
Operating
expenses up
$67 million, 2%
Impairment
charges up $49
million, 10%
mortgages growth was slightly below system1. The decline in other lending was in credit cards and
personal loans (in line with lower system1 balances);
the above system growth in deposits included a 9% lift in transaction account balances; and
net interest margin was 3 basis points lower primarily from higher wholesale funding and deposits
costs, partly offset by some repricing and continued discipline on discounting.
decline mostly due to lower cards income (net impact of interchange fee changes, loyalty point
redemption costs, and a prior year benefit not repeated) and provisions for customer refunds and
payments; partly offset by;
some fee repricing and higher foreign exchange income.
higher technology and investment related costs;
a rise in regulatory and compliance spending;
increased product development and marketing costs; and
productivity benefits largely offset business as usual expense increases.
higher impairments were mostly due to an increase in mortgage IAPs for regions impacted by the
slowing of the mining investment cycle and CAPs for hardship changes in the other consumer
lending portfolio; and
90+ day other consumer loan delinquencies were higher mostly due to changes in the measurement
and reporting of customers in hardship arrangements. Excluding hardship changes, 90+ day
delinquencies improved.
1 Source: RBA September 2017.
2017 Westpac Group Annual Report
89
2
Business Bank
Business Bank (BB) is responsible for sales and service to micro, SME and commercial business customers in Australia 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
borrowing, payments and transaction needs. In addition, specialist services are provided for cash flow finance, trade finance,
automotive and equipment finance, property finance and treasury. The division is also responsible for 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 originator.
Financial performance
$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
2017
4,055
1,153
5,208
2016
3,925
1,104
5,029
2015
3,735
1,068
4,803
(1,839)
(1,796)
(1,731)
(367)
3,002
(903)
2,099
(10)
2,089
$bn
115.3
157.5
(410)
2,823
(848)
1,975
(10)
1,965
$bn
110.6
153.4
(273)
2,799
(842)
1,957
(10)
1,947
$bn
101.8
146.4
161.1
35.31%
156.8
35.71%
149.3
36.04%
2017 v 2016
Cash earnings of $2,099 million was $124 million, or 6% higher than 2016 from net operating income before operating
expenses and impairment charges growth of 4% and a 10% decline in impairment charges. The result was supported by
increased fee income, balance sheet growth and productivity gains.
Net interest
income up $130
million, 3%
Non-interest
income up $49
million, 4%
Operating
expenses up
$43 million, 2%
Impairment
charges down
$43 million,
10%
lending growth of 3% was supported by growth in SME and targeted industries while commercial
property lending was lower from optimising risk return profile;
a 15% rise in transaction balances supported the 4% rise in deposits. Term deposit balances
declined following the migration of some customers to Private Wealth (in BTFG); and
net interest margin was little changed over the year. Asset spreads were higher following some
repricing, although these were offset by lower deposit spreads and higher wholesale funding costs.
higher line fees from both portfolio growth and some repricing for facilities; and
fees were also supported by the growth in transaction balances and repricing.
business as usual cost increases were largely offset by efficiency gains from digitisation of processes
and streamlining in the division’s service model including specialist industry teams and more targeted
handling of customer service requests; and
increased investment spending and technology costs led to most of the increase.
lower impairments were principally due to improved collections processes for auto finance. This was
partly offset by increased provisions across the property, construction, mining and manufacturing
sectors, particularly in Queensland; and
credit quality remains sound, with total stressed assets to TCE lower. Auto delinquencies were
higher due to the changes in hardship reporting.
90
2017 Westpac Group Annual Report
Divisional performance
BT Financial Group (Australia)
BT Financial Group (Australia) (BTFG) is the Australian 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 to manufacture certain general insurance products. In managing risk
across all insurance classes the division reinsures certain risks using external providers. BTFG operates a range of wealth,
funds management and financial advice brands and operates under the banking brands of Westpac, St.George, Bank of
Melbourne and BankSA for Private Wealth and Insurance.
In 2017 Westpac sold down its investment in BT Investment Management Limited (BTIM) from 29% to 10%. That sale led to a
change in the way the business is accounted for from being equity accounted to being reflected as an available-for-sale
investment. The profit on sale of shares in BTIM is not included in BTFG’s cash earnings results below.
Financial performance
$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 borrowings
Net loans
Total assets
Funds Under Management (FUM)1
Funds Under Administration (FUA)
Total operating expenses to net operating income ratio
Cash earnings
$m
Funds management business
Insurance
Capital and other
Total cash earnings
2017
537
2016
486
1,744
1,908
2,281
(1,176)
(4)
1,101
(330)
-
771
160
931
$bn
29.7
20.1
35.2
53.1
2,394
(1,160)
-
1,234
(366)
-
868
(32)
836
$bn
25.5
18.6
38.2
48.4
2015
434
2,192
2,626
(1,286)
4
1,344
(406)
(32)
906
(23)
883
$bn
23.4
17.2
35.8
46.3
138.3
51.56%
130.8
48.45%
121.9
48.97%
2017
2016
2015
435
293
43
771
520
309
39
868
560
291
55
906
1 FUM represents Retail which includes Annuities, Retail Investment, Retirement Products and Retail Superannuation where risk profiles are selected
by investors and Investment Solutions through Advance (a multi manager of investment management companies).
2017 Westpac Group Annual Report
91
2
2017 v 2016
Cash earnings was 11% lower than full year 2016, impacted by a number of infrequent items totalling $129 million before tax.
The cash earnings impact of infrequent items (after tax) includes provisions for customer refunds and payments ($58 million),
revaluation loss on investments in boutique funds ($24 million) and lower revenue following the further sale of shares in BTIM
($10 million). The underlying business was flat over the year with volume growth partly offset by lower FUM and FUA margins,
lower Advice activity levels, higher insurance claims and increased regulatory and compliance costs.
Net interest
income up $51
million, 10%
Non-interest
income down
$164 million,
9%
balance sheet growth in Private Wealth, deposits up 16% and loans up 8%; and
net interest margin was up 13 basis points mostly due to repricing of certain mortgages and improved
term deposit spreads.
Funds Management contribution was down $151 million:
-
-
-
infrequent items indicated above ($129 million);
advice income was lower mostly from reduced activity ($33 million); and
FUM and FUA revenue was higher with growth in average FUM and FUA (10% and 7%
respectively) offsetting lower margins from product mix changes, including the migration to
MySuper products. FUM and FUA net flows were $4 billion for the year.
Operating
expenses up
$16 million, 1%
insurance income was down $26 million (or 5%);
-
-
general insurance income was lower ($33 million) mostly from higher claims concentrated in the
first half of the year;
life insurance income was flat as the 10% growth in in-force premiums and improved lapses
were offset by higher claims; and
LMI contribution was higher mostly due to the arrangements for loans with a LVR >90%.
-
partly offsetting this was improved returns on capital mostly related to lower hedging costs.
regulatory and compliance costs were $28 million higher over the year;
investment related spending was up from costs associated with the launch of Panorama; and
productivity benefits mostly offset these increases.
Funds management business
$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
Total operating expenses to net operating income ratio
Insurance business
2017
525
2016
474
1,183
1,334
1,708
(1,082)
1,808
(1,067)
(3)
623
(188)
-
435
160
-
741
(221)
-
520
(32)
2015
416
1,663
2,079
(1,219)
4
864
(272)
(32)
560
(23)
595
63.35%
488
59.02%
537
58.63%
The Insurance business result includes the Westpac and St.George Life Insurance, General Insurance and Lenders Mortgage
Insurance (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
2017
8
499
507
(92)
415
(122)
293
-
2016
5
525
530
(88)
442
(133)
309
-
2015
6
488
494
(79)
415
(124)
291
-
293
18.15%
309
16.60%
291
15.99%
92
2017 Westpac Group Annual Report
Divisional performance
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 via
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 foreign exchange and fixed interest solutions.
Financial performance
$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.
2017
1,507
1,706
3,213
(1,323)
(56)
1,834
(523)
(7)
1,304
-
1,304
$bn
89.4
74.0
2016
1,574
1,536
3,110
(1,347)
(177)
1,586
(473)
(7)
1,106
-
1,106
$bn
88.4
73.8
2015
1,658
1,578
3,236
(1,319)
38
1,955
(590)
(8)
1,357
-
1,357
$bn
80.3
76.3
102.9
41.18%
110.4
43.31%
127.3
40.76%
2017 v 2016
Cash earnings of $1,304 million, was $198 million or 18% higher compared to 2016, supported by higher customer and trading
income, disciplined expense management and lower impairments.
Net interest
income down
$67 million, 4%
Non-interest
income up $170
million, 11%
Operating
expenses
down $24
million, 2%
Impairment
charges down
$121 million,
68%
average loan balances were lower over the year, which contributed to lower net interest income;
partly offset by
7 basis points improvement in net interest margin from the run-down in lower returning assets and
pricing disciplines.
higher trading revenue across both fixed income and commodities;
customer revenue was higher reflecting some larger customer transactions; and
positive movement in derivative valuation adjustments.
disciplined operating expense management, productivity initiatives and lower investment in Asia
contributed to the 2% reduction in operating expenses.
asset quality was sound, with the ratio of impaired assets to TCE down 26 basis points following the
work-out and write-off of some larger facilities; and
the lower charge was partly due to higher impairment charges in 2016 with increased provisions for
the downgrade of a small number of large names.
2017 Westpac Group Annual Report
93
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 (New
Zealand Branch), which is incorporated in Australia. Westpac New Zealand operates via an extensive network of branches and
ATMs across both the North and South Islands. Business and institutional customers are also served through relationship and
specialist product teams. Banking products are provided under the Westpac brand while insurance and wealth products are
provided under Westpac Life and BT brands, respectively. Westpac New Zealand also maintains its own infrastructure,
including technology, operations and treasury.
Financial performance
$m
Net interest income
Non-interest income1
Net operating income before operating expenses and impairment charges
Operating expenses1
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 borrowings2
Net loans
2017
1,627
479
2,106
(903)
72
1,275
(359)
-
916
(14)
902
$bn
53.7
71.1
Total assets
Funds under management3
Funds under administration3
1.6
Total operating expenses to net operating income ratio
42.88%
1 Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme.
81.3
7.7
2016
1,606
482
2,088
(889)
(54)
1,145
(320)
-
825
2
827
$bn
54.9
71.7
82.1
7.1
2015
1,583
493
2,076
(844)
(44)
1,188
(322)
(3)
863
-
863
$bn
47.3
62.8
71.5
5.9
2.0
42.58%
1.8
40.66%
(2016: $33 million, 2015: $36 million).
2 Refers to total customer deposits in this table.
3 During 2017 $0.2 billion transferred from FUA to FUM.
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2017 Westpac Group Annual Report
Divisional performance
2017 v 2016
Cash earnings up 11% to $916 million, with an impairment benefit of $72 million, from higher write-back and recoveries. Net
operating income before operating expenses and impairment charges was up 1%, with volume growth offset by margin decline.
Operating expenses were up 2% driven by investment in the division’s transformation program.
Net interest
income up $21
million, 1%
Non-interest
income down
$3 million,1%
Operating
expenses up
$14 million, 2%
Impairment
benefit of $72m
compared to a
$54 million
impairment
charge.
excluding foreign currency translation impacts, loan growth of 3% was mostly in mortgages, up 4%
with business lending 1% higher;
excluding foreign currency translation impacts, deposits growth of 2% was mostly in term deposits
(3%) with customers preferring higher rate term products over at call accounts;
net interest margin was 13 basis points lower mostly from increased deposit competition and
increased wholesale funding costs, partly offset by;
repricing of certain mortgages and business loans.
increased investment income (from a 6% increase in FUM and FUA excluding foreign currency
translation impacts) and higher cards income were offset by higher insurance claims and lower
banking fees following the removal of some consumer fees.
the increase was principally due to costs of and investment in the division’s transformation program;
and
outside of this increase operating expenses were 3% lower through a range of productivity initiatives
including a net reduction of 20 branches, a 3% reduction in FTE, increased self-serve adoption and
the digitisation of more processes.
asset quality remained sound with stressed assets to TCE reducing 48 basis points to 2.06%. The
decline was due to reduction of stress in the dairy sector (improving milk prices). Consumer 90+ day
delinquencies were a little higher but continue to be near historical lows; and
the impairment benefit reflects the work-out and write-back of a few large facilities combined with the
lower levels of stress.
2017 Westpac Group Annual Report
95
2
Group Businesses
This segment comprises:
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, (excluding Westpac New Zealand) within set risk limits;
Group Technology1, which comprises functions for the Australian businesses is responsible for technology strategy and
architecture, infrastructure and operations, applications development and business integration;
Core Support2, which comprises functions performed centrally, including Australian banking operations, property services,
strategy, finance, risk, compliance, legal and human resources; and
Group Businesses also includes: 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, earnings and costs associated with the Group’s fintech investments, and certain other head office items such
as centrally raised provisions.
Financial performance
$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)/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
2017
469
(32)
437
(527)
43
(47)
(85)
-
(132)
(92)
(224)
2016
582
8
590
(469)
9
130
(58)
(8)
64
(221)
(157)
2015
426
66
492
(378)
-
114
13
(15)
112
341
453
2017 v 2016
Cash earnings decreased by $196 million from lower Treasury revenue, increased expenses and a higher tax expense.
Net operating
income down
$153 million,
26%
Operating
expenses up
$58 million,
12%
Impairment
benefits up $34
million
Tax and non-
controlling
interests up $19
million, 29%
net interest income decreased $113 million largely from lower Treasury revenue related to interest
rate risk management; and
non-interest income decreased $40 million primarily due to the impact of exchange rate movements
on the hedging of New Zealand earnings.
increase in operating expenses primarily from higher expenses associated with the Group’s fintech
investments and higher regulatory and compliance costs.
impairment benefit increased $34 million due to a reduction to the centrally held economic overlay
provisions, largely related to the mining sector. This reduction offsets provisions raised in divisions.
tax and non-controlling interests increased $19 million, as 2016 benefitted from the finalisation of
prior period taxation matters, and hybrid distributions (not deductible for tax purposes) were also
higher in the current year.
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.
96
2017 Westpac Group Annual Report
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, reputation, 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 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), the China Banking Regulatory Commission (CBRC) 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.
The Group’s business, reputation, prospects, financial performance and financial condition could all be affected by changes to
law and regulation, changes to policies and changes in the supervisory activities of our regulators.
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, tax, anti-money laundering and
counter-terrorism financing, conduct, competition and consumer protection (including in the design and distribution of financial
products), remuneration, privacy, data access, prudential regulation, anti-bribery and corruption, and economic and trade
sanctions.
Regulatory changes could impact us in a number of ways. For example, new regulation could require us to have increased
levels of liquidity and higher levels of, and better quality, capital and funding. Regulatory change could also result in restrictions
on how we operate our business by imposing restrictions on the types of businesses we can conduct, require us or our
competitors to change our business models or require us to amend our corporate structure.
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 could 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.
Regulation may also affect how we provide products and services to our customers. New laws and regulations could restrict our
ability to provide products and services to certain customers (including by imposing regulatory limits on certain types of lending
and on lending to certain customer segments), require us to alter our product and service offerings and restrict our ability to set
prices for certain products and services. These types of changes could affect our profitability by adversely affecting our ability to
maintain or increase margins and fees. This could occur because a regulation seeks to place a cap on the price of a product or
service we provide, or because, in response to new regulation, we increase the price we charge for a product or service. This
price increase could lead to customers seeking out alternative products or services, whether within the Group or with a
competitor (including customers switching residential mortgages from interest-only to principal and interest).
There are numerous sources of regulatory change that could affect our business. In some cases, changes to regulation are
driven by international bodies. For example, 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, while, in July 2017, APRA took steps to implement the next wave of capital requirements for
banks by clarifying its expectations for banks to hold ‘unquestionably strong’ levels of capital. In other cases, authorities in the
various jurisdictions in which we operate or obtain funding may propose regulatory change for financial institutions. Examples of
proposed regulatory change that could impact us include changes to accounting and reporting standards, derivatives reform
and changes to tax legislation (including dividend imputation). Further details on regulatory changes that may impact Westpac
(including the Basel III framework) are set out in ‘Significant developments’ in Section 1.
2017 Westpac Group Annual Report
97
2
Further changes may occur driven by policy, prudential or political factors. Westpac is currently operating in an environment
where there is increased political scrutiny of the Australian financial services sector. This environment has served to increase
the pace and scope of regulatory change. For example, as part of the Federal Government’s 2017 Budget, a series of reforms
impacting the banking sector were announced, including the introduction of the Bank Executive Accountability Regime (BEAR)
and a new levy on ADIs with liabilities of at least A$100 billion. Further details about the Bank Levy and BEAR are set out in
‘Significant developments’ in Section 1.
Legislation introduced in one jurisdiction may lead to other governments seeking to introduce similar legislation in their
jurisdiction. This was demonstrated by the South Australian Government’s proposal to introduce a levy on the banks that are
subject to the Federal Government’s Bank Levy. While it is unclear if the South Australian levy will come into effect, it is
possible that other governments may attempt to introduce their own version of the Bank Levy or similar legislation in the future.
As part of the heightened political scrutiny on the financial services sector, the Australian Government, other regulators and
parliamentary bodies are increasingly initiating reviews and inquiries (such as the Financial System Inquiry, the House of
Representatives Standing Committee on Economics’ ongoing ‘Review of Australia’s Four Major Banks’ and the Senate
Economics References Committee’s inquiry into consumer protection in the banking, insurance and financial sector, the
Productivity Commission Inquiry into Competition in the Australian Financial System and the ACCC inquiry into residential
mortgage pricing). These reviews and commissions of inquiry could lead to substantial regulatory change or investigations,
which could have a material impact on our business, prospects, financial performance or financial condition.
It is also possible that governments or regulators in jurisdictions in which we operate or obtain funding might revise their
application of existing regulatory policies that apply to, or impact, our business (including by instituting macro-prudential limits
on lending). Regulators or governments may take this action for a variety of reasons, including for reasons relating to national
interest and/or systemic stability.
Regulatory changes and the timing of their introduction continue to evolve and we manage our businesses in the context of
regulatory uncertainty and complexity. 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. Furthermore, the challenge in managing regulatory change may be
heightened by multiple jurisdictions seeking to adopt a coordinated approach to the introduction of new regulations. Where
these jurisdictions elect not to adopt regulation in a uniform manner across each jurisdiction, this may result in conflicts
between the specific requirements of the different jurisdictions in which we operate.
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.
Our businesses are highly regulated and we could be adversely affected by failing to comply with laws, regulations or
regulatory policy
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.
The Group is subject to compliance risk, which 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. This risk is exacerbated by the increasing complexity and
volume of global regulation. Compliance risk can also arise where we interpret our regulatory obligations, compliance
requirements and rights (including tax incentives) differently to our regulators or a court.
The Group’s failure, or suspected failure, to comply with a compliance obligation could lead to a regulator commencing an
investigation into the Group or taking other administrative or enforcement action against us. In addition, the failure or alleged
failure of our competitors to comply with their compliance obligations could lead to increased regulatory scrutiny across the
financial services sector.
In many cases, our regulators have broad administrative and enforcement powers. For example, under the Banking Act 1959
(Cth), APRA can, in certain circumstances, 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.
The powers exercisable by our regulators may also be expanded in the future. For example, the Australian Government has
consulted on a proposal to provide ASIC with a product intervention power and has also consulted on expanding ASIC’s
powers to ban individuals working in the financial services sector. Further details are set out in ‘Significant developments’ in
Section 1.
Changes may also occur in the oversight approach of regulators which could result in a regulator exercising its enforcement
powers rather than adopting a more consultative approach.
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2017 Westpac Group Annual Report
Risk and risk management
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 regulatory activity can be wide-ranging and may result in
litigation, fines, penalties, reputational damage, revocation, suspension or variation of conditions of relevant regulatory licences
(including potentially requiring us to change or adjust our business model) or other enforcement or administrative action or
agreements (such as enforceable undertakings).
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;
On 1 March 2017, ASIC commenced civil proceedings against Westpac in the Federal Court of Australia in relation to
certain home loan responsible lending practices (including interest only lending). Westpac is defending the proceedings;
and
On 15 March 2017, Westpac entered into an enforceable undertaking with ASIC following ASIC’s industry-wide
investigation into wholesale Spot Foreign Exchange (FX) trading activity between January 2008 and June 2013. As part of
the enforceable undertaking, Westpac undertook, amongst other things, to continue to progress its program of
strengthening its policies and processes in its Spot FX trading business, with input from an independent expert.
Furthermore, regulatory activity may result in Westpac being exposed to the risk of litigation brought by third parties (including
through class action proceedings). The outcome of such litigation (including class action proceedings) may be payment of
compensation to third parties and/or further remediation activities. In addition, action taken in one jurisdiction may prompt
similar action to be taken in another jurisdiction.
During the year ended 30 September 2017, Westpac has responded to requirements, compulsory notices and requests for
information from its regulators as part of both industry-wide and Westpac-specific reviews, including in relation to matters
involving sales practices, responsible lending, reverse mortgages, interest only loans, the provision of financial advice and
ongoing advice service fees.
Regulatory investigations, litigation, fines, penalties, revocation, suspension or variation of conditions of relevant regulatory
licences or other enforcement or administrative action or agreements (such as enforceable undertakings) could, either
individually or in aggregate with other regulatory action, adversely affect our business, reputation, prospects, financial
performance or financial condition.
The failure to comply with financial crime obligations could have an adverse effect on our business and reputation
The Group is subject to anti-money laundering and counter-terrorism financing laws, anti-bribery and corruption laws and
economic and trade sanctions laws in the jurisdictions in which it operates. These laws can be complex, and are undergoing
change in a number of jurisdictions. Furthermore, in recent years there has been increased focus on compliance with these
obligations, with regulators around the globe commencing large-scale investigations and taking enforcement action where they
have identified non-compliance (often seeking significant monetary penalties).
While the Group has systems, policies, processes and controls in place that are designed to manage its financial crime
obligations, these may not always be effective. If we fail to comply with these obligations, we could face regulatory action such
as litigation, fines, penalties and the revocation, suspension or variation of licence conditions. Non-compliance could also lead
to litigation commenced by third parties (including class action proceedings) and cause reputational damage. These actions
could, either individually or in aggregate, adversely affect our business, reputation, prospects, financial performance or financial
condition.
Reputational damage could harm our business and prospects
Our ability to attract and retain customers and our prospects could be adversely affected if our reputation is damaged.
Reputation risk is the risk 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, processes, performance and behaviours.
During the full year ended 30 September 2017, we commenced a broader program to reduce complexity and resolve prior
issues that have the potential to impact customers and reputation. As part of these reviews, we are strengthening our
processes and controls in certain businesses and we have identified some prior instances where we are now taking action to
put things right so that our customers are not at a disadvantage from certain past practices. For further information about these
and other internal reviews, refer to Note 31 to the Financial Statements.
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, failure to comply with legal and regulatory requirements, failure to
meet our market disclosure obligations, regulatory investigations into past conduct, adverse findings from regulatory reviews
(including Westpac-specific and industry-wide reviews), making inaccurate public statements, environmental, social and ethical
issues, engagement and conduct of external suppliers, failure to comply with anti-money laundering and counter-terrorism
2017 Westpac Group Annual Report
99
2
financing laws, anti-bribery and corruption laws, economic and trade sanctions 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 and
inadequate record keeping which may prevent Westpac from demonstrating that a past decision was appropriate at the time it
was made.
Westpac may incur reputational damage where one of its practices fails to meet evolving community expectations. As these
expectations may exceed the standard required in order to comply with the law, Westpac may incur reputational damage even
where it has met its legal obligations. A divergence between community expectations and Westpac’s practices could arise in a
number of ways, including in relation to our product and services disclosure practices, the features and benefits available under
our products, pricing policies and use of data. Our reputation could also be adversely affected by the actions of the financial
services industry in general or from the actions of our competitors, customers, suppliers and other counterparties. Furthermore,
the risk of reputational damage may be heightened by the increasing use of social media.
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 or litigation brought by third parties (including class actions), require us to remediate and
compensate customers and incur 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 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 protect against, 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, integrity and security of our information and technology is crucial in supporting our customers’ banking
requirements and meeting our compliance obligations and our regulators’ expectations.
While the Group has a number of processes in place to provide for and monitor the availability and recovery of our systems,
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. If we incur a technology failure we may fail to meet a compliance
obligation, which could result in a regulator commencing an investigation and/or taking administrative or enforcement action
against us.
Further, in order to continue to deliver new products and services to customers and comply with our regulatory obligations, we
need to regularly renew and enhance our technology. 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, unrealised 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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2017 Westpac Group Annual Report
Risk and risk management
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 other impacts on entities with whom we do business.
As of 30 September 2017, approximately 30% of our total funding originated from domestic and international wholesale
markets. Of this, around 62% was sourced outside Australia and New Zealand. Customer deposits provide around 62% 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 or
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 has the potential to adversely affect Westpac’s liquidity or ability to use derivative obligations
to hedge its interest rate, currency and other financial instrument risks.
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 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, the quality of our governance, 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.
A downgrade or series of downgrades to our credit ratings could have an adverse effect on 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.
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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, geopolitical instability (such as threats of or actual
conflict occurring around the world) 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 and affect investors’ willingness to invest in the
Group. 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. This 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, asset prices and trade flows in the countries in which we operate.
We conduct the majority of our business in Australia and New Zealand and, consequently, our performance is influenced by the
level and cyclical nature of lending in these countries. These factors are in turn impacted by both domestic and international
economic conditions, natural disasters and political events. A significant decrease in Australian and New Zealand housing
valuations could adversely impact our home lending activities because borrowers with loans in excess of their property value
show a higher propensity to default. In the event of defaults our security may be eroded, causing us to incur higher credit
losses. The demand for our home lending products may also decline due to adverse changes in tax legislation (such as
changes to tax rates, concessions or deductions), regulatory requirements or other 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, Chinese government policies 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.
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2017 Westpac Group Annual Report
Risk and risk management
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, clearing houses, 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 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 and
fees.
Increased competition for deposits could also increase our cost of funding and lead us to seek access to 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, our defined benefit plan 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.
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, as well as the risk of business
disruption due to external events such as natural disasters, environmental hazard, damage to critical utilities, and targeted
activism and protest activity. While we have policies, processes and controls in place to manage these risks, these may not
always be effective.
If a process or control is ineffective, it could result in an adverse outcome for Westpac’s customers. For example, a process
breakdown could result in a customer not receiving a product on the terms and conditions, or at the pricing, they agreed to. In
addition, inadequate record keeping may prevent Westpac from demonstrating that a past decision was appropriate at the time
it was made. If this was to occur, Westpac may incur significant costs in paying refunds and compensation to customers, as
well as remediating any underlying process breakdown. These types of failure may also result in increased regulatory scrutiny,
with a regulator potentially commencing an investigation and/or taking other enforcement, administrative or supervisory action.
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
(including in the calculation of risk-weighted assets). 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.
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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 can directly impact our reputation and result in financial losses (including through decreased demand for our
products and services) which would adversely affect our financial performance or financial condition.
The Group (and individual entities within the Group) may, from time to time, be involved in legal proceedings (including class
action proceedings), regulatory actions or arbitration arising from the conduct of their business. These may, either individually
or in aggregate, adversely affect the Group’s business, operations, prospects or financial condition. Such matters are subject to
many uncertainties (for example, the outcome may not be able to be predicted accurately) and the Group may be required to
pay money such as damages, fines, penalties or legal costs. 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 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. This risk can manifest itself through the poor conduct of our employees, contractors and
external service providers. In addition, conduct risk could occur through the provision of products and services to our customers
that do not meet their needs or do not support market integrity. This could occur through a failure to meet professional
obligations to specific clients (including fiduciary and suitability requirements), poor product design and implementation, selling
products and services outside of customer target markets or a failure to adequately provide the products or services we had
agreed to provide a customer. While we have policies and processes that are designed to manage poor conduct outcomes,
these policies and processes may not always be effective. The failure of these policies and processes could result in financial
losses and reputational damage and this could adversely affect our business, prospects, financial performance or financial
condition.
We could suffer losses due to failures in governance or risk management strategies
We have implemented risk management strategies, frameworks and internal controls involving processes and procedures
intended to identify, monitor and manage risks including liquidity risk, credit risk, equity risk, market risk (such as interest rate
and foreign exchange 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. The effectiveness of risk management frameworks is also connected to the
establishment and maintenance of a sound risk management culture.
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.
Climate change may have adverse effects on our business
We and our customers may be adversely affected by the physical risks of climate change, including increases in temperatures,
sea levels, and the frequency and severity of adverse climatic events including fires, storms, floods, and droughts. These
changes may directly impact us and our customers through reputational damage, environmental factors, insurance risk, and an
increase in defaults in credit exposures.
Initiatives to mitigate or respond to adverse impacts of climate change may in turn impact market and asset prices, economic
activity, and customer behaviour, particularly in geographic locations and industry sectors adversely affected by these changes.
Failure to effectively manage these transition risks could adversely affect our reputation, 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, all of which could adversely affect our business, prospects, financial performance or financial condition.
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Risk and risk management
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 or financial condition.
Insurance risk is the risk of mis-estimation of the expected cost of insured events, volatility in the number or severity of insured
events, and mis-estimation of the cost of incurred claims.
In the life insurance business, risk arises primarily through mortality (death) and morbidity (illness and injury) risks, the costs of
claims relating to those risks being greater than was anticipated when pricing those risks and policy lapses.
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. 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 potential losses from existing events, such as those arising from natural
disaster events, may not be adequate to cover actual claims that may arise.
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 or financial condition.
In certain circumstances Westpac may be exposed to a reduction in the value of intangible assets. As at 30 September 2017,
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 and other intangible asset 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 intangible assets.
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, or entry into 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. In addition, we may be unable to successfully divest
businesses or assets. These activities 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 and Compliance Committee (BRCC)
on an annual basis or more frequently where required by a material business or strategy change or a material change to the
Group’s risk profile. It is owned by the Chief Executive Officer (CEO).
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For further information regarding the role and responsibilities of the BRCC and other Board committees in managing risk, refer
to Westpac’s 2017 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 2017
Corporate Governance Statement and Note 22 to the financial statements.
Credit risk
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac.
We have a framework and supporting policies for managing the credit risk associated with lending across our business
divisions. The framework and policies encompass all stages of the credit cycle – origination, evaluation, approval,
documentation, settlement, ongoing administration and problem management. For example, we have established product-
based standards for lending to individuals, with key controls including minimum serviceability standards and maximum loan to
security value ratios. We offer residential property loans to both owner-occupiers and investors at both fixed and variable rates,
secured by a mortgage over the property or other acceptable collateral. Where we lend to higher loan to value ratios, we
typically also require lenders mortgage insurance. Similarly, we have established criteria for business, commercial, corporate
and institutional lending, which can vary by industry segment. In this area we focus on the performance of key financial risk
ratios, including interest coverage, debt serviceability and balance sheet structure. When providing finance to smaller business,
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 2017, our exposure to consumers comprised
72% (2016: 72%, 2015: 71%) of our on-balance sheet loans and 59% (2016: 58%, 2015: 57%) of total credit commitments. At
30 September 2017, 92% (2016: 91%, 2015: 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.
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2017 Westpac Group Annual Report
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 2017:
Program Limit
Issuer(s)
Program/Issuing Shelf Type
Risk and risk management
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
USD 35 billion
USD 15 billion
No limit
No limit
New Zealand
WBC
WBC
Debt Issuance Program
Euro Transferable Certificate of Deposit Program
WBC/WSNZL1
Euro Commercial Paper and Certificate of Deposit Program
WBC
WSNZL1
WBC2
WSNZL3
WBC
WBC
WBC
WSNZL1
WBC
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
US Medium Term Note Program
WBC (NY Branch)
US Medium Term Deposit Note Program
WBC (NY Branch)
Certificate of Deposit Program
WBC
US Securities and Exchange Commission registered shelves
No limit
Medium Term Note and Registered Certificate of Deposit Program
1 Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its
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 Markets 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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2
The table below depicts the aggregate Value at Risk (VaR), by risk type, for traded risk for the year ended 30 September:
Consolidated and Parent Entity
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
1
2017
Low Average
4.6
0.6
0.0
3.3
3.5
n/a
9.7
8.5
3.1
0.1
6.6
4.2
(8.6)
13.9
High
16.0
9.4
0.4
14.1
5.1
n/a
22.9
2016
Low Average
4.6
1.4
0.1
1.4
2.6
n/a
7.7
8.8
5.1
0.3
2.7
3.6
(8.0)
12.5
High
14.0
12.2
2.9
4.5
6.0
n/a
18.7
2015
Low Average
7.0
0.5
0.1
1.7
2.9
n/a
9.0
11.4
3.6
0.3
3.1
4.6
(7.2)
15.8
High
18.1
11.8
0.6
5.7
6.7
n/a
23.5
2
Includes electricity risk.
Include prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
The graph below compares the actual profit and loss from trading activities on a daily basis to VaR1 over the reporting period:
Traded Risk: Actual Profit and Loss vs. VaR
01 October 2016 to 30 September 2017
Actual Profit
and Loss ($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 2017 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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2017 Westpac Group Annual Report
Risk and risk management
The Group’s Operational Risk Management Framework and Compliance Management Framework provide the basis for
divisions to identify, assess, measure, manage, monitor and report on their risks. The Operational Risk Management
Framework sets out the Group’s approach to managing operational risk, and is supported by a number of key Group-wide and
divisional operational risk policies. 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, Responsible Investment Position Statement, Environmental,
Social and Governance (ESG) Credit Risk Policy, Climate Change Position Statement and Action Plan, Human Rights Position
Statement and Action Plan and sensitive sector position statements, and Responsible Sourcing Code of Conduct and
Framework, many of which are publicly available. The Sustainability Risk Management Framework was reviewed and updated
in 2017.
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 in our licensed regulated insurance entities 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
authorised deposit-taking institution in the Westpac Group.
The Group has in place a Related Entity Risk Management Framework and a suite of supporting policies and procedures
governing the control of dealings with, and activities that may be undertaken by, Group members. Controls include the
measurement, approval and monitoring of, and limitations on, the extent of intra-group credit exposures and other forms of
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2
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 arises where there are differences between stakeholder’s current and/or emerging perceptions, beliefs and
expectations relative to our current and planned activities, performance and 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 2017.
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 2017, the carrying value of assets pledged for the covered bond programs for the Group was $42.1 billion
(2016: $45.4 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 2017, our assets securitised through a combination of privately or publicly placed issues primarily to
Australian, New Zealand, European and Asian investors was $8.2 billion (2016: $9.5 billion).
Under AAS substantially all of the structured entities involved in our loan securitisation programs are consolidated by the
Group.
Refer to Note 25 to the financial statements for further details.
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2017 Westpac Group Annual Report
Risk and risk management
Customer funding conduits
We arrange financing for certain customer transactions through a commercial paper conduit that provides customers with
access to the commercial paper market. As at 30 September 2017, we administered one significant conduit (2016: one), that
was created prior to 1 February 2003, with commercial paper outstanding of $0.4 billion (2016: $0.9 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 $41 million as at 30 September 2017 (2016: $97 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 2017.
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 2017.
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 2017 that has been identified and that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
2017 Westpac Group Annual Report
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2
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. We believe that as one of Australia’s largest companies we have a role to play in helping to create positive
social, economic and environmental impact, for the benefit of all. 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, Westpac has adopted the Standard’s three key principles:
Evaluating all topics identified to determine the impact they may have on stakeholders and the Group’s operations –
Involving all stakeholders in identifying topics and developing strategy – Inclusivity;
Sustainability materiality; and
Ensuring decisions, actions and performance, as well as communication with stakeholders, is 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
2017, these included:
Assessed as the most sustainable bank globally in the 2017 Dow Jones Sustainability Indices (DJSI) achieving a score of
94. This marks the fourth year in a row and 10th time that Westpac has achieved global banking sector leadership, and the
16th year in a row that Westpac has been recognised among global banking leaders;
Assigned a Gold Class ranking in the RobecoSAM Sustainability Yearbook for 2017, released in January 2017; and
Recognised as one of only ten Australian companies to achieve Leadership level in the 2017 CDP1, with a climate score of
A-. This puts Westpac among the top 22% of companies globally to achieve this level.
1 Formerly the Carbon Disclosure Project.
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2017 Westpac Group Annual Report
Westpac’s approach to sustainability
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 highly
material for the Group and its stakeholders, and further detailed in Westpac’s 2017 Sustainability Performance Report.
Prioritisation of material topics continues to be subject to annual independent external assurance by PricewaterhouseCoopers.
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 given the threat
of cyberattacks and the
evolving nature of
technology.
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 in which
Westpac operates continues
to evolve, creating
uncertainty in the operating
environment.
Conduct and culture is vital
for maintaining the trust of
customers, shareholders
and regulators.
Full year responses and achievements
Launched a new credit card, Westpac Lite, in response to customer feedback for a
simple, low rate and low limit ‘no frills’ credit card and also launched Westpac
SmartPlan, an online tool to help customers manage their credit card balance and
pay down their debts more easily;
Introduced a number of new products and services such as ‘Bump Savings account’
which encourages savings habits early that allows parents and children to set and
track savings goals; and partnered with Mathspace to provide free access to online
maths education for all Australians; and
Released a Financial Inclusion Plan outlining our vision for financial inclusion, with
priority areas of crisis and hardship, understanding money and inclusive growth.
Invested in new cybersecurity capability and additional dedicated resources to
counter new and emerging threats;
Enhanced the resilience and security of systems to protect the privacy,
confidentiality, integrity and availability of customer information and sensitive
commercial data; and
Delivered cybercrime information sessions to more than 3,000 business customer
across Australian capital cities.
Introduced 160 new features and enhancements across digital banking platforms,
including:
- categorisation of customers transactions into groups such as bills and payments,
food and beverages etc;
- secured and unsecured personal loan applications where existing customers can
apply online, receive an instant response, accept their contract electronically and
receive funds automatically 24/7.
Westpac Quick Transfer is a new function in our mobile banking app allowing
customers to make transfers among their own accounts without having to log in.
This was awarded a 2017 CANSTAR Innovation Excellence Award; and
Continued to incubate and partner with a number of fintech start-ups to offer new
services for customers now and in the future.
Invested over $325 million during the year to enhance existing and implement new
processes to comply with recent regulatory and compliance changes; and
For further detail, see Section 1 Information on Westpac.
Established a customer advocate to provide a new independent avenue of review of
complaints for personal and small business customers;
Rolled out refreshed ‘Doing the Right Thing’ mandatory compliance training which
aligns to our Values and includes an updated ethical awareness component;
Improved alignment of sales practices to Our Service Promise by removing all sales
incentives for tellers and personal bankers are now incentivised equally for sales
and service;
Updated Whistleblower Policy, increased the channels available to report matters,
and established a wellbeing and quality assurance process to ensure whistleblowers
receive adequate support;
Continue to actively review the design and communication of our products and
services for fairness and suitability, and established Product Governance
Committees in each division; and
Made progress in implementing industry reform initiatives, such as the conduct
background check protocol, through our commitment to the ABA-led Better Banking
Reform Program.
2017 Westpac Group Annual Report
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2
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.
Maintaining a healthy
financial performance and
strong balance sheet is vital
to the Group’s long term
sustainability.
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, meaning the
Australian economy reaches
net zero emissions by 2050.
Financial and
economic
performance
Climate
change
transition
and
opportunities
Value chain
sustainability
risks
We actively manage a range
of sustainability risks
(including climate change
and human rights) in our
value chain through our
lending to customers, our
investments in funds, and
through our supply chain.
Inclusion
and diversity
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.
Talent
attraction
and retention
Attracting, retaining and
developing the right people
requires innovative
recruitment strategies and
working conditions to match
changing employee
expectations.
Full year responses and achievements
For further detail, see Section 1 Corporate governance and our Remuneration Report
and Section 2 Risk and risk management.
Delivered another sound performance with a cash return on equity of 13.8%
supported by disciplined business growth and well managed margins;
Strengthened the balance sheet meeting APRA’s ‘unquestionably strong’ capital
benchmark capital ratio of 10.5%. On track for the implementation of the Net Stable
Funding Ratio on 1 January 2018; and
Asset quality has improved with level of stressed assets decreasing over the year.
Informed by our climate scenario analysis completed in 2016, developed the next
phase of actions we are taking over the short, medium and long term demonstrating
our commitment to operate consistent with limiting global warming to less than two
degrees Celsius;
Issued the first offshore foreign currency Climate Bond by an Australian bank, and
published the first Westpac Climate Bond Impact Report;
Announced new targets to increase lending and facilitate climate change solutions;
and
Continued to report climate related disclosures in our annual Sustainability
Performance Report and commenced alignment with the recommendations of the
Task Force on Climate-related Financial Disclosures (TCFD).
Continued to apply the Group’s Sustainability Risk Management Framework to the
identification, assessment and management of sustainability risks across the
organisation – including to decisions related to customers and suppliers;
Refreshed and reset our Position Statement and 2020 Action Plan for both Human
Rights and Climate Change and updated other position statements, including
Financing Agribusiness and Providers of Payday Lending;
Released our Responsible Sourcing Code of Conduct and established a global
Responsible Sourcing Steering Committee to oversee its application across
jurisdictions; and
Released our first statement in response to the UK Modern Slavery Act requirements
for large companies operating in the UK to report on the steps taken to prevent
slavery and human trafficking in supply chains.
Reached 50% women in leadership roles and exceeded 40% women in general
management positions;
Indigenous employment parity was maintained, whereby the proportion of Indigenous
Australians employed is 4%, reflecting the proportion of Indigenous Australians in the
wider Australian population;
Hosted Australia’s first corporate LGBTIQ inclusion summit which featured a number
of high profile speakers from business, sports and entertainment;
Announced our Accessibility Action Plan for 2017-2020 continuing our public
commitment to enhance access and inclusion for our employees, customers and
communities; and
St.George Bank became the first Australian bank to be accredited as dementia-
friendly by Alzheimer’s Australia.
Launched Certificate of Executive Leadership, a professional accreditation with the
Australian Graduate School of Management in Australia and the University of
Auckland in New Zealand to more than 900 leaders to strengthen the leadership
capabilities of our middle managers;
Introduced Motivate, our new approach to performance, development and reward to
four divisions, with the remainder set to follow in 2018;
To build the skills of the future and encourage a culture of lifelong learning,
LearningBank (our new learning and development platform) was extended to all
employees and to Westpac Scholars through the Westpac Bicentennial Foundation;
and
Conducted a Group-wide employee engagement survey which demonstrated good
progress in all key areas and an overall engagement score of 79%, placing the
Group in the top 25% of companies globally against the survey benchmark.
For further detail, please see our Annual Review and Sustainability Report and Sustainability Performance Report.
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2017 Westpac Group Annual Report
Westpac’s approach to sustainability
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
Ensure our workforce is
representative of the community
Full year 2017 performance
Proportion of leadership roles held by women increased from 48% to 50%
achieving the Group’s 2017 target;
Recruited an additional 177 people who identify as Aboriginal and Torres Strait
Islander peoples, bringing to 628 those recruited and exceeding our three year
goal of 500 by 2017;
Participation of mature aged workers (50+) is 22.2%, up from 21.5% a year ago;
and
Financial wellbeing of women aged 40+ as rated by the BT Financial Health Index
survey remained stable.
Extend length and quality of
working lives
Mean employee retirement age was 62.3 years, up compared to a year ago; and
Workplace wellbeing as measured by the Work Ability Index remained within the
Help improve
the way
people work
and live, as
our society
changes
Anticipate the future product and
service needs of ageing and
culturally diverse customers
‘good’ range.
Increased convenience for multi-cultural customers by enabling foreign currency
accounts in core currencies to be opened via Westpac Live online banking;
Introduced new Bereavement Support sites on the websites for all our major bank
brands, as well as Bereavement customer guide booklets;
Improved online guidance and banker training supporting bereaved customers for
all four bank brands in Australia;
Launched educational videos via the Westpac Davidson Institute to help new
arrivals and multicultural Australians better understand Australian super, tax and
the process of transferring money overseas; and
Launched live stream videos via our social media platforms with tips on how
Chinese students in the midst of planning their move to Australia can manage
their finances.
Since 2013 launched nine unique products/services, including incorporation of
sustainability market data into the Panorama investment platform and announced
as the preferred financial partner for the Tasmanian Energy Efficiency Loan
Scheme.
Increased committed exposure to the CleanTech and environmental services
sector relative to 2016, taking total committed exposure to $7.0 billion, surpassing
the 2017 target by 16%.
Help find
solutions to
environmental
challenges
Provide products and services to
help customers adapt to
environmental challenges
Increase lending and investment
in CleanTech and environmental
services
Reduce our environmental
footprint
Maintained carbon neutral status and achieved a reduction of more than 40% in
office paper consumption since 2012;
Bank of Melbourne’s 525 Collins Street branch became the first 6 Star Green Star
bank branch in Victoria, reflecting leading eco-efficient practices;
Achieved 2017 power usage effectiveness target of 1.6 and surpassed the 2017
energy efficiency target with 169 kWh/m2; and
Recycling rates and water consumption in Sydney head offices improved to 75%
and 104,866 kL respectively.
1 All results as at 30 September 2017 except environmental footprint which is as at 30 June 2017. Refer to www.westpac.com.au/sustainability for
glossary of terms and metric definitions.
2017 Westpac Group Annual Report
115
2
Priority
Help
customers to
have a better
relationship
with money,
for a better
life
Objectives
Ensure all our customers
have access to the right
advice to achieve a
secure retirement
Help our customers meet
their financial goals in
retirement
Increase access to
financial services in the
Pacific
Help people gain access
to social and affordable
housing and services
Full year 2017 performance
Lifted engagement between customers and BT Adviser View to increase transparency on
quality of advice and service; and
BT Advice average customer satisfaction rating was 4.91 out of 5.00 for 2017, above the
target of 4.90.
The proportion of Group customers with Group superannuation was 7.5%, a decrease
compared to 7.8% in 2016;
Launched SuperCheck, a tool which allows our customers to find all their superannuation
within 60 seconds and open an account and rollover in three clicks, in Westpac and
St.George group channels; and
‘Wealth Review’ tool provided members and their families key insights into their financial
position.
Launched Choice Wantok, an ambitious financial inclusion program in PNG as part of a
joint venture between Westpac and the Pacific Financial Inclusion Program;
Met 2017 target for the number of 300,000 Choice Basic banking customers in our Pacific
operations ahead of schedule; and
There were nearly 177,000 mobile banking activations and over 330,000 In-store
transactional volumes as at 30 September 2017.
Lent over $1.32 billion to the social and affordable housing sector, up from $1.05 billion at
30 September 2016 and short of our $2 billion 2017 target.
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2017 Westpac Group Annual Report
Five year non-financial summary1
Key trends across a range of non-financial areas of performance are provided in the following five year non-financial summary,
with a more detailed account of sustainability performance included in our Annual Review and Sustainability Report and
Sustainability Performance Report.
Westpac’s approach to sustainability
Customer
Total customers (millions)2
Digitally active customers (millions)3
Branches4
Branches with 24/7 capability (%)5
ATMs
Smart ATMs (%)6
Change in consumer compliments (%) - Australia
Change in consumer complaints (%) - Australia
Change in consumer complaints (%) - NZ
Wealth customer penetration (%)7
Employees
Total employees (full-time equivalent)8
Employee voluntary attrition (%)9
New starter retention (%)10
Employee engagement index (%)11
Lost Time Injury Frequency Rate (LTIFR)12
Women as percentage of the total workforce (%)
Women in leadership (%)13
Environment
Total Scope 1 and 2 emissions - Aust and NZ (tonnes CO2-e)14
Total Scope 3 emissions - Aust and NZ (tonnes CO2-e)15
Paper consumption - Aust and NZ (tonnes)16
Sustainable lending and investment
CleanTech and environmental services attributable
financing - Aust and NZ ($m)
Proportion of electricity generation financing in renewables including
hydro - Aust and NZ (%)17
Electricity generation portfolio emissions intensity
(tonnes CO2-e/MWh)18
Finance assessed under the Equator Principles - Group ($m)19
Responsible investment funds under management ($m)20
Social impact
Community investment ($m)21
Community investment as a percentage of pre-tax profits - Group (%)
Community investment as a percentage of pre-tax operating profit
2017
2016
2015
2014
2013
13.8
5.3
13.4
4.9
13.1
4.9
12.8
4.7
1,251
1,310
1,429
1,534
29
27
22
15
12.2
4.2
1,544
-
3,665
3,757
3,850
3,890
3,814
44
19
(18)
(21)
37
38
(31)
(7)
31
-
(31)
(18)
24
-
(27)
(16)
17.6
19.1
19.7
20.0
17
-
(15)
19
18.7
35,096
35,580
35,484
36,596
35,894
9.6
84.7
79
0.6
58
50
10.6
85.5
69
0.8
58
48
10.6
85.3
-
0.8
59
46
9.8
88.0
-
1.1
59
44
9.8
86.7
-
1.5
60
42
131,723
154,339
173,437
175,855
180,862
68,415
63,016
67,899
73,871
2,706
3,304
4,857
5,334
85,013
5,762
6,979
6,193
6,054
7,978
6,438
65
59
61
59
55
0.36
891
0.38
617
0.38
1,065
21,881
18,723
15,017
0.41
851
-
164
1.42
148
1.39
149
1.30
217
2.02
0.44
268
-
131
1.33
(cash earnings basis)
Financial education (participants)22
1.41
1.32
1.33
1.99
112,263
59,596
65,538
49,812
1.28
32,577
Supply chain23
Number of suppliers assessed against Responsible Sourcing
Code of Conduct
Spend with indigenous Australian suppliers - Australia ($m)24
31
2.5
-
1.6
-
1.2
-
-
2017 Westpac Group Annual Report
-
-
117
2
1
2
3
4
5
All data represents Group performance as at 30 September unless otherwise stated.
All customers with an active relationship (excludes channel only and potential relationships).
Unique customers who have successfully authenticated (including Quickzone) into the digital banking platforms within 90 days. Figures
prior to 2016 are not comparable.
FY16 restated from 1,309 to 1,310.
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).
ATMs with deposit taking functionality. Excludes old style envelope deposit machines.
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 Westpac
Group and also have Managed Investments, Superannuation or Insurance with the Westpac Group.
Full-time equivalent employees include permanent (full-time and pro-rata part-time staff) employees, and temporary (overtime, temporary
and contract staff) employees.
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.
10 Voluntary new starter retention over the 12 month rolling new starter headcount for the period (includes full time and part time permanent
6
7
8
9
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) in leadership roles across the Group. It includes
the CEO, Group Executives, General Managers, senior leaders with significant influence on business outcomes (direct reports to General
Managers and their direct reports), large (3+) team people leaders three levels below General Manager, and Bank and Assistant Bank
Managers.
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 with 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.
Total copy paper purchased (in tonnes) by the Group as reported by its suppliers.
16
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
19
21
22
by weighting each loan (total committed exposures) by the emissions intensity of each company.
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 environmental, social and governance (ESG integration) approach. Data prior to 2015 not available due to
change in reporting methodology.
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.
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.
23 New metrics introduced as we implement the Group’s Responsible Sourcing Code of Conduct.
24 Annual spend with businesses that are 51% or more owned and operated by an Aboriginal or Torres Strait Islander person and certified
with a relevant member organisation.
118
2017 Westpac Group Annual Report
Other Westpac business information
Employees
The number of employees in each area of business as at 30 September:
Consumer Bank1
Business Bank
BT Financial Group (Australia)
2017
10,162
3,136
4,175
Westpac Institutional Bank
Westpac New Zealand2
11,896
Group Businesses
Total Group businesses3
35,580
1 Consumer Bank and Group Businesses employees impacted by the transfer of customer contact centres during 2017. Prior periods
were not restated
2 Comparatives have been restated for New Zealand contractors. (2016: increased by 300, 2015: increased by 243)
3 Total employees include full-time, pro-rata part time, overtime, temporary and contract staff.
10,613
35,096
4,328
2,682
4,445
2,693
2016
2015
9,207
3,186
4,153
9,240
3,060
4,045
2,846
4,618
11,675
35,484
2017 v 2016
Total employees decreased by 484 compared to 30 September 2016 from productivity initiatives that have streamlined and
digitised processes across both technology and operations, partly offset by investment in growth and productivity initiatives and
resources for compliance activities.
Property
We occupy premises primarily in Australia, New Zealand and the Pacific Islands including 1,251 branches (2016: 1,310) as at
30 September 2017. As at 30 September 2017, we owned approximately 1.6% (2016: 1.6%) of the premises we occupied in
Australia, none (2016: none) in New Zealand and 40% (2016: 40%) 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 2017, the carrying value of our
directly owned premises and sites was approximately $95 million (2016: $102 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 in
2024. This site is currently undergoing a refurbishment program and will have the capacity for over 6,000 staff in an agile
environment upon its completion.
Westpac also occupies levels 1-28 of T2 in International Towers Sydney with a lease extended until 2030. This site has a
capacity for over 6,000 personnel in an agile environment.
We continue a corporate presence in Kogarah, in the Sydney metro area, which is a key corporate office of St.George. The
Kogarah office has a 2,650 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 Melbourne, Westpac has occupied the majority of 150 Collins Street since October 2015 with a lease term that extends to
2026. This was Westpac’s first fully agile workspace environment with over 1,000 staff now occupying our new Melbourne
Head Office.
‘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.
2017 Westpac Group Annual Report
119
2
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 2017 and
2016 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 2017, 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.
120
2017 Westpac Group Annual Report
Financial statements
Income statements
Statements of comprehensive income
Balance sheets
Statements of changes in equity
Cash flow statements
Notes to the financial statements
Note 1
Financial statements preparation
Financial performance
Note 2 Segment reporting
Note 3 Net interest income
Note 4 Non-interest income
Note 5 Operating expenses
Impairment charges
Note 6
Note 7
Income tax
Note 8 Earnings per share
Note 9 Average balance sheet and interest rates
Financial assets and financial liabilities
Note 10 Receivables due from other financial institutions
Note 11 Trading securities and financial assets
Note 11 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
Note 15
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
Note 18
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
Note 23
income statement
liabilities
Note 24 Offsetting financial assets and financial liabilities
Note 25 Securitisation, covered bonds and other
Note 25
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
Note 31 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
Statutory statements
Directors’ declaration
Management’s report on internal control over financial reporting
Independent auditor’s report to the members of Westpac Banking Corporation
Report of independent registered public accounting firm
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
Note
2017
2016
2015
Parent Entity
2017
2016
3
3
4
5
6
7
8
8
31,232
31,822
32,295
30,865
31,803
(15,716)
(16,674)
(18,028)
(17,765)
(19,182)
15,516
15,148
14,267
13,100
12,621
6,286
5,837
7,375
6,131
4,617
21,802
20,985
21,642
19,231
17,238
(9,434)
(9,217)
(9,473)
(7,898)
(7,572)
(853)
(1,124)
(753)
(870)
(922)
11,515
10,644
11,416
10,463
8,744
(3,518)
(3,184)
(3,348)
(2,620)
(2,437)
7,997
7,460
8,068
7,843
6,307
(7)
(15)
(56)
-
-
7,990
7,445
8,012
7,843
6,307
238.0
229.3
224.6
217.8
255.0
248.2
The above income statements should be read in conjunction with the accompanying notes.
122
2017 Westpac Group Annual Report
Statements of comprehensive income for the years ended 30 September
Westpac Banking Corporation
Financial statements
$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:
Recognised in equity (net of tax)
Transferred to income statements
Consolidated
2017
2016
2015
Parent Entity
2017
2016
7,997
7,460
8,068
7,843
6,307
75
(3)
56
(8)
(91)
115
(304)
21
(116)
(238)
(18)
(6)
3
9
(13)
85
(17)
-
(148)
(73)
(59)
(131)
15
67
54
5
-
88
(3)
(42)
19
(77)
(25)
7
71
(1)
(193)
(106)
(105)
(19)
90
-
-
-
-
Items that will not be reclassified subsequently to profit or loss
Own credit adjustment on financial liabilities designated at
(164)
(54)
160
(164)
(54)
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
190
(6)
(47)
(519)
111
1
182
(15)
7,991
6,941
8,069
7,828
7,984
7
7,991
6,926
15
6,941
8,013
56
8,069
7,828
-
7,828
(42)
(359)
5,948
5,948
-
5,948
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
2017 Westpac Group Annual Report
123
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
Investment in subsidiaries
Investment in associates
Property and equipment
Deferred tax assets1
Intangible assets1
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
Total equity attributable to owners of Westpac Banking Corporation
Non-controlling interests
Total shareholders' equity and non-controlling interests
1 Comparatives have been revised for changes in accounting policy. Refer to Note 1(iv).
Consolidated
Note
2017
2016
Parent Entity
2017
2016
41
10
11
21
12
13
15
35
7
26
27
16
17
18
21
19
18,397
17,015
16,405
15,186
7,128
9,951
6,357
8,325
25,324
21,168
22,946
18,562
24,033
32,227
23,823
32,090
60,710
60,665
55,800
56,161
684,919
661,926 606,237 579,739
10,643
14,192
-
-
1,048
1,390
945
1,269
-
-
60
1,487
1,112
- 142,455 143,549
-
3,975
4,622
726
1,737
1,351
46
1,250
1,053
9,259
4,318
-
1,458
1,399
9,305
4,055
11,652
11,721
5,362
5,133
851,875
839,202 894,869 875,720
21,907
18,209
21,775
18,141
533,591
513,071 477,693 455,742
4,056
4,752
4,038
4,371
25,375
36,076
24,911
35,209
168,356
169,902 144,116 145,576
308
385
15
9,019
12,361
234
-
314
-
-
- 143,834 142,808
28
7
29
1,462
1,420
1,295
1,267
10
36
-
-
8,783
9,004
7,126
7,286
772,867
765,216 825,022 810,714
20
17,666
15,805
17,666
15,805
790,533
781,021 842,688 826,519
61,342
58,181
52,181
49,201
32
32
32
32
34,889
33,469
34,889
33,469
(495)
794
(455)
727
(437)
858
(369)
790
26,100
24,379
16,871
15,311
61,288
58,120
52,181
49,201
54
61,342
61
58,181
-
52,181
-
49,201
The above balance sheets should be read in conjunction with the accompanying notes.
124
2017 Westpac Group Annual Report
Statements of changes in equity for the years ended 30 September
Westpac Banking Corporation
Consolidated
$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
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
Other2
Total contributions and distributions
Balance at 30 September 2016
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
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
Share
capital
(Note 32)
26,639
-
-
-
-
1,412
1,000
-
16
(91)
(81)
-
-
2,256
28,895
-
-
-
-
726
3,510
-
2
(49)
(70)
-
4,119
33,014
-
-
-
-
1,452
-
11
(43)
(40)
-
Reserves
(Note 32)
Retained
profits
1,176
-
(270)
(270)
-
-
-
141
-
-
-
-
(16)
125
1,031
-
(418)
(418)
-
-
-
116
-
-
-
(2)
114
727
-
(32)
(32)
-
-
98
-
-
-
1
20,641
8,012
271
8,283
(5,752)
-
-
-
-
-
-
-
-
(5,752)
23,172
7,445
(101)
7,344
(6,128)
-
-
-
-
-
-
(9)
(6,137)
24,379
7,990
26
8,016
(6,291)
-
-
-
-
-
(4)
Total equity
attributable
to owners
of Westpac
Banking
Corporation
48,456
8,012
1
8,013
(5,752)
1,412
1,000
141
16
(91)
(81)
-
(16)
(3,371)
53,098
7,445
(519)
6,926
(6,128)
726
3,510
116
2
(49)
(70)
(11)
(1,904)
58,120
7,990
(6)
7,984
(6,291)
1,452
98
11
(43)
(40)
(3)
Financial statements
Non-
controlling
interests
(Note 32)
Total
shareholders'
equity and
non-
controlling
interests
49,337
8,068
1
8,069
881
56
-
56
-
-
-
-
-
-
-
(105)
(15)
(120)
817
15
-
15
-
-
-
-
-
-
-
(771)
(771)
61
7
-
7
-
-
-
-
-
-
(14)
(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
7,997
(6)
7,991
(6,291)
1,452
98
11
(43)
(40)
(17)
(4,830)
61,342
Total contributions and distributions
Balance at 30 September 2017
1 2017 comprises 2017 interim dividend 94 cents ($3,150 million) and 2016 final dividend 94 cents per share ($3,141 million) (2016: 2016 interim
dividend 94 cents ($3,130 million) and 2015 final dividend 94 cents ($2,998 million), 2015: 2015 interim dividend 93 cents ($2,897 million) and
2014 final dividend 92 cents ($2,855 million), all fully franked at 30%.
(4,816)
61,288
1,380
34,394
(6,295)
26,100
99
794
(14)
54
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.
2017 Westpac Group Annual Report
125
3
Total
shareholders'
equity and
other equity
instruments
45,915
6,307
(359)
5,948
(6,129)
726
3,510
(11)
113
2
(49)
(61)
(763)
(2,662)
49,201
7,843
(15)
7,828
(6,301)
1,452
101
11
(43)
(68)
-
(4,848)
52,181
Statements of changes in equity for the years ended 30 September (continued)
Westpac Banking Corporation
Parent Entity
$m
Balance at 1 October 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
Total contributions and distributions
Balance at 30 September 2016
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
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 equity
attributable
to owners
Reserves
(Note 32)
Retained
profits
of Westpac Convertible
debentures
(Note 32)
Banking
Corporation
940
-
(263)
(263)
-
-
-
-
113
-
-
-
-
113
790
-
(33)
(33)
-
-
101
-
-
-
-
15,248
6,307
(96)
6,211
(6,129)
-
-
(11)
-
-
-
-
(8)
(6,148)
15,311
7,843
18
7,861
(6,301)
-
-
-
-
-
-
45,160
6,307
(359)
5,948
(6,129)
726
3,510
(11)
113
2
(49)
(61)
(8)
(1,907)
49,201
7,843
(15)
7,828
(6,301)
1,452
101
11
(43)
(68)
-
755
-
-
-
-
-
-
-
-
-
-
-
(755)
(755)
-
-
-
-
-
-
-
-
-
-
-
Share
capital
(Note 32)
28,972
-
-
-
-
726
3,510
-
-
2
(49)
(61)
-
4,128
33,100
-
-
-
-
1,452
-
11
(43)
(68)
-
Total contributions and distributions
Balance at 30 September 2017
1 2017 comprises 2017 interim dividend 94 cents ($3,156 million) and 2016 final dividend 94 cents per share ($3,145 million) (2016: 2016
(4,848)
52,181
1,352
34,452
(6,301)
16,871
101
858
-
-
interim dividend 94 cents ($3,136 million) and 2015 final dividend 94 cents ($2,993 million), 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.
126
2017 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 provided by/(used in) operating activities
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
Net (increase)/decrease in investments in associates
Proceeds from sale of associates
Proceeds from disposal of controlled entities, net of cash disposed
Net cash provided by/(used in) 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
Financial statements
Note
Consolidated
2016
2017
2015
Parent Entity
2017
2016
31,133
(15,415)
27
5,064
(7,966)
(3,388)
2,239
24
433
(1,861)
(164)
31,817
(16,721)
43
5,050
(8,106)
(3,373)
1,893
30
348
(1,642)
(96)
32,377
(18,319)
12
5,289
(7,502)
(3,322)
1,921
33
328
(1,754)
(104)
30,784
(17,458)
1,861
4,457
(6,748)
(3,192)
31,812
(19,221)
960
3,426
(6,496)
(3,143)
-
-
-
-
-
-
-
-
-
-
10,126
9,243
8,959
9,704
7,338
(5,054)
(26,815)
2,653
219
308
(5,042)
200
(681)
23,062
3,859
(15)
2,820
25,717
(27,028)
-
-
(766)
(264)
65
(52)
630
-
6,755
(38,082)
(896)
(253)
(209)
(5,107)
(476)
(4,488)
38,771
(73)
312
5,497
18,779
(24,724)
-
-
(707)
(521)
32
-
-
(104)
21,538
(39,569)
(1,000)
(191)
497
11,730
95
(10,027)
8,526
(1,194)
95
(541)
8,471
(26,551)
-
-
(630)
(677)
24
-
-
648
(5,194)
(27,677)
1,817
-
294
(5,378)
136
(325)
22,518
3,792
78
(235)
23,707
(24,820)
640
2,999
(692)
(203)
55
(46)
-
-
6,706
(35,852)
(128)
-
(219)
(3,796)
4
(4,861)
33,508
459
284
3,443
14,357
(20,149)
(37)
888
(625)
(441)
17
-
-
(104)
(1,698)
(7,245)
(18,715)
1,640
(6,094)
4,437
(2,188)
3,249
-
-
11
(17)
(27)
(68)
7
(4,839)
(13)
-
552
1,674
(292)
17,015
18,397
3,596
(1,444)
5,213
3,510
-
2
(24)
(27)
(62)
(8)
(5,402)
(18)
(763)
4,573
2,825
(580)
14,770
17,015
2,244
-
6,826
-
1,000
16
(73)
(27)
(69)
(12)
(4,340)
(52)
-
5,513
(13,743)
2,753
25,760
14,770
4,437
(2,188)
2,746
-
-
11
(17)
(27)
(68)
-
(4,849)
-
-
45
1,450
(231)
15,186
16,405
3,596
(1,444)
5,674
3,510
-
2
(24)
(27)
(62)
1
(5,414)
-
(763)
5,049
2,398
(584)
13,372
15,186
41
41
41
The above cash flow statements should be read in conjunction with the accompanying notes. Details of the reconciliation of net
cash (used in)/provided by operating activities to net profit are provided in Note 41.
2017 Westpac Group Annual Report
127
3
Notes to the financial statements
Note 1. Financial statements 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 2017 was authorised for issue by the Board of Directors on 6 November 2017. 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:
Australian Accounting Standards (AAS) and Interpretations as issued by the Australian Accounting Standards Board
the requirements for an authorised deposit-taking institution under the Banking Act 1959 (as amended);
(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 policies
In November 2016 the IFRS Interpretations Committee (IFRIC) published an agenda decision addressing the expected manner
of recovery of intangible assets with indefinite useful lives for the purposes of measuring deferred tax.
The IFRIC determined that the fact that an entity does not amortise an intangible asset with an indefinite useful life does not
mean that it has an infinite life and that the entity will recover the carrying amount of that asset only through sale and not
through use.
As a result, the Group has retrospectively changed its accounting policy for the accounting of deferred income tax on our brand
name indefinite life intangible assets acquired through business combinations. The deferred tax was determined based on the
full difference between the carrying amount and the tax base of these assets as the assets are expected to be recovered
through use.
The change in accounting policy resulted in the following adjustments to the Group’s consolidated financial statements:
Balance Sheet
Consolidated
Parent Entity
Reported
30-Sep
2016
Restated Reported
30-Sep
30-Sep
2016
Adjustment
2016
Restated
30-Sep
Adjustment
2016
Total assets
1 The adjustment was made against deferred tax liability which was offset (where appropriate) against deferred tax assets.
2 The adjustment was made against goodwill.
1,552
11,520
839,202
(201)
201
-
1,351
11,721
839,202
1,590
9,114
875,720
(191)
191
-
1,399
9,305
875,720
$m
Assets
Deferred tax assets1
Intangible assets2
128
2017 Westpac Group Annual Report
Notes to the financial statements
Note 1. Financial statements preparation (continued)
(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.
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.
Income tax
Provisions for impairment charges
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
Fair values of financial assets and financial liabilities
Life insurance assets and life insurance liabilities
Superannuation commitments
Intangible assets
Provisions
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 unless otherwise stated, 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. The standard is effective for the 30 September 2019 year
end. The major changes under the standard and details of the implementation project are outlined below.
2017 Westpac Group Annual Report
129
3
Note 1. Financial statements preparation (continued)
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
(stage 1). 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 (stages 2 and 3 respectively);
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.
Implementation
The Group has established an AASB 9 impairment project which will deliver conversion to the new standard effective 1 October
2018.
Models are currently being developed, tested and approved for core portfolios. These models use three main components to
determine the expected credit loss (as well as the time value of money) including:
Probability of default (PD): the probability that a counterparty will default;
Exposure at default (EAD): the estimated outstanding amount of credit exposure at the time of the default.
Loss given default (LGD); the loss that is expected to arise in the event of a default; and
The models use a 12 month timeframe for expected losses in stage 1 and a lifetime timeframe for expected losses in stages 2
and 3. This incorporates past experience, current conditions and multiple probability-weighted macroeconomic scenarios for
reasonably supportable future economic conditions.
There will be a new governance framework to implement appropriate controls to address the new requirements of AASB 9
including key areas of judgement such as the determination of a significant increase in credit risk and the use of forward looking
information in future economic scenarios.
The judgement to determine significant deterioration of credit risk will be based on changes in internally assessed customer risk
grades since origination of the facility. The movement between stages 2 and 3 will be based on whether financial assets are
credit-impaired at the reporting date which is expected to be similar to the individual assessment of impairment for financial
assets under the current AASB 139.
New AASB 9 models will be independently reviewed and validated in accordance with the Group’s model risk policies and
approved by the Credit Risk Estimates Committee (CREC). The Board Risk and Compliance Committee (BRCC) will also
approve the methodology and key areas of judgement will be discussed with the Board Audit Committee.
Models and credit risk processes will be further tested during a parallel run prior to adoption to provide a better understanding
of the implications of the new impairment requirements. This includes an evaluation of the effect on the Group’s results as well
as validating the controls and effectiveness of the governance and operational processes.
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
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.
130
2017 Westpac Group Annual Report
Notes to the financial statements
Note 1. Financial statements preparation (continued)
Implementation
The Group’s classification and measurement implementation project is in progress including an assessment of business
models and a review of the contractual cash flows across financial assets balances. The Group does not currently expect that
there will be a material change to the classification and measurement of financial instruments as a result of implementing
AASB 9.
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 until the IASB completes its accounting for dynamic risk management project. Until this time, current hedge
accounting under AASB 139 can continue to be applied.
Implementation
The Group currently anticipates applying the option to continue hedge accounting under AASB 139, however will implement the
amended AASB 7 hedge accounting disclosures as required.
Transition
The impairment and classification and measurement requirements of AASB 9 will be applied retrospectively by adjusting the
opening balance sheet at the date of initial application, 1 October 2018. There is no requirement to restate comparatives and
the Group does not expect that the comparatives will be restated. However, detailed transitional disclosures will be provided in
accordance with the amended requirements of AASB 7.
The Group intends to quantify the potential impact of adopting AASB 9 once it is practical to provide a reliable estimate. We
expect that this will be no later than the 2018 Westpac Group Annual Report.
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 Leases 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 as a right-of-use
asset and lease liability. The asset and liability will initially be measured at the present value of non-cancellable lease
payments and payments to be made in optional periods where it is reasonably certain that the option will be exercised.
Details of the Group’s current lease obligations are included in Note 30; and
all leases on balance sheet will give rise to a combination of interest expense on the lease liability and depreciation of the
right-of-use asset.
The standard will result in the recognition of an asset and liability on the balance sheet, however, the quantum of these
balances 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.
AASB 17 Insurance Contracts was issued on 18 July 2017 and will be effective for the 30 September 2022 year end unless
early adopted. This will replace AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life
Insurance Contracts. The main changes under the standard are:
the scope of the standard may result in some contracts that are currently “unbundled”, i.e. accounted for separately as
insurance and investment contracts being required to be “bundled” and accounted for as an insurance contract;
portfolios of contracts (with similar risks which are managed together) will be required to be disaggregated to a more
granular level by both the age of a contract and the likelihood of the contract being onerous in order to determine the
recognition of profit over the contract period (i.e. the contractual service margin). The contractual service margin uses a
different basis to recognise profit to the current Margin on Services approach for life insurance and therefore the pattern of
profit recognition is likely to differ;
risk adjustments, which reflect uncertainties in the amount and timing of future cash flows, are required for both general
and life insurance contracts rather than just general insurance contracts under the current accounting standards;
2017 Westpac Group Annual Report
131
3
Note 1. Financial statements preparation (continued)
the contract boundary, which is the period over which profit is recognised, differs and is determined based on the ability to
compel the policyholder to pay premiums or the substantive obligation to provide coverage/services. For some general
insurance contracts (e.g. some lender mortgage insurance and reinsurance contracts) this may result in the contract
boundary being longer. For life insurance, in particular term renewable contracts, the contract boundary is expected to be
shorter. Both will be impacted by difference patterns of profit recognition compared to the current standards;
a narrower definition of what acquisition costs may be deferred;
an election to recognise changes in assumptions regarding discount rate in other comprehensive income rather that in
profit and loss;
an election to recognise changes in the fair value of assets supporting policy liabilities in other comprehensive income
rather than through profit and loss;
reinsurance contracts and the associated liability is to be determined separately to the gross contract liability and may
have different contract boundaries; and
additional disclosure requirements.
The standard is expected to result in a reduction in the level of deferred acquisition costs, however the quantum of this and the
profit and loss impacts to the Group are not yet practicable to determine.
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, including dividends. 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 Group believe do not reflect ongoing operations;
items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of
Treasury shares and economic hedging impacts; and
accounting reclassifications between individual line items that do not impact statutory results.
Internal charges and transfer pricing adjustments have been reflected in the performance of each operating segment. Inter-
segment pricing is determined on an arm’s length basis.
Reportable operating segments
The operating segments are defined by the customers they service and the services they provide:
Consumer Bank (CB):
- responsible for sales and service of banking and financial products and services;
- customer base is consumer customers in Australia; and
- 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; and
- operates under the Westpac, St.George, BankSA and Bank of Melbourne brands.
132
2017 Westpac Group Annual Report
Notes to the financial statements
Note 2. Segment reporting (continued)
BT Financial Group (Australia) (BTFG):
- Westpac’s Australian wealth management and insurance division;
- services 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;
- 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; and
- includes the share of the Group’s interest in BT Investment Management (BTIM) which was equity accounted from July
2015 to May 2017. In May 2017, the Group sold a further interest in BTIM which reduced its ownership to approximately
10%. Following completion of sale, the remaining interest in BTIM was reclassified to available-for-sale securities (refer
to Note 35).
Westpac Institutional Bank (WIB):
- Westpac’s institutional financial services division delivering a broad range of financial products and services;
- expert knowledge in transactional banking, financial and debt capital markets, specialised capital and alternative
investment solutions;
- 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; and
- 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 and institutional customers; and
- operates under the Westpac brand for banking products, the Westpac Life brand for life insurance products and the BT
brand for wealth products.
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, (excluding Westpac New Zealand) within set
risk limits;
- Group Technology1 which comprises functions for the Australian businesses is responsible for technology strategy and
architecture, infrastructure and operations, applications development and business integration;
- Core Support2, which comprises functions performed centrally, including Australian banking operations, property
services, strategy, finance, risk, compliance, legal, and human resources; and
- Group Businesses also includes 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, earnings and costs associated with the Group’s fintech investments, and certain
other head office items such as centrally held provisions.
Revisions to capital allocation
The Group has completed an update to its capital allocation framework. The update further improves the alignment of capital
held by divisions with regulatory capital requirements. The change has led to more capital being allocated to WIB, Westpac
New Zealand and Group Businesses with less capital allocated to CB, BB and BTFG. Divisional results have been restated to
ensure comparability with 2017 results.
The capital allocation change impacts divisional financials including net interest income, as each division earns interest on
capital held. Importantly, the change has no impact on Westpac Group’s reported results, cash earnings or any of the Group’s
performance metrics.
Revisions to Westpac New Zealand
In 2017 the Group changed the accounting treatment for Westpac New Zealand’s credit card rewards scheme to align with
Group practice. This change has no impact on cash earnings or reported profit but has led to a restatement which increases
both non-interest income and expenses within cash earnings in prior periods. Comparatives of reported profit have not been
changed.
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.
2017 Westpac Group Annual Report
133
3
Note 2. Segment reporting (continued)
The following tables present the segment results on a cash earnings basis for the Group:
2017
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets
Total liabilities
Additions of property and
equipment and intangible assets
2016
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets1
Total liabilities
Consumer Business
Bank
4,055
1,153
Bank
7,509
802
BT
Financial
Group
(Australia)
537
1,744
Westpac Westpac
New
Institutional
Bank
1,507
1,706
Group
Zealand Businesses
469
(32)
1,627
479
Net cash
earnings
Income
Total adjustment Statement
15,516
(188)
6,286
434
15,704
5,852
8,311
(3,337)
(541)
4,433
(1,329)
-
3,104
(116)
5,208
(1,839)
(367)
3,002
(903)
-
2,099
(10)
2,281
(1,176)
(4)
1,101
(330)
-
771
160
3,213
(1,323)
(56)
1,834
(523)
(7)
1,304
-
2,106
(903)
72
1,275
(359)
-
916
(14)
437
(527)
43
(47)
(85)
-
(132)
(92)
21,556
(9,105)
(853)
11,598
(3,529)
(7)
8,062
(72)
246
(329)
-
(83)
11
-
(72)
21,802
(9,434)
(853)
11,515
(3,518)
(7)
7,990
2,988
2,089
931
1,304
902
(224)
7,990
(169)
(51)
(46)
(113)
(82)
(514)
(975)
369,522
198,065
161,107
119,731
35,187
40,383
102,929
116,194
81,285
71,433
101,845
244,727
851,875
790,533
276
54
93
55
85
442
1,005
BT
Consumer Business
Bank
Bank
7,175
850
3,925
1,104
(Australia)
Group Institutional
Financial Westpac Westpac
New
Group
Bank Zealand2 Businesses
582
1,574
8
1,536
486
1,908
1,606
482
Net cash
Income
earnings
Total adjustment Statement
15,148
(200)
5,837
(51)
15,348
5,888
8,025
(3,270)
(492)
4,263
(1,279)
-
2,984
(116)
5,029
(1,796)
(410)
2,823
(848)
-
1,975
(10)
2,394
(1,160)
-
1,234
(366)
-
868
(32)
3,110
(1,347)
(177)
1,586
(473)
(7)
1,106
-
2,088
(889)
(54)
1,145
(320)
-
825
2
590
(469)
9
130
(58)
21,236
(8,931)
(1,124)
11,181
(3,344)
(8)
64
(15)
7,822
(221)
(377)
(251)
(286)
-
(537)
160
-
(377)
20,985
(9,217)
(1,124)
10,644
(3,184)
(15)
7,445
2,868
1,965
836
1,106
827
(157)
7,445
(116)
(36)
(43)
(115)
(97)
(524)
(931)
351,528
156,804
186,629
116,804
38,217
39,710
110,416
82,071
100,166
120,653
72,408
244,817
839,202
781,021
Additions of property and
1,321
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.
2 Comparatives have been restated to account for the Westpac New Zealand credit card rewards scheme (2016: $33 million).
178
459
417
83
88
96
134
2017 Westpac Group Annual Report
Notes to the financial statements
BT
Note 2. Segment reporting (continued)
2015
$m
Net interest income
Non-interest income
Net operating income before
operating expenses and
impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets1
Total liabilities
Consumer Business
Bank
Bank
6,403
940
3,735
1,068
(Australia)
Group Institutional
Financial Westpac Westpac
Group
New
Bank Zealand2 Businesses
426
1,658
66
1,578
1,583
493
434
2,192
Net cash
Income
earnings
Total adjustment Statement
14,267
7,375
28
1,038
14,239
6,337
7,343
(3,113)
(478)
3,752
(1,127)
-
2,625
(116)
4,803
(1,731)
(273)
2,799
(842)
-
1,957
(10)
2,626
(1,286)
4
1,344
(406)
(32)
906
(23)
3,236
(1,319)
38
1,955
(590)
(8)
1,357
-
2,076
(844)
(44)
1,188
(322)
(3)
863
-
492
(378)
-
114
13
(15)
112
341
20,576
(8,671)
(753)
11,152
(3,274)
(58)
7,820
192
1,066
(802)
-
264
(74)
21,642
(9,473)
(753)
11,416
(3,348)
2
192
(56)
8,012
2,509
1,947
883
1,357
863
453
8,012
(118)
(27)
(42)
(132)
(93)
(1,047)
(1,459)
328,566
149,346
175,247
108,589
35,813
37,168
127,316
71,538
99,577
127,600
63,490
246,147
812,156
758,241
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.
2 Comparatives have been restated to account for the Westpac New Zealand credit card rewards scheme (2015: $36 million).
1,313
282
768
42
90
58
73
2017 Westpac Group Annual Report
135
3
Note 2. Segment reporting (continued)
Reconciliation of cash earnings to net profit
$m
Cash earnings for the year
Cash earning 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
Total cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
2017
8,062
2016
7,822
2015
7,820
171
-
(137)
-
-
(69)
(16)
(21)
-
-
-
(158)
(15)
-
(203)
9
(10)
-
665
(354)
(149)
(66)
64
33
(1)
(1)
1
(72)
7,990
(377)
7,445
192
8,012
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
2017
$m
%
2016
$m
%
2015
$m
32,328
4,360
830
86.2
11.6
2.2
32,868
4,158
633
87.3
11.0
1.7
33,991
4,937
742
%
85.7
12.4
1.9
37,518
Total
Non-current assets2
Australia3
New Zealand
Other1
Total
1 Other included Pacific Islands, Asia, the Americas and Europe.
2 Non-current assets represent property and equipment and intangible assets.
3 Comparatives have been revised for changes in accounting policy. Refer to Note 1(iv) for further details.
68
13,139
0.5
100.0
12,326
100.0
93.8
745
5.7
12,607
774
77
13,458
37,659
100.0
39,670
100.0
93.7
12,150
5.8
0.5
100.0
751
466
13,367
90.9
5.6
3.5
100.0
136
2017 Westpac Group Annual Report
Notes to the financial statements
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 and the cost of the Bank levy are 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
Bank levy
Other interest expense
Total interest expense
Net interest income
Consolidated
Parent Entity
2017
2016
2015
2017
2016
241
110
(22)
558
260
100
12
645
1,795
1,808
219
87
(13)
1,032
1,634
216
85
(13)
505
228
64
8
585
1,613
1,625
28,504
28,953
29,307
24,577
24,641
17
-
29
13
-
31
12
-
17
17
13
3,838
4,608
27
31
31,232
31,822
32,295
30,865
31,803
(279)
(8,868)
(2,065)
(3,585)
-
(693)
(95)
(131)
(345)
(304)
(9,369)
(10,669)
(2,520)
(3,737)
-
(2,475)
(3,908)
-
(589)
(535)
-
-
(114)
(137)
(278)
(7,680)
(1,646)
(3,034)
(4,211)
(693)
(95)
(128)
(344)
(8,074)
(2,206)
(3,101)
(4,788)
(571)
-
(98)
(15,716)
15,516
(16,674)
15,148
(18,028)
14,267
(17,765)
13,100
(19,182)
12,621
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
2016
2017
30,555
12,673
30,941
13,101
2015
31,276
14,363
Parent Entity
2017
2016
30,232
15,205
30,986
15,993
2017 Westpac Group Annual Report
137
3
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.
138
2017 Westpac Group Annual Report
General insurance and lenders mortgage insurance net operating income
210
242
195
Note 4. Non-interest income (continued)
$m
Fees and commissions
Facility fees
Transaction fees and commissions received
Other non-risk fee income
Total fees and commissions
Wealth management and insurance income1
Life insurance and funds management net operating income
Total wealth management and insurance income
Trading income2,3
Foreign exchange income
Other trading products
Total trading income
Other income
Dividends received from subsidiaries
Dividends received from other entities
Net gain on sale of associates4
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 purposes5
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
Transactions with subsidiaries
Total non-interest income
Notes to the financial statements
Consolidated
2016
2017
2015
Parent Entity
2017
2016
1,333
1,193
229
1,297
1,177
281
1,342
1,247
353
1,299
1,256
953
211
965
252
2,755
2,755
2,942
2,463
2,473
1,590
1,657
2,033
1,800
1,899
2,228
875
327
974
150
1,202
1,124
-
2
279
6
-
-
52
11
-
143
17
19
529
-
-
7
-
1
-
(6)
(88)
(6)
1
109
30
11
59
-
708
256
964
-
12
-
103
2
(1)
(27)
(10)
1,041
54
5
62
-
-
-
-
-
-
838
257
927
85
1,095
1,012
1,859
954
2
-
5
-
152
52
3
-
104
-
20
6
-
-
-
(241)
(88)
-
1
74
-
-
706
426
-
-
-
-
-
-
-
-
1,241
2,197
-
376
6,286
5,837
7,375
6,131
4,617
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,
997
1,204
544
(1,155)
451
1,006
1,114
386
(849)
455
1,334
1,002
530
(833)
453
commissions and other income
77
70
30
-
-
-
-
-
-
General insurance and lenders mortgage insurance claims incurred,
underwriting and commission expenses
(318)
1,800
(283)
1,899
(288)
2,228
-
-
Total wealth management and insurance income
1 Wealth management and insurance income includes policy holder tax recoveries.
2 Trading income represents a component of total markets income from our WIB markets business, Westpac Pacific and Treasury foreign
exchange operations in Australia and New Zealand.
3 Comparatives have been revised for consistency.
4 On 26 May 2017, the Group sold shares of BTIM (19% of BTIM's shares on issue). Refer to Note 35 for further details.
5
Income from derivatives held for risk management purposes reflected the impact of economic hedges of foreign currency capital and earnings.
2017 Westpac Group Annual Report
139
3
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
Consolidated
2017
2016
2015
Parent Entity
2017
2016
4,133
4,005
4,094
3,371
3,233
380
113
75
369
135
92
362
174
74
314
96
68
304
108
89
4,701
4,601
4,704
3,849
3,734
648
291
134
622
285
125
1,073
1,032
628
158
639
313
190
80
571
156
672
277
181
72
586
229
139
954
1,051
170
575
221
204
67
579
235
111
925
572
139
512
269
163
78
554
225
105
884
503
136
518
235
160
70
2,008
1,929
2,288
1,733
1,622
Other expenses
Professional and processing services3
Amortisation and impairment of intangible assets and deferred expenditure
Postage and stationery
Advertising
Credit card loyalty programs
Non-lending losses
Impairment/(reversal of impairment) on investments in subsidiaries
Other expenses
755
192
217
155
152
73
-
108
741
216
217
156
144
81
-
100
615
221
204
150
134
74
-
129
515
169
179
107
118
58
7
238
1,391
Total other expenses
Total operating expenses
7,898
1 Superannuation expense includes both defined contribution and defined benefit expense. Further details of the Group's defined benefit
1,655
9,217
1,527
9,473
1,652
9,434
535
197
175
110
144
74
(4)
101
1,332
7,572
2
plans are in 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 including items such as cash handling and security
services, marketing costs, research and recruitment fees (2017: $268 million; 2016: $283 million; 2015: $202 million), operations
processing (2017: $184 million; 2016: $196 million; 2015: $170 million), consultants (2017: $162 million; 2016: $120 million; 2015: $104
million), credit assessment (2017: $53 million; 2016: $60 million; 2015: $46 million), legal and audit fees (2017: $61 million; 2016: $51
million; 2015: $68 million), and regulatory fees and share market related costs (2017: $27 million; 2016: $31 million; 2015: $25 million).
140
2017 Westpac Group Annual Report
Notes to the financial statements
Note 6. Impairment charges
Accounting policy
At each balance sheet date, the Group assesses whether there is any objective evidence of impairment of its loan portfolio. An
impairment charge is recognised if there is objective evidence that is principal or interest repayments may not be recoverable
and when the financial impact of the non-recoverable loan can be reliably measured.
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.
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 (refer to 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
A 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 amounts are written off against their related provision for
impairment, after all possible repayments have been received.
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
Refer to Note 14 for further details on Provisions for impairment charges.
Consolidated
2016
2017
610
(288)
(168)
699
853
727
(210)
(137)
744
1,124
2015
566
(297)
(131)
615
753
Parent Entity
2017
2016
581
(218)
(121)
628
870
694
(188)
(94)
510
922
2017 Westpac Group Annual Report
141
3
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.
142
2017 Westpac Group Annual Report
Note 7. Income tax (continued)
Income tax expense
The income tax expense for the year reconciles to the profit before income tax as follows:
Notes to the financial statements
$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 items
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
Consolidated
2017
2016
2015
Parent Entity
2017
2016
11,515
10,644
11,416
10,463
8,744
3,455
3,193
3,425
3,139
2,623
64
50
46
64
50
8
(1)
(3)
(3)
32
(30)
4
(8)
(2)
-
(4)
(10)
35
(26)
(65)
13
-
(4)
11
(52)
25
(27)
(88)
12
-
-
-
1
(558)
(286)
(2)
25
(5)
1
(44)
(5)
27
(4)
(65)
96
3,518
3,184
3,348
2,620
2,437
3,404
3,351
3,347
2,367
2,540
110
4
3,518
3,072
(102)
(65)
3,184
2,835
89
(88)
3,348
2,964
252
1
(38)
(65)
2,620
2,437
2,544
2,426
76
2,620
11
2,437
Total Overseas
Total income tax expense1
1 As the Bank Levy is not a levy on income, it is not included in income tax. It is included in Note 3: Net interest income.
349
3,184
446
3,518
384
3,348
The effective tax rate was 30.55% in 2017 (2016: 29.91%, 2015: 29.33%).
2017 Westpac Group Annual Report
143
3
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
Consolidated
2017
2016
Parent Entity
2017
2016
847
321
3
198
239
100
983
300
49
234
173
356
701
292
4
180
223
99
793
272
8
220
163
356
Total amounts recognised in the income statements
1,708
2,095
1,499
1,812
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 liabilities1
Net deferred tax assets
Movements
Opening balance1
Recognised in the income statements2
Recognised in other comprehensive income
Set-off of deferred tax assets and deferred tax liabilities2
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 assets1
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
1
Net deferred tax liabilities
Movements
Opening balance
Recognised in the income statements
2
Recognised in other comprehensive income
(19)
3
(16)
1,692
(580)
1,112
1,351
(387)
(97)
245
1,112
(1)
82
81
2,176
(825)
1,351
1,176
(130)
7
298
1,351
(26)
3
(23)
1,476
(423)
1,053
1,399
(313)
(101)
68
1,053
(1)
79
78
1,890
(491)
1,399
1,272
(121)
(1)
249
1,399
Consolidated
2017
2016
Parent Entity
2017
2016
3
106
162
47
335
653
(63)
590
(580)
10
36
(277)
6
42
134
181
79
494
930
(69)
861
(825)
36
55
(232)
(85)
298
36
3
83
163
-
215
464
(41)
423
(423)
-
-
(61)
(7)
68
-
2
78
183
-
262
525
(34)
491
(491)
-
-
(159)
(90)
249
-
Set-off of deferred tax assets and deferred tax liabilities
245
Closing balance
10
1 Comparatives have been revised for changes in accounting policy. Refer to Note 1 (iv) for further details.
2 Comparatives have been revised for consistency.
2
144
2017 Westpac Group Annual Report
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.
Notes to the financial statements
$m
Unrecognised deferred tax asset
Tax losses on revenue account
Unrecognised deferred tax liability
Consolidated
2017
2016
Parent Entity
2017
2016
213
204
162
180
Gross retained earnings of subsidiaries which the Parent Entity does
not intend to distribute in the foreseeable future
51
51
-
-
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:
2017
2016
2015
Basic
Diluted
Basic
Diluted
Basic
Diluted
7,990
7,990
7,445
7,445
8,012
8,012
(6)
-
(5)
-
(6)
-
Distributions to convertible loan capital holders2
-
253
-
222
-
184
Adjusted net profit attributable to shareholders
7,984
8,243
7,440
7,667
8,006
8,196
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares on issue
3,364
3,364
3,322
3,322
3,150
3,150
Treasury shares (including RSP share rights)
(9)
(9)
(9)
(9)
(10)
(10)
Adjustment for potential dilution:
Share-based payments
Convertible loan capital2
-
-
4
236
-
-
4
203
-
-
6
157
Adjusted weighted average number of ordinary shares
Earnings per ordinary share (cents)
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
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 (refer to 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.
3,520
217.8
3,355
238.0
3,313
224.6
3,140
255.0
3,595
229.3
3,303
248.2
2017 Westpac Group Annual Report
145
3
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.
Consolidated
2017
2016
2015
Average
Balance
$m
Interest Average Average
Rate Balance
Income
$m
$m
%
Interest Average Average
Rate Balance
Income
$m
$m
%
Interest Average
Rate
Income
%
$m
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
7,422
850
851
82
8
20
1.1
0.9
2.4
9,616
449
1,292
18,418
416
2.3
18,632
4,238
3,214
96
46
2.3
1.4
4,105
3,339
84
6
10
481
118
46
0.9
1.3
0.8
2,542
359
7,005
63
6
18
2.6
28,077
2.9
1.4
3,812
4,772
822
138
72
52,457
1,573
3.0
48,151
1,581
3.3
36,974
1,422
3,479
2,272
147
75
4.2
3.3
3,193
2,710
141
86
4.4
3.2
2,886
2,040
130
82
2.5
1.7
0.3
2.9
3.6
1.5
3.8
4.5
4.0
1,035
17
1.6
1,197
13
1.1
1,147
12
1.0
557,865 24,772
4.4 532,172 25,162
4.7 502,474 25,280
72,938
3,460
4.7
68,370
3,617
5.3
63,349
3,818
27,255
520
1.9
28,617
477
1.7
28,377
432
5.0
6.0
1.5
4.7
and interest income
752,294 31,232
4.2 721,843 31,822
4.4 683,814 32,295
Non-Interest earning assets
Cash, receivables due from other
financial institutions and
regulatory deposits
Derivative financial instruments
Life insurance assets
All other assets2
2,000
37,673
12,447
60,111
2,431
48,666
12,702
57,913
1,970
49,400
11,590
51,929
Total non-interest earning assets
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 banks and other interest earning assets.
2 Includes property and equipment, intangibles, deferred tax, non-interest bearing loans relating to mortgage offset accounts and other assets.
121,712
843,555
114,889
798,703
112,231
864,525
146
2017 Westpac Group Annual Report
Note 9. Average balance sheet and interest rates (continued)
Consolidated
2017
2016
2015
Notes to the financial statements
Average
Balance Expense
$m
$m
Interest Average Average
Interest Average Average
Rate Balance Expense
$m
$m
%
Rate Balance Expense
$m
$m
%
Interest 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
New Zealand
Overseas
Other interest bearing liabilities1:
Australia
New Zealand
Overseas
Total interest bearing liabilities
15,740
241
1.5 16,570
301
1.8 11,839
247
642
2,451
9
29
1.4
1.2
567
2,811
10
34
1.8
1.2
584
5,417
14
43
409,586
7,344
1.8 376,115
7,801
2.1 357,199
8,815
51,042
1,173
2.3 48,251
1,280
2.7 45,555
1,643
24,085
351
1.5 29,336
288
1.0 30,760
211
15,841
638
4.0 12,150
513
4.2 10,888
492
43
1,324
2
53
4.7
4.0
-
1,687
-
76
-
4.5
-
753
-
43
157,842
5,117
3.2 164,871
5,574
3.4 164,075
5,856
15,821
507
747
12
4.7 14,067
2.4
851
787
10
5.6 12,842
1.2
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
and interest expense
694,924
15,716
2.3 667,276
16,674
2.5 640,628
18,028
2.8
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
40,514
4,716
869
42,780
10,560
11,586
Total non-interest bearing liabilities
111,025
Total liabilities
Shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
1
805,949
58,556
20
58,576
864,525
2
Include net impact of Treasury balance sheet management activities.
Include other liabilities, provisions, current and deferred tax liabilities.
36,594
29,948
4,105
1,023
55,956
10,985
11,145
119,808
787,084
55,896
575
56,471
843,555
3,531
1,061
51,808
10,035
11,477
107,860
748,488
49,361
854
50,215
798,703
2017 Westpac Group Annual Report
147
3
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
New Zealand
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
2017
Change Due to
Rate
Volume
2016
Change Due to
Total
Volume
Rate
Total
(19)
5
(3)
(6)
4
(2)
141
13
(14)
17
(3)
13
(59)
(26)
2
(149)
(7)
3
(2)
2
10
(65)
(22)
-
(8)
6
(11)
175
2
(15)
(277)
11
(22)
430
14
27
(154)
(2)
7
(64)
(31)
(4)
(271)
(3)
(23)
21
-
(8)
(341)
(20)
(26)
159
11
4
(2)
6
4
1
-
1
1,217
242
(25)
1,551
(1,607)
(399)
68
(2,141)
(390)
(157)
43
(590)
1,494
303
4
(1,612)
(504)
41
2,147
(2,620)
(1,481)
(460)
87
(1,014)
(363)
77
(15)
1
(4)
693
75
(52)
156
2
(16)
(237)
98
(5)
696
736
88
31
855
(45)
(2)
(1)
(60)
(1)
(5)
(1,150)
(182)
115
(457)
(107)
63
(31)
-
(7)
(220)
(138)
7
(1,654)
(352)
(113)
(22)
(487)
125
2
(23)
(457)
(40)
2
(958)
384
(25)
9
368
99
-
(21)
467
97
(10)
57
-
53
28
63
1
(45)
(4)
12
(36)
-
(20)
(310)
63
6
834
(2,188)
1,171
170
(28)
1,313
(229)
(139)
(64)
(432)
(118)
(201)
45
(473)
54
(4)
(9)
21
-
33
(282)
126
7
(1,354)
942
31
(92)
881
148
2017 Westpac Group Annual Report
Notes to the financial statements
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: cash and balances with central banks, receivables due from
financial institutions, trading securities and financial assets designated at fair value, derivative financial instruments, available-
for-sale securities, loans, life insurance assets and regulatory deposits with central banks overseas. 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
Consolidated
2017
2016
Parent Entity
2017
2016
392
936
-
-
4,834
7,128
4,462
6,441
Interbank lending
Total receivables due from other financial institutions
1 Further information on conduit assets is disclosed in Note 25. Conduit assets are only available to meet associated conduit liabilities disclosed in
Note 19.
1,887
9,951
1,902
7,128
1,895
6,357
1,884
8,325
2017 Westpac Group Annual Report
149
3
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 (Note 27) or as a borrowing in other liabilities (Note 29) 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 (Note 13).
$m
Trading securities
Securities purchased under agreement to resell
Consolidated
2017
2016
2015
Parent Entity
2017
2016
15,860
15,288
20,170
14,151
13,258
6,887
3,260
3,982
6,887
3,260
Other financial assets designated at fair value
Total trading securities and financial assets designated at fair value
2,577
25,324
2,620
21,168
3,302
27,454
1,908
22,946
2,044
18,562
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
2017
2016
2015
Parent Entity
2017
2016
11,339
9,267
12,545
10,452
4,453
5,960
7,555
3,631
11
7
20
11
8,601
4,596
7
57
15,860
54
15,288
50
20,170
57
14,151
54
13,258
Consolidated
2017
2016
2015
2,259
318
2,577
2,319
301
2,620
2,900
402
3,302
Parent Entity
2017
2016
1,848
60
1,908
1,989
55
2,044
150
2017 Westpac Group Annual Report
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:
Notes to the financial statements
interest on debt securities;
dividends on equity securities; and
impairment charges.
The cumulative gain or loss recognised in other comprehensive income is subsequently recognised in the income statement
when the instrument is disposed.
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
Consolidated
2016
2017
2015
Parent Entity
2017
2016
Government and semi-government securities
43,382
46,255
41,112
40,491
43,286
Other debt securities
Equity securities1
44
Total available-for-sale securities
56,161
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
465
60,710
57
55,800
87
60,665
49
54,833
16,863
15,252
14,323
12,831
13,672
not available) 2017: nil for the Group (2016: $59 million, 2015: $33 million) and nil for the Parent Entity (2016: $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 2017. There are no tax-exempt securities.
2017
Carrying amount
Government and semi-
government securities
Other debt securities
Equity securities
Total by maturity
Within
1 Year
$m
Over 1 Year
to 5 Years
Over 5 Years
to 10 Years
%
$m
%
$m
%
Over
10 Years
$m
No Specific
Maturity
Total
%
$m %
$m
Weighted
Average
%
5,662 2.8% 22,533 3.4% 14,642 2.9%
671 2.3%
2,384 2.2% 13,808 2.8%
-
-
-
15,313
-
-
36,341
-
8,046
545
-
-
545
2.6%
-
-
-
-
465
465
-
-
-
43,382
16,863
465
60,710
3.1%
2.7%
-
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 $8,019 million (2016: $8,593 million, 2015: $8,473 million); and
at 30 September 2017, total holdings of debt securities, where the aggregate book value exceeds 10% of equity
attributable to Westpac's owners were held with Queensland Treasury Corporation totalling $12,900 million.
2017 Westpac Group Annual Report
151
3
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
2017
2016
Parent Entity
2017
2016
427,167
404,190
427,155
404,173
21,952
22,825
19,905
19,199
150,542
150,209
146,143
144,562
1,885
1,912
1,885
1,912
100
108
100
108
601,646
579,244
595,188
569,954
43,198
43,035
1,856
1,865
26,667
27,499
85
96
71,806
72,495
-
-
321
-
321
-
-
336
-
336
2,818
2,358
2,818
11,515
11,159
10,283
2,354
9,805
14,333
13,517
13,101
12,159
687,785
665,256
608,610
582,449
Provisions for impairment charges on loans (refer to Note 14)
Total net loans1
1 Total net loans include $4,587 million (2016: $5,562 million) of fixed rate bills designated at fair value to reduce an accounting mismatch. The
(2,373)
606,237
(2,866)
684,919
(3,330)
661,926
(2,710)
579,739
change in fair value of fixed rate bills attributable to credit risk recognised during the year was $6 million (2016: $12 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 $23 million (2016: $29 million
decrease) for both the Group and Parent Entity.
152
2017 Westpac Group Annual Report
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
Notes to the financial statements
Consolidated
2017
2016
Parent Entity
2017
2016
661
745
433
409
4,619
4,342
3,349
2,707
301
(796)
289
(718)
237
(606)
187
(455)
4,785
4,658
3,413
2,848
(6)
(7)
(2)
(3)
4,779
4,651
3,411
2,845
634
3,913
238
4,785
717
3,724
217
4,658
416
2,809
188
3,413
393
2,308
147
2,848
2017 Westpac Group Annual Report
153
3
2016
2015
2014
2013
2017
Note 13. Loans (continued)
The following table shows loans presented based on their industry classification1:
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
8,177
8,182
6,043
12,923
554
9,054
3,025
43,220
12,050
12,950
16,063
8,624
5,237
451,315
4,229
7,536
7,953
5,797
14,298
675
9,140
3,641
44,785
11,674
12,362
16,044
9,015
4,025
429,522
2,777
7,490
7,667
5,596
13,175
796
9,342
4,415
44,667
10,703
10,798
15,484
9,940
3,554
400,441
1,587
7,273
7,246
5,533
12,202
750
8,876
3,207
41,718
10,045
9,629
14,449
9,186
3,232
376,662
1,247
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
1 Comparatives have been revised for consistency.
601,646
579,244
545,655
511,255
290
7,772
447
2,478
137
2,090
141
5,858
1,113
1,810
2,163
1,080
1,237
45,190
-
256
7,788
396
2,682
163
2,324
280
5,925
1,084
1,396
2,333
1,257
1,600
45,011
-
182
6,860
359
1,725
292
2,110
407
5,301
925
1,173
2,003
1,094
1,021
40,277
-
159
6,019
361
1,158
350
1,848
484
5,116
869
996
1,878
868
1,004
37,222
138
71,806
72,495
63,729
58,470
97
5
55
4,289
4
2,982
349
491
540
205
2,680
1,389
514
657
76
118
12
147
2,767
4
2,619
535
479
526
99
3,463
1,186
442
1,120
-
111
568
247
4,297
130
3,848
778
409
403
182
2,898
1,099
722
1,191
77
127
465
120
2,006
35
2,886
1,617
352
140
242
3,248
689
701
1,111
52
14,333
687,785
(2,866)
684,919
13,517
665,256
(3,330)
661,926
16,960
626,344
(3,028)
623,316
13,791
583,516
(3,173)
580,343
154
2017 Westpac Group Annual Report
6,999
7,354
5,227
11,120
843
9,016
2,247
37,666
8,453
8,608
13,516
8,751
2,984
350,044
1,316
474,144
148
5,635
409
1,032
536
1,727
455
4,961
676
1,040
1,883
884
1,103
35,051
45
55,585
130
376
172
1,246
31
2,418
857
306
56
172
2,611
440
299
900
63
10,077
539,806
(3,642)
536,164
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
1 Comparatives have been revised for consistency.
Notes to the financial statements
2017
20161
8,098
8,063
5,440
12,882
541
8,782
2,985
43,220
10,979
12,605
15,760
8,167
5,206
449,207
3,253
595,188
-
1
3
-
-
88
-
-
9
1
217
-
-
-
2
321
88
4
44
4,284
3
2,969
349
288
525
74
2,446
1,159
508
280
80
13,101
608,610
(2,373)
606,237
7,421
7,776
5,001
14,200
652
8,771
3,567
44,707
10,375
11,850
15,525
8,460
3,983
425,426
2,240
569,954
-
2
6
-
-
102
-
-
7
4
215
-
-
-
-
336
100
11
135
2,762
152
2,462
535
303
454
164
3,142
953
430
556
-
12,159
582,449
(2,710)
579,739
2017 Westpac Group Annual Report
155
3
Note 13. Loans (continued)
The following table shows the consolidated contractual maturity distribution of all loans by type of customer as at 30 September
2017:
Consolidated 2017
$m
Loans by type of customer in 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
Total overseas
Total loans
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
Up to 1 Year 1 to 5 Years Over 5 Years
Total
3,434
3,059
1,490
6,558
57
3,072
450
4,367
4,448
3,962
4,773
193
4,616
1,189
17,378
22,560
2,949
3,323
6,022
1,524
508
7,715
8,064
8,422
5,379
3,749
376
675
591
1,592
304
1,366
1,386
3,282
1,386
1,563
1,619
1,721
980
8,177
8,182
6,043
12,923
554
9,054
3,025
43,220
12,050
12,950
16,063
8,624
5,237
15,862
29,038
406,415
451,315
991
3,053
185
4,229
66,677
23,340
90,017
111,528
423,441
18,281
129,809
44,518
467,959
601,646
86,139
687,785
Loans at
Variable
Interest
Rates
2017
Loans at
Fixed
Interest
Rates
Loans at
Variable
Interest
Rates
2016
Loans at
Fixed
Interest
Rates
Total
Total
417,643
117,326
534,969
419,728
91,907
511,635
18,371
436,014
44,428
161,754
62,799
597,768
19,005
438,733
44,013
135,920
63,018
574,653
156
2017 Westpac Group Annual Report
Notes to the financial statements
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:
Note 6 explains how impairment charges are determined.
individually assessed for impairment; and
collectively assessed for impairment.
The Group assesses impairment as follows:
individually for loans that exceed specified thresholds. Where there is objective evidence of impairment, individually
assessed provisions will be recognised; and
collectively for loans below the specified thresholds noted above or if there is no objective evidence of impairment. These
loans are included in a group of loans with similar risk characteristics and 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
Collective provisions 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.
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
2017
2016
2015
Parent Entity
2017
2016
869
610
(288)
(688)
(16)
(7)
480
669
727
(210)
(287)
(13)
(17)
869
867
566
(297)
(445)
(22)
-
669
752
581
(218)
(681)
(16)
(1)
417
543
694
(188)
(267)
(13)
(17)
752
2,733
2,663
2,614
2,198
2,203
699
(968)
188
(13)
2,639
3,119
(253)
2,866
744
(902)
193
35
2,733
3,602
(272)
3,330
615
(793)
190
37
2,663
3,332
(304)
3,028
628
(810)
152
12
2,180
2,597
(224)
2,373
510
(682)
156
11
2,198
2,950
(240)
2,710
2017 Westpac Group Annual Report
157
3
Note 14. Provisions for impairment charges (continued)
The following table presents provisions for impairment charges on loans by industry classification for the past five years:
Consolidated
2017
2016
2015
2014
2013
$m
%
$m
%
$m
%
$m
%
$m
%
Individually assessed provisions by industry
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property1
Property services and business services1
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
Property1
Property services and business services1
Services
Trade
Transport and storage
Utilities
Retail lending
Total New Zealand
Total other overseas
15
9
20
6
40
19
74
77
25
37
14
-
94
3
0.5
0.3
0.6
0.2
1.3
0.6
2.4
2.5
0.8
1.2
0.4
-
3.0
0.1
39
21
23
15
120
41
125
215
16
62
14
-
57
4
1.1
0.6
0.6
0.4
3.4
1.1
3.5
6.0
0.4
1.7
0.4
-
1.6
0.1
38
23
20
23
41
11
127
97
20
39
54
-
57
3
1.1
0.7
0.6
0.7
1.2
0.3
3.9
2.9
0.6
1.2
1.6
-
1.7
0.1
47
47
61
24
36
15
200
83
32
70
12
2
60
2
1.4
1.4
1.8
0.7
1.0
0.4
5.7
2.4
0.9
2.0
0.3
0.1
1.7
0.1
59
80
66
24
108
4
320
108
48
116
45
29
76
6
1.5
2.0
1.7
0.6
2.7
0.1
8.2
2.7
1.2
2.9
1.1
0.8
1.9
0.2
433
13.9
752
20.9
553
16.6
691
19.9
1,089
27.6
-
11
-
-
4
-
-
0.4
-
-
0.1
-
20
0.6
-
2
1
-
-
7
45
2
-
0.1
-
-
-
0.2
1.4
0.1
-
11
1
-
34
14
31
1
2
1
-
-
4
99
18
-
0.3
-
-
0.9
0.4
0.9
-
0.1
-
-
-
0.1
2.7
0.5
-
6
1
-
33
13
42
1
2
1
-
-
8
107
9
-
0.2
-
-
1.0
0.4
1.3
-
0.1
-
-
-
0.2
3.2
0.3
-
6
1
-
33
36
38
-
1
2
1
-
10
128
48
-
0.2
-
-
0.9
1.0
1.1
-
-
0.1
-
-
0.3
3.6
1.4
1
17
6
9
6
37
69
2
40
2
-
1
17
207
68
-
0.4
0.2
0.2
0.2
0.9
1.7
0.1
1.0
0.1
-
-
0.4
5.2
1.7
34.5
65.5
Total individually assessed provisions
480
15.4
869
24.1
669
20.1
867
24.9
1,364
Total collectively assessed provisions
2,639
84.6
2,733
75.9
2,663
79.9
2,614
75.1
2,585
Total provisions for impairment charges and
credit commitments
1 Comparatives have been revised for consistency.
3,119
100.0
3,602
100.0
3,332
100.0
3,481
100.0
3,949
100.0
158
2017 Westpac Group Annual Report
Note 14. Provisions for impairment charges (continued)
The following table shows details of loan write-offs by industry classifications for the past five years:
Notes to the financial statements
Consolidated
$m
Write-offs
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property1
Property services and business services1
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
Property1
Property services and business services1
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
1 Comparatives have been revised for consistency.
2017
2016
2015
2014
2013
(38)
(10)
(30)
(6)
(105)
(46)
(76)
(203)
(97)
(59)
(17)
-
(898)
(17)
(17)
(12)
(20)
(13)
(21)
(18)
(44)
(43)
(36)
(30)
(48)
(1)
(803)
(13)
(40)
(36)
(40)
(12)
(20)
(17)
(26)
(60)
(37)
(10)
(85)
(4)
(104)
(182)
(70)
(18)
(56)
(24)
(2)
(658)
(13)
(50)
(22)
(70)
(43)
(3)
(603)
(14)
(31)
(30)
(46)
(14)
(50)
(5)
(239)
(101)
(58)
(69)
(18)
(2)
(545)
(9)
(1,602)
(1,119)
(1,110)
(1,209)
(1,217)
-
-
(1)
-
-
-
(2)
-
-
(1)
-
-
(49)
-
(53)
(1)
-
(1)
(1)
-
-
-
(10)
(2)
-
(1)
-
-
(51)
(1)
(67)
(3)
-
(3)
-
-
(1)
(28)
(18)
-
(1)
(4)
-
-
(55)
-
(110)
(18)
(2)
(10)
(5)
(10)
(1)
(10)
(41)
-
(37)
(3)
-
-
(49)
-
(168)
(31)
(1)
(7)
(4)
(13)
(3)
-
(65)
(29)
(5)
(4)
(1)
-
(46)
-
(178)
(4)
(1,656)
(1,189)
(1,238)
(1,408)
(1,399)
(968)
(688)
(902)
(287)
(793)
(445)
(702)
(706)
(708)
(691)
(1,656)
(1,189)
(1,238)
(1,408)
(1,399)
2017 Westpac Group Annual Report
159
3
Note 14. Provisions for impairment charges (continued)
The following table shows details of recoveries of loans by industry classifications for the past five years:
Consolidated
$m
Recoveries
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property1
Property services and business services1
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
1 Comparatives have been revised for consistency.
2017
2016
2015
2014
2013
3
-
2
1
2
1
10
3
-
3
1
-
118
5
-
-
1
34
1
-
3
2
2
1
1
-
84
2
-
-
4
8
3
-
15
2
1
1
-
-
78
1
-
-
2
8
3
-
12
-
-
1
-
2
62
2
149
19
-
168
(1,656)
(1,488)
131
6
-
137
(1,189)
(1,052)
113
18
-
131
(1,238)
(1,107)
92
14
-
106
(1,408)
(1,302)
1
1
1
3
8
-
11
-
-
1
1
-
41
-
68
8
-
76
(1,399)
(1,323)
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.
to meet the liabilities and expenses of that fund;
The Life Act places restrictions on life insurance assets, including that they can only be used:
as a distribution, when the fund has met its solvency and capital adequacy requirements.
to acquire investments to further the business of the fund; or
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.
160
2017 Westpac Group Annual Report
Notes to the financial statements
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:
mortality and morbidity experience, which includes policyholder benefits enhancements;
the cost of providing benefits and administering contracts;
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
2017
2016
3,169
3,420
257
27
3,770
10,643
4,403
8,628
763
37
361
14,192
Loans
Other1
Total life insurance assets
1 Primarily consists of investments in unit trusts with diversified holdings mainly in equities, debt securities and property.
There were no life insurance assets in the Parent Entity as at 30 September 2017 (2016: nil).
Life insurance liabilities
Consolidated
Reconciliation of movements in policy liabilities
$m
Opening balance
Movements in policy liabilities reflected in the income statement
Contract contributions recognised in policy liabilities
Contract withdrawals recognised in policy liabilities
Contract fees, expenses and tax recoveries
Life Investment
Contracts
Life Insurance
Contracts
Total
2017
2016
2017
2016
2017
2016
13,234
12,395
(873)
(836)
12,361
11,559
544
790
416
780
(1,214)
(1,052)
(100)
(112)
38
(37)
-
-
-
-
-
-
582
790
379
780
(1,214)
(1,052)
(100)
(112)
Change in external unit holders of managed investment schemes
Closing balance
(3,400)
9,854
807
13,234
-
(835)
-
(873)
(3,400)
9,019
807
12,361
There were no life insurance liabilities in the Parent Entity as at 30 September 2017 (2016: nil).
2017 Westpac Group Annual Report
161
3
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
2017
2016
2,429
3,108
1,615
5,493
Parent Entity
2017
2016
2,304
3,108
1,557
5,493
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 $15,192 million
5,009
18,209
9,417
21,907
9,417
21,775
6,092
6,953
6,946
5,009
18,141
6,082
(2016: $7,052 million).
162
2017 Westpac Group Annual Report
Notes to the financial statements
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
Other overseas
Certificates of deposit
Non-interest bearing, repayable at call
Other interest bearing at call
Other interest bearing term
Total other overseas
Consolidated
2017
2016
Parent Entity
2017
2016
37,515
29,774
37,515
29,910
40,324
37,491
40,324
37,491
226,920
210,666
226,338
210,397
153,597
148,876
153,597
148,876
458,356
426,807
457,774
426,674
546
4,853
1,192
4,407
21,273
22,642
27,620
27,826
54,292
56,067
-
-
-
-
-
-
-
-
-
-
8,860
15,497
8,860
15,497
810
1,505
9,768
845
1,441
12,414
322
1,150
9,587
20,943
30,197
19,919
391
1,050
12,130
29,068
Total deposits and other borrowings
Deposits and other borrowings at fair value1
Deposits and other borrowings at amortised cost
Total deposits and other borrowings
1 The contractual outstanding amount payable at maturity for the Group is $46,713 million (2016: $44,326 million) and for the Parent Entity is
468,844
513,071
487,022
533,591
431,670
477,693
533,591
513,071
477,693
44,227
46,569
46,023
455,742
43,171
412,571
455,742
$46,168 million (2016: $43,270 million).
2017 Westpac Group Annual Report
163
3
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:
Consolidated
2017
2016
2015
Average
Balance
$m
Average
Rate
%
Average
Balance
$m
Average
Rate
%
Average
Balance
$m
Average
Rate
%
Australia
Non-interest bearing
Certificates of deposit1
Other interest bearing at call1
Other interest bearing term1
Total Australia
Overseas
Non-interest bearing
Certificates of deposit1
Other interest bearing at call1
Other interest bearing term1
Total overseas
1 Comparatives have been revised for consistency.
39,355
33,350
226,753
149,483
448,941
5,527
13,151
24,163
37,813
80,654
2.0%
1.2%
2.6%
1.4%
1.3%
2.7%
35,732
31,165
211,878
133,072
411,847
5,051
16,938
24,686
35,963
82,638
2.4%
1.6%
2.8%
0.9%
1.9%
2.7%
29,201
32,201
199,110
125,888
386,400
4,514
16,617
22,732
36,966
80,829
2.3%
2.0%
3.3%
0.6%
2.9%
3.0%
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 2017
$m
Certificates of deposit greater than US$100,000
Term deposits greater than US$100,000
Less Than
3 Months
21,335
68,277
Between
3 and
6 Months
15,738
26,523
Between
6 Months
and
1 Year Over 1 Year
329
23,469
113
14,264
Total
37,515
132,533
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
Total other financial liabilities at fair value through income statement
1 The carrying value of securities pledged under repurchase agreements for the Group is $3,554 million (2016: $4,595 million) and for the Parent
Entity is $3,536 million (2016: $4,213 million).
513
4,038
389
4,752
513
4,056
4,363
3,525
3,543
2016
2016
3,982
389
4,371
Consolidated
2017
Parent Entity
2017
At maturity, the Group is contractually required to pay $4,056 million (2016: $4,752 million), and the Parent Entity $4,038 million
(2016: $4,371 million) to holders of these financial liabilities.
164
2017 Westpac Group Annual Report
Notes to the financial statements
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.
reduce or eliminate an accounting mismatch; or
Debt issues are designated at fair value if they:
They are measured at fair value with changes in fair value (except those due to changes in credit risk) recognised as non-
interest income.
contain an embedded derivative.
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
Consolidated
2017
2016
Parent Entity
2017
2016
26,167
18,931
24,655
16,633
392
6
936
12
-
6
-
12
26,565
19,879
24,661
16,645
34,516
33,529
29,698
30,211
98,823 106,626
89,757
98,720
8,209
9,445
243
423
-
-
-
-
141,791 150,023 119,455 128,931
Total debt issues
Debt issues at fair value2
Debt issues at amortised cost
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 $4,604 million (2016: $6,185 million) and for the Parent Entity is
$2,875 million (2016: $3,484 million). The cumulative change in the fair value of debt issues which is attributable to changes in Westpac's
own credit risk is a decrease of $2 million (2016: $165 million) for the Group and Parent Entity.
4,673
6,303
2,940
163,683 163,599 141,176 141,987
168,356 169,902 144,116 145,576
168,356 169,902 144,116 145,576
3,589
2017 Westpac Group Annual Report
165
3
Note 19. Debt issues (continued)
Consolidated
$m
Short-term debt
US commercial paper
Euro commercial paper
Asset backed commercial paper (by currency):
AUD
Total assets 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
2017
2016
26,167
18,683
-
248
26,167
18,931
392
392
6
936
936
12
26,565
19,879
37,680
1,903
25,049
7,838
2,137
3,416
42,946
2,294
20,267
12,134
4,333
3,422
61,156
61,788
2,612
141,791
2,839
150,023
2017
2016
2015
27,456
23,025
36,478
26,351
38,774
35,482
1.3%
1.2%
0.7%
0.9%
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 (AT1) loan capital
Convertible preference shares
Westpac capital notes
USD AT1 securities
Total Additional Tier 1 loan capital
Tier 2 loan capital
Subordinated notes
Subordinated perpetual notes
Total Tier 2 loan capital
Total loan capital
Consolidated
2017
2016
Parent Entity
2017
2016
1,188
5,684
1,556
8,428
8,789
449
9,238
17,666
1,185
5,673
-
6,858
8,485
462
8,947
15,805
1,188
5,684
1,556
8,428
8,789
449
9,238
17,666
1,185
5,673
-
6,858
8,485
462
8,947
15,805
166
2017 Westpac Group Annual Report
Note 20. Loan capital (continued)
Additional Tier 1 loan capital
A summary of the key terms and common features of AT1 instruments are provided below1.
Notes to the financial statements
Consolidated and Parent Entity
$m
Westpac convertible preference shares (CPS)5
$1,189 million CPS
Total convertible preference shares
Westpac capital notes (WCN)
$1,384 million WCN
Dividend/distribution/
interest rate
Potential scheduled
conversion date2
Optional
redemption date3
2017
2016
(180 day bank bill rate + 3.25% p.a.) x
31 March 2020
31 March 2018
1,188
1,185
(1 - Australian corporate tax rate)
⁴
1,188
1,185
1,375
1,302
1,310
1,686
(90 day bank bill rate + 3.20% p.a.) x
8 March 2021
8 March 2019
1,379
(1 - Australian corporate tax rate)
$1,311 million WCN2
(90 day bank bill rate + 3.05% p.a.) x
23 September 2024
23 September 2022
1,304
(1 - Australian corporate tax rate)
$1,324 million WCN3
(90 day bank bill rate + 4.00% p.a.) x
22 March 2023
22 March 2021
1,313
$1,702 million WCN4
(90 day bank bill rate + 4.90% p.a.) x
20 December 2023
20 December 2021
1,688
(1 - Australian corporate tax rate)
Total Westpac capital notes
USD AT1 securities
US$1,250 million securities
(1 - Australian corporate tax rate)
5.000% p.a. until but excluding
21 September 2027 (first reset date).
If not redeemed, converted or
written-off earlier, from, and
including, each reset date6 to, but
excluding, the next succeeding
reset date, at a fixed rate p.a. equal
to the prevailing 5-year USD mid-
market swap rate plus 2.888% p.a.
5,684
5,673
n/a
21 September 20277
1,556
-
Total USD AT1 securities
1 A$ unless otherwise noted.
2 Conversion is subject to the satisfaction of the scheduled conversion conditions. If the conversion conditions are not satisfied on the relevant
scheduled conversion date, conversion will not occur until the next dividend or distribution payment date on which the scheduled conversion
conditions are satisfied.
1,556
3 Westpac may elect to redeem the relevant AT1 instrument, subject to APRA’s prior written approval.
4 Each dividend payment date on or after 31 March 2018.
5 CPS are Basel III transitional instruments. All other AT1 loan capital are fully compliant Basel III instruments.
6 21 September 2027 and every fifth anniversary thereafter is a reset date.
7 Westpac may elect to redeem on 21 September 2027 and every fifth anniversary thereafter.
-
Common features of AT1 instruments
Payment conditions
Semi-annual dividends on the CPS are discretionary and will only be paid if the dividend payment test is satisfied, including that
the amount of the dividend 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 and semi-annual interest payments on the USD AT1 securities are
discretionary and will only be paid if the payment conditions are satisfied, including that the payment will not result in a breach
of Westpac’s capital requirements under APRA’s prudential standards; not result in Westpac becoming, or being likely to
become, insolvent; or if APRA does not object to the payment.
Broadly, if for any reason a dividend, distribution or interest payment has not been paid in full on the relevant payment date,
Westpac must not determine or pay any dividends on Westpac ordinary shares or undertake a discretionary buy back or capital
reduction of Westpac ordinary shares, unless the unpaid payment is paid in full within 20 business days of the relevant
payment date or in certain other circumstances.
2017 Westpac Group Annual Report
167
3
Note 20. Loan capital (continued)
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 relevant AT1
instrument1 will be converted and holders will receive a variable number of Westpac ordinary shares calculated using the
formula described in the terms of the relevant AT1 instrument, subject to a maximum conversion number. The conversion
number of Westpac ordinary shares will be calculated using the face value or outstanding principal amount of the relevant AT1
instrument and the Westpac ordinary share price determined over the 20 business day period prior to the scheduled conversion
date, including 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 event2 or non-viability trigger event3. 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 basis4,5).
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, write-off or write-down of relevant capital instruments of the Westpac Group), or public sector
injection of capital (or equivalent support), in each case is necessary because without it, Westpac would become non-viable.
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 relevant AT1 instrument, subject to a maximum conversion number. The conversion
number of Westpac ordinary shares is calculated using the face value or outstanding principal amount of the relevant AT1
instrument and the Westpac ordinary share price determined over the 5 business day period prior to the capital trigger event
date or non-viability trigger event date 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 event, if conversion of an AT1 instrument does not
occur within five business days, holders’ rights in relation to the relevant AT1 instrument will be immediately and irrevocably
terminated6.
Early conversion
Westpac is able to elect to convert7, 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.
Early redemption
Westpac is able to elect to redeem the relevant AT1 instrument on the optional redemption date or for certain taxation or
regulatory reasons, subject to APRA’s prior written approval.
1 Scheduled conversion does not apply to USD AT1 securities.
2 All CPS must be converted upon the occurrence of a capital trigger event.
3 CPS does not contain a non-viability trigger event.
4 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.
5 On a level 2 basis only for CPS.
6 The requirement to terminate, if not converted within five business days following a capital trigger event, is not incorporated in the CPS terms.
7 Excludes WCN and USD AT1 securities.
168
2017 Westpac Group Annual Report
Notes to the financial statements
Note 20. Loan capital (continued)
Tier 2 loan capital
A summary of the key terms and common features of Westpac’s Tier 2 instruments are provided below1.
Consolidated and Parent Entity
$m
Interest rate2
Basel III transitional subordinated notes
US$350 million subordinated notes
Fixed 4.625% p.a.
A$500 million subordinated notes
Floating 90 day bank bill rate + 3.00% p.a.
Maturity date
Optional
redemption date3
1 June 2018
n/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
US$800 million subordinated notes
3.625% p.a. until but excluding 28 February 2018. Thereafter, if not
28 February 2023
23 August 2017
⁴
28 February 2018
⁴
redeemed, fixed rate equal to 5 year US Treasury rate + 2.90% p.a.
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.
22 August 2023
22 August 2018
14 March 2024
14 March 2019
CNY1,250 million subordinated notes
4.85% p.a. until but excluding 9 February 2020. Thereafter, if not
9 February 2025
9 February 2020
A$350 million subordinated notes
4.50% p.a. until but excluding 11 March 2022. Thereafter, if not
11 March 2027
11 March 2022
redeemed, a fixed rate per annum equal to the one year CNH HIBOR
reference rate plus 0.8345% p.a.
redeemed, 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
S$325 million subordinated notes
4.00% p.a. until but excluding 12 August 2022. Thereafter, if not
12 August 2027
12 August 2022
A$175 million subordinated notes
4.80% p.a. until but excluding 14 June 2023. Thereafter, if not redeemed,
14 June 2028
14 June 2023
redeemed, a fixed rate per annum equal to the five year SGD swap offer
rate plus 1.54% p.a.
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
US$100 million subordinated notes
Fixed 5.00% p.a.
23 February 2046
n/a
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.
19 May 2026
2 June 2026
9 June 2026
n/a
n/a
n/a
NZ$400 million subordinated notes
4.6950% p.a. until but excluding 1 September 2021. Thereafter, if
1 September 2026
1 September 2021
not redeemed, a fixed rate per annum equal to the New Zealand 5 year
swap rate on 1 September 2021 plus 2.60% p.a.
2017
2016
454
-
-
1,018
483
500
1,673
1,052
923
991
239
921
1,000
252
350
361
312
322
171
179
117
700
225
115
112
357
144
695
262
134
130
377
JPY8,000 million subordinated notes
0.9225% p.a until but excluding 7 October 2021. Thereafter, if
7 October 2026
7 October 2021
90
US$1,500 million subordinated notes
4.322% p.a. until but excluding 23 November 2026.
23 November 2031
23 November 2026
1,882
not redeemed, a fixed rate per annum equal to the five-year JPY
mid-swap rate plus 1.0005% p.a.
Thereafter, if not redeemed, a fixed rate per annum equal to
the five-year USD mid-swap rate plus 2.236% p.a.
JPY12,000 million subordinated notes
0.87% p.a. until but excluding 6 July 2022. Thereafter, if not
6 July 2027
6 July 2022
136
redeemed, a fixed rate per annum equal to the five-year JPY
mid-swap rate plus 0.78% p.a.
JPY13,500 million subordinated notes
0.868% p.a. until but excluding 6 July 2022. Thereafter, if not
6 July 2027
6 July 2022
152
redeemed, a fixed rate per annum equal to the five year JPY
mid-swap rate plus 0.778% p.a.
HKD600 million subordinated notes
3.15% p.a. until but excluding 14 July 2022. Thereafter, if not
14 July 2027
14 July 2022
98
A$350 million subordinated notes
4.334% p.a. until but excluding 16 August 2024. Thereafter, if
16 August 2029
16 August 2024
347
redeemed, a fixed rate per annum equal to the five-year HKD
mid-swap rate plus 1.34% p.a.
not redeemed, a fixed rate per annum equal to the five-year AUD
semi-quarterly mid-swap reference rate plus 1.83% p.a.,
each of which will be annualised.
Interest payments are made periodically as set out in the terms of the subordinated notes.
Total subordinated notes
1 Excludes subordinated perpetual notes.
2
3 Westpac may elect to redeem the relevant Tier 2 instrument on the optional redemption date, subject to APRA's prior written approval. If not
redeemed on the first optional redemption date, Westpac may elect to redeem the relevant Tier 2 instrument on any interest payment date
after the first optional redemption date (except for US$1,500 million subordinated notes), subject to APRA's prior written approval.
8,789
4 The subordinated notes were redeemed in full on the relevant optional redemption date.
-
-
-
-
-
-
8,485
2017 Westpac Group Annual Report
169
3
Note 20. Loan capital (continued)
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. These
subordinated notes contain non-viability loss absorption requirements.
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 similar 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 relevant Tier 2 instrument, subject to a maximum conversion number. The conversion
number of Westpac ordinary shares will be calculated in a manner 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 relevant 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 on any interest payment date falling on or
after September 1991, 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.
170
2017 Westpac Group Annual Report
Notes to the financial statements
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.
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 its interest rate risk from fixed debt issuances and fixed assets with single 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
2017
2016
Parent Entity
2017
2016
(328)
292
(36)
(39)
47
8
(337)
306
(31)
(52)
62
10
b. Cash flow hedges
Exposure to the volatility of interest cash flows from customer deposits 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.
2017 Westpac Group Annual Report
171
3
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:
Less Than 1 Month to 3 Months 1 Year to 2 Years to 3 Years to 4 Years to
5 Years
3 Months
to 1 Year
1 Month
2 Years
3 Years
4 Years
Over
5 Years
2017
Cash inflows
Cash outflows
2016
Cash inflows
Cash outflows
$m
Cash flow hedge ineffectiveness
3.2%
3.7%
0.6%
0.7%
3.6%
3.6%
15.6%
15.3%
21.6%
20.6%
17.5%
17.1%
14.6%
15.4%
14.7%
14.4%
9.2%
9.9%
8.8%
8.9%
29.5%
30.4%
13.0%
13.2%
13.1%
12.3%
12.6%
12.4%
9.9%
10.1%
12.5%
12.0%
Consolidated
2017
14
2016
4
Parent Entity
2017
18
2016
(2)
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 amounted to nil (2016:
$6 million loss).
172
2017 Westpac Group Annual Report
Notes to the financial statements
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:
Consolidated 2017
Fair Value
Hedging
Total
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
Interest rate contracts
Futures contracts1
Forward rate agreements
132,785
215,934
-
21
-
(20)
-
-
-
-
-
-
-
-
Swap agreements
2,655,134 16,438
(15,361)
446
(3,241)
498
(707)
Options
69,016
156
(183)
-
-
-
-
Total interest rate contracts
3,072,869 16,615
(15,564)
446
(3,241)
498
(707)
Foreign exchange contracts
-
-
-
-
-
-
-
-
21
-
(20)
- 17,382
(19,309)
-
156
(183)
- 17,559
(19,512)
Spot and forward contracts
668,896
5,781
(6,027)
-
-
-
-
19
(19)
5,800
(6,046)
Cross currency swap
agreements2
Options
Total foreign exchange
444,421
6,272
(7,893)
573
4 1,006
(744)
13,604
124
(138)
-
-
-
-
-
-
-
-
7,851
(8,633)
124
(138)
contracts
1,126,921 12,177
(14,058)
573
4 1,006
(744)
19
(19) 13,775
(14,817)
Commodity contracts
7,772
270
(235)
Equities
Credit default swaps
202
10,907
3
79
-
(78)
-
-
-
-
-
-
-
-
-
-
-
-
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
4,218,671 29,144
(29,935) 1,019
(3,237) 1,504
(1,451)
-
(7,332)
4,218,671 21,812
7,178
(22,757)
(149)
870
1,782
(172)
(1,455) 1,332
307
(1,144)
-
-
-
19
-
19
-
-
-
270
(235)
3
79
-
(78)
(19) 31,686
(34,642)
-
(7,653)
(19) 24,033
9,267
(25,375)
Consolidated 2016
Fair Value
Hedging
Total
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
Interest rate contracts
Futures contracts1
Forward rate agreements
252,462
325,877
-
29
-
(28)
-
-
-
-
-
-
-
-
Swap agreements
2,556,563 27,734
(25,771)
927
(3,819) 1,092
(1,387)
Options
82,534
412
(487)
-
-
-
-
Total interest rate contracts
3,217,436 28,175
(26,286)
927
(3,819) 1,092
(1,387)
Foreign exchange contracts
-
-
-
-
-
-
-
-
29
-
(28)
- 29,753
(30,977)
-
412
(487)
- 30,194
(31,492)
Spot and forward contracts
652,452
5,380
(5,308)
-
-
-
(40)
44
(52)
5,424
(5,400)
Cross currency swap
agreements2
Options
Total foreign exchange
449,954
6,295
(10,455) 1,031
213 1,312
(2,405)
23,562
212
(219)
-
-
-
-
-
-
-
-
8,638
(12,647)
212
(219)
contracts
1,125,968 11,887
(15,982) 1,031
213 1,312
(2,445)
44
(52) 14,274
(18,266)
Commodity contracts
10,979
337
(276)
Equities
Credit default swaps
106
17,565
1
80
-
(76)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
80
337
(276)
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
(30,161) 1,596
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
4,372,054 40,480
4,372,054 28,498
(42,620) 1,958
(3,606) 2,404
(2,429) 2,089
- (11,982)
12,459
(3,832)
(3,434)
1,177
(362)
(315)
398
44
44
-
(52) 44,886
(52) 32,227
- (12,659)
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. Refer to Note 24.
2017 Westpac Group Annual Report
173
-
(76)
(50,110)
14,034
(36,076)
3
Note 21. Derivative financial instruments (continued)
Parent Entity 2017
Fair Value
Hedging
Total
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
Interest rate contracts
Futures contracts1
Forward rate agreements
132,785
215,934
-
21
-
(20)
-
-
-
-
-
-
-
-
Swap agreements
2,646,153 16,472
(15,549)
426
(3,008)
465
(588)
Options
69,016
156
(183)
-
-
-
-
Total interest rate contracts
3,063,888 16,649
(15,752)
426
(3,008)
465
(588)
Foreign exchange contracts
-
-
-
-
-
-
-
-
21
-
(20)
- 17,363
(19,145)
-
156
(183)
- 17,540
(19,348)
Spot and forward contracts
668,322
5,774
(6,024)
-
-
-
-
19
(16)
5,793
(6,040)
Cross currency swap
agreements2
Options
Total foreign exchange
434,600
6,273
(7,894)
545
13,604
124
(138)
-
9
-
849
(454)
-
-
-
-
-
-
7,667
(8,339)
124
(138)
contracts
1,116,526 12,171
(14,056)
545
9
849
(454)
19
(16) 13,584
(14,517)
Commodity contracts
7,772
270
(235)
Equities
Credit default swaps
202
10,907
3
79
-
(78)
-
-
-
-
-
-
-
-
-
-
-
-
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
4,199,295 29,172
(30,121)
971
(2,999) 1,314
(1,042)
(7,338)
-
4,199,295 21,834
7,330
(22,791)
(148)
823
1,711
(167)
(1,288) 1,147
226
(816)
-
-
-
19
-
19
-
-
-
270
(235)
3
79
-
(78)
(16) 31,476
(34,178)
-
(7,653)
(16) 23,823
9,267
(24,911)
Parent Entity 2016
Fair Value
Hedging
Total
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
Interest rate contracts
Futures contracts1
Forward rate agreements
252,462
325,877
-
29
-
(28)
-
-
-
-
-
-
-
-
Swap agreements
2,552,413 27,796
(26,157)
899
(3,444) 1,026
(1,154)
Options
81,620
411
(487)
-
-
-
-
Total interest rate contracts
3,212,372 28,236
(26,672)
899
(3,444) 1,026
(1,154)
Foreign exchange contracts
-
-
-
-
-
-
-
-
29
-
(28)
- 29,721
(30,755)
-
411
(487)
- 30,161
(31,270)
Spot and forward contracts
651,469
5,379
(5,307)
-
-
-
(40)
37
(52)
5,416
(5,399)
Cross currency swap
agreements2
Options
Total foreign exchange
442,606
6,297
(10,708)
945
100 1,300
(1,395)
23,562
212
(219)
-
-
-
-
-
-
-
-
8,542
(12,003)
212
(219)
contracts
1,117,637 11,888
(16,234)
945
100 1,300
(1,435)
37
(52) 14,170
(17,621)
Commodity contracts
10,979
337
(276)
Equities
Credit default swaps
106
17,565
1
80
-
(76)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
80
337
(276)
Total of gross derivatives
Impact of netting arrangements3
(362)
12,459
Total of net derivatives
(30,799) 1,482
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at
- (11,982)
4,358,659 28,560
(315)
1,177
(2,167) 2,011
- (12,659)
(52) 32,090
4,358,659 40,542
398
(2,191)
(43,258) 1,844
(3,344) 2,326
(52) 44,749
-
37
(2,589)
37
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. Refer to Note 24.
174
2017 Westpac Group Annual Report
-
(76)
(49,243)
14,034
(35,209)
Notes to the financial statements
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
2017
2016
Notional
Amount
Fair value
Asset Liability
Notional
Amount
Fair value
Asset Liability
5,630
5,277
10,907
5
74
79
(78)
-
(78)
9,231
8,334
17,565
7
73
80
(75)
(1)
(76)
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
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
2017 Westpac Group Annual Report
175
3
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 for monitoring the effectiveness of risk management by the Westpac Group. The Board has delegated to the
Board Risk and Compliance Committee (BRCC) responsibility 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
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 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 CREDCO) 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 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 wholesale funding strategy is prepared by Treasury and 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 contingent funding plan is also maintained, detailing 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.
Funding and liquidity
risk
176
2017 Westpac Group Annual Report
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
Notes to the financial statements
market risk.
Traded market risk includes interest rate, foreign exchange, commodity, equity price, credit spread
and volatility risks. Non-traded market risk includes interest rate, credit spread 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 risk appetite for traded and non-traded risks through the use of VaR, NaR
and specific structural risk limits.
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 unit 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 the Westpac Group Market Risk Committee (MARCO), 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.
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 hedging using derivatives. This is overseen by the Market Risk unit and reviewed
by MARCO, 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.
2017 Westpac Group Annual Report
177
3
Note 22. Financial risk (continued)
Customer risk grades
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
Program-managed portfolio
Customers that are not transaction-managed are grouped into pools of similar risk. Pools are created by analysing similar risk
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 credit quality of these pools is based on a
combination of delinquency trends, PD estimates and loan to valuation ratio (housing loans only).
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.
178
2017 Westpac Group Annual Report
Note 22. Financial risk (continued)
Management of risk mitigation
The Group mitigates credit risk through controls covering:
Notes to the financial statements
Collateral and valuation
management
Other credit enhancements
Offsetting
Central clearing (ASX/LCH)
formal valuations currently held for such collateral; and
The estimated realisable value of collateral held in support of loans is based on a
combination of:
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. These processes
include margining for non-centrally cleared customer derivatives as regulated by Australian
Prudential Standard CPS226. The collateralisation 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 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.
2017 Westpac Group Annual Report
179
3
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. Cash and balances with central banks are excluded as it is not
considered to give rise to material credit risk.
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)
52% (2016: 51%) were issued by financial institutions for the Group; 50%
(2016: 50%) for the Parent Entity.
45% (2016: 45%) were issued by government or semi-government authorities
for the Group; 47% (2016: 45%) for the Parent Entity.
76% (2016: 66%) were held in Australia by the Group; 81% (2016: 72%) by the
Parent Entity.
26% (2016: 23%) were issued by financial institutions for the Group; 27%
(2016: 23%) for the Parent Entity.
74% (2016: 77%) were issued by government or semi-government authorities
for the Group; 73% (2016: 77%) for the Parent Entity.
90% (2016: 90%) were held in Australia by the Group; 98% (2016: 97%) by the
Parent Entity.
Loans (Note 13)
Note 13 provides a detailed breakdown of loans by industry and geographic
Derivative financial instruments
(Note 21)
classification.
77% (2016: 74%) were issued by financial institutions for both the Group and
Parent Entity.
86% (2016: 85%) were held in Australia by the Group; 86% (2016: 85%) by the
Parent Entity.
180
2017 Westpac Group Annual Report
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
Notes to the financial statements
2017
Undrawn
credit
commit-
ments
Total on
balance
sheet
2016
Undrawn
credit
commit-
ments1
Total on
balance
sheet1
Total
Total1
8,189
8,193
6,050
59,432
49,341
9,784
3,411
43,640
12,119
13,198
16,401
9,554
6,418
451,315
4,360
1,468
2,155
3,666
8,415
813
6,186
3,568
12,046
5,145
6,082
8,712
6,038
4,216
88,363
1,519
9,657
10,348
9,716
67,847
50,154
15,970
6,979
55,686
17,264
19,280
25,113
15,592
10,634
7,558
8,074
5,802
62,080
49,976
10,259
4,325
45,530
11,745
12,913
16,288
10,272
5,326
539,678 429,522
3,011
5,879
701,405
158,392
859,797 682,681
1,069
1,839
3,880
7,374
1,161
6,020
3,629
12,564
4,970
6,329
8,343
4,586
4,090
8,627
9,913
9,682
69,454
51,137
16,279
7,954
58,094
16,715
19,242
24,631
14,858
9,416
87,655 517,177
4,413
154,911 837,592
1,402
290
7,809
450
7,626
5,051
2,185
144
5,901
1,142
1,834
2,215
1,118
1,822
45,190
3
82,780
97
5
55
7,713
3,071
3,107
378
491
542
205
2,680
1,426
544
657
78
42
745
397
2,038
549
1,527
197
1,039
405
604
1,176
847
1,302
11,995
227
332
8,554
847
9,664
5,600
3,712
341
6,940
1,547
2,438
3,391
1,965
3,124
57,185
230
256
7,841
400
10,098
4,402
2,441
286
6,033
1,084
1,524
2,375
1,324
2,299
45,011
1
23,090
105,870
85,375
43
670
328
1,570
848
1,643
246
1,088
518
834
1,367
1,035
1,421
11,628
220
299
8,511
728
11,668
5,250
4,084
532
7,121
1,602
2,358
3,742
2,359
3,720
56,639
221
23,459 108,834
13
1
242
3,182
1
4,259
1,518
40
508
105
2,458
437
260
37
8
110
6
297
10,895
3,072
7,366
1,896
531
1,050
310
5,138
1,863
804
694
86
118
52
147
7,435
3,798
2,661
590
479
526
99
3,464
1,231
485
1,120
1
15
1
259
3,838
38
4,454
2,015
28
377
95
3,408
315
193
40
35
133
53
406
11,273
3,836
7,115
2,605
507
903
194
6,872
1,546
678
1,160
36
37,317
193,481 983,743
15,111
Total other overseas
Total gross credit risk
1 Comparatives have been revised for consistency.
21,049
805,234
13,069
194,551
34,118
22,206
999,785 790,262
2017 Westpac Group Annual Report
181
3
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
2017
Undrawn
credit
commit-
ments
Total on
balance
sheet
2016
Undrawn
credit
commit-
ments1
Total on
balance
sheet1
Total
Total1
8,110
8,073
5,447
58,589
49,330
9,511
3,371
43,641
11,047
12,853
16,098
9,097
6,386
449,207
3,385
1,468
2,155
3,666
8,415
813
6,186
3,568
12,043
5,143
6,081
8,691
6,038
4,216
7,443
9,578
7,897
10,228
5,006
9,113
60,712
67,004
49,953
50,143
9,890
15,697
4,251
6,939
45,452
55,684
10,446
16,190
12,401
18,934
15,769
24,789
9,717
15,135
5,284
10,602
88,362 537,569 425,426
2,474
4,903
1,518
694,145
158,363 852,508 672,121
-
38
6
3,230
929
183
3
43
38
25
269
38
498
-
5
5,305
88
4
44
7,420
2,449
3,089
378
288
527
74
2,446
1,196
538
280
82
-
7
13
56
23
110
3
10
57
64
216
89
128
33
4
813
13
1
237
3,161
1
4,166
1,516
34
507
101
2,354
414
259
34
5
-
45
19
3,286
952
293
6
53
95
89
485
127
626
33
9
6,118
101
5
281
10,581
2,450
7,255
1,894
322
1,034
175
4,800
1,610
797
314
87
-
55
10
4,459
818
219
6
108
7
132
257
67
622
-
1
6,761
100
51
135
7,176
3,230
2,500
585
303
454
164
3,143
998
473
556
-
1,069
1,837
3,880
7,374
1,161
6,018
3,629
12,560
4,967
6,327
8,317
4,580
4,090
8,512
9,734
8,886
68,086
51,114
15,908
7,880
58,012
15,413
18,728
24,086
14,297
9,374
87,654 513,080
3,876
154,865 826,986
1,402
-
26
15
172
85
145
5
15
19
57
260
57
225
13
1
1,095
-
81
25
4,631
903
364
11
123
26
189
517
124
847
13
2
7,856
14
1
253
3,821
38
4,357
2,001
21
375
93
3,284
297
191
32
5
114
52
388
10,997
3,268
6,857
2,586
324
829
257
6,427
1,295
664
588
5
34,651
170,743 869,493
14,783
Total other overseas
Total gross credit risk
1 Comparatives have been revised for consistency.
18,903
718,353
12,803
19,868
31,706
171,979 890,332 698,750
182
2017 Westpac Group Annual Report
Notes to the financial statements
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).
Neither past due nor impaired
Good/
Past due
but not
Impairment
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
provision
Total
carrying
value
18,397
-
9
-
18,397
-
7,128
other financial institutions
7,119
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
24,973
23,184
59,752
22
815
493
-
33
-
24,995
24,032
60,245
-
-
-
-
-
-
18,397
-
18,397
-
7,128
-
7,128
-
1
-
24,995
24,033
60,245
-
-
-
24,995
24,033
60,245
Loans - housing and personal
363,026
113,363
3,542
479,931
16,539
681
497,151
Loans - business
86,437
95,556
4,507
186,500
3,273
861
190,634
Regulatory deposits with central
banks overseas
Other financial assets2
Total
814
4,340
588,042
234
-
1,048
-
-
1,048
364
210,856
14
8,096
4,718
806,994
34
19,846
3
1,546
4,755
828,386
(1,331)
(1,535)
495,820
189,099
-
-
(2,866)
1,048
4,755
825,520
Consolidated 2017
$m
Cash and balances
with central banks
Receivables due from
Consolidated 2016
$m
Cash and balances
with central banks
Receivables due from
Neither past due nor impaired
Good/
Past due
but not
Impairment
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
provision
Total
carrying
value
17,015
-
-
17,015
other financial institutions
9,908
43
-
9,951
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
20,845
30,931
59,962
15
1,224
616
-
71
-
20,860
32,226
60,578
-
-
-
-
-
-
17,015
-
17,015
-
9,951
-
9,951
-
1
-
20,860
32,227
60,578
-
-
-
20,860
32,227
60,578
Loans - housing and personal
338,648
119,094
1,960
459,702
15,067
515
475,284
Loans - business
86,959
93,226
4,472
184,657
3,671
1,644
189,972
(1,320)
(2,010)
473,964
187,962
Regulatory deposits with central
banks overseas
Other financial assets2
11
Total
6,514
1 Equity securities are excluded from these balances and as a result the total carrying value will not represent the balance reported on
4,098
569,535
357
214,796
4,466
790,845
4,501
811,778
31
18,769
4
2,164
1,169
1,390
1,390
221
-
-
-
-
(3,330)
-
1,390
4,501
808,448
the balance sheet.
2 Other financial assets include accrued interest of $1,193 million (2016: $1,118 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 $1,408 million (2016: $1,195 million)
are also included in this balance which is allocated proportionately based on the trading securities balance classifications.
2017 Westpac Group Annual Report
183
3
(1,091)
(1,282)
448,398
157,839
-
-
-
(2,373)
945
142,455
4,002
878,842
Total
Impairment carrying
value
provision
Note 22. Financial risk (continued)
Parent Entity 2017
$m
Cash and balances
with central banks
Receivables due from
Neither past due nor impaired
Good/
Past due
but not
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
Total
Impairment carrying
value
provision
16,405
-
5
-
16,405
-
6,357
other financial institutions
6,352
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
22,870
22,974
55,737
5
815
6
-
33
-
22,875
23,822
55,743
-
-
-
-
-
-
16,405
-
16,405
-
6,357
-
6,357
-
1
-
22,875
23,823
55,743
-
-
-
22,875
23,823
55,743
Loans - housing and personal
344,739
85,673
3,223
433,635
15,312
542
449,489
Loans - business
74,019
78,584
2,981
155,584
2,843
694
159,121
Regulatory deposits with central
banks overseas
Due from subsidiaries
Other financial assets2
Total
814
142,455
3,681
690,046
131
-
-
-
278
165,497
10
6,247
945
142,455
3,969
861,790
-
-
-
-
31
18,186
2
1,239
945
142,455
4,002
881,215
Neither past due nor impaired
Good/
Past due
but not
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
Parent Entity 2016
$m
Cash and balances
with central banks
Receivables due from
15,186
-
-
15,186
other financial institutions
8,282
43
-
8,325
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
18,491
30,796
56,111
9
1,222
6
-
71
-
18,500
32,089
56,117
-
-
-
-
-
-
15,186
-
15,186
-
8,325
-
8,325
-
1
-
18,500
32,090
56,117
-
-
-
18,500
32,090
56,117
Loans - housing and personal
320,916
89,510
1,509
411,935
13,713
425
426,073
Loans - business
73,671
75,651
2,533
151,855
3,122
1,399
156,376
(1,033)
(1,677)
425,040
154,699
-
-
-
1,269
143,549
3,755
858,530
Regulatory deposits with central
banks overseas
1,169
100
-
1,269
-
-
1,269
Due from subsidiaries
Other financial assets2
Total
1 Equity securities are excluded from these balances and as a result the total carrying value will not represent the balance reported on
671,620
166,810
842,550
861,240
143,549
143,549
143,549
16,862
1,828
4,120
3,449
3,725
3,755
269
27
3
7
-
-
-
-
(2,710)
the balance sheet.
2 Other financial assets include accrued interest of $1,029 million (2016: $948 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 $1,388 million (2016: $1,192 million)
are also included in this balance which is allocated proportionately based on the trading securities balance classifications.
Details of collateral held in support of these balances are provided in Note 22.2.8.
184
2017 Westpac Group Annual Report
Notes to the financial statements
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:
1-5 days 6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
2017
2016
Loans - housing and personal
Loans - business
Other financial assets
Total
4,515
698
9
5,222
9,331
2,085
19
11,435
2,693 16,539
490
3,273
6
34
3,189 19,846
3,681
1,052
8
4,741
8,834
2,154
18
11,006
2,552 15,067
465
3,671
5
31
3,022 18,769
Parent Entity
$m
Loans:
1-5 days 6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
2017
2016
Loans - housing and personal
Loans - business
Other financial assets
Total
4,216
603
8
4,827
8,471
1,810
18
10,299
2,625 15,312
3,258
430
2,843
5
31
3,060 18,186
878
7
4,143
7,951
1,869
15
9,835
2,504 13,713
375
3,122
5
27
2,884 16,862
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
2017
2015
3,322
3,075
2,149
117
19
3,458
89
130
17
3,181
13
2,292
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).
2017 Westpac Group Annual Report
185
3
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:
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
2017
Loans-
Housing and
Personal
Loans -
Business
164
(104)
60
517
(202)
315
681
(306)
375
692
(376)
316
169
(32)
137
861
(408)
453
2017
Loans-
Housing and
Personal
Loans -
Business
121
(83)
38
421
(162)
259
542
(245)
297
534
(334)
200
160
(17)
143
694
(351)
343
Total
856
(480)
376
686
(234)
452
1,542
(714)
828
Total
655
(417)
238
581
(179)
402
1,236
(596)
640
2016
Loans-
Housing and
Personal
Loans -
Business
Total
136
(76)
60
379
(173)
206
515
(249)
266
1,472
1,608
(793)
679
172
(25)
147
(869)
739
551
(198)
353
1,644
2,159
(818)
826
(1,067)
1,092
2016
Loans-
Housing and
Personal
Loans -
Business
Total
104
(63)
41
321
(146)
175
425
(209)
216
1,237
1,341
(689)
548
162
(24)
138
(752)
589
483
(170)
313
1,399
1,824
(713)
686
(922)
902
186
2017 Westpac Group Annual Report
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:
Notes to the financial statements
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
2017
2016
2015
2014
2013
975
(460)
515
1,589
(769)
820
1,220
(572)
648
1,580
(697)
883
2,574
(1,099)
1,475
12
(7)
5
13
(11)
2
362
(187)
175
267
(159)
108
152
(41)
111
15
(5)
10
11
(8)
3
15
(6)
9
-
-
-
-
-
218
(95)
123
16
(4)
12
10
(7)
3
44
(21)
23
2
(1)
1
-
-
22
(12)
10
252
(164)
88
348
(104)
244
17
(4)
13
10
(7)
3
25
(13)
12
-
-
-
1
(1)
34
(23)
11
203
(132)
71
397
(130)
267
-
-
-
13
(9)
4
53
(35)
18
59
(21)
38
1
-
34
(23)
11
181
(126)
55
586
(210)
376
-
-
-
14
(9)
5
89
(54)
35
122
(33)
89
-
-
-
828
-
1,092
-
1,018
1
1,293
-
2,046
Details of collateral held in support of these balances are provided in Note 22.2.8.
2017 Westpac Group Annual Report
187
3
Note 22. Financial risk (continued)
The following table summarises the interest received and forgone on non-performing loans and restructured financial assets:
Consolidated 2017
$m
Interest received
Interest forgone
Australia
Overseas
4
52
15
-
Total
19
52
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
Secured loan to collateral value ratio
Less than or equal to 100%
Partially secured
Greater than 100% but not more than 150%
Unsecured
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
2017
2016
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Loans-
Housing and
Personal
97.0
0.9
2.1
100.0
Loans-
Housing and
Personal
97.9
0.3
1.8
100.0
Loans -
Business
54.0
25.7
20.3
100.0
Total
84.9
7.9
7.2
100.0
Loans-
Housing and
Personal
96.7
1.1
2.2
100.0
Loans -
Business
53.5
25.7
20.8
100.0
Total
84.3
8.2
7.5
100.0
2017
2016
Loans -
Business
55.4
23.7
20.9
100.0
Total
86.7
6.5
6.8
100.0
Loans-
Housing and
Personal
97.7
0.3
2.0
100.0
Loans -
Business
55.1
23.9
21.0
100.0
Total
86.3
6.6
7.1
100.0
Past due but not impaired
Consolidated
2017
2016
%
Fully secured
Partially secured
Unsecured
Total
Loans-
Housing and
Personal
93.9
2.6
3.5
100.0
Loans -
Business
58.2
28.3
13.5
100.0
Total
87.9
6.9
5.2
100.0
Loans-
Housing and
Personal
92.7
3.0
4.3
100.0
Loans -
Business
47.9
28.9
23.2
100.0
Total
84.0
8.0
8.0
100.0
188
2017 Westpac Group Annual Report
Note 22. Financial risk (continued)
Parent Entity
2017
2016
Notes to the financial statements
%
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
96.4
0.6
3.0
100.0
Loans -
Business
60.2
25.7
14.1
100.0
Total
90.8
4.5
4.7
100.0
Loans-
Housing and
Personal
95.7
0.6
3.7
100.0
Loans -
Business
47.8
26.9
25.3
100.0
Total
86.8
5.5
7.7
100.0
Loans-
Housing and
Personal
69.5
10.7
19.8
100.0
Loans-
Housing and
Personal
73.2
6.3
20.5
100.0
2017
2016
Loans -
Business
17.3
25.7
57.0
100.0
Total
40.3
19.1
40.6
100.0
Loans-
Housing and
Personal
63.9
13.0
23.1
100.0
Loans -
Business
11.4
35.4
53.2
100.0
Total
24.0
30.0
46.0
100.0
2017
2016
Loans -
Business
19.6
17.1
63.3
100.0
Total
43.1
12.4
44.5
100.0
Loans-
Housing and
Personal
69.6
6.4
24.0
100.0
Loans -
Business
9.9
38.5
51.6
100.0
Total
23.8
31.0
45.2
100.0
Collateral held against financial assets other than loans
$m
Consolidated
2017
2016
Parent Entity
2017
2016
Cash, primarily for derivatives
Securities under reverse repurchase agreements1
Securities under derivatives and stock borrowing1
Total other collateral held
1 Securities received as collateral are not recognised on the Group and Parent Entity’s balance sheet.
2,480
6,814
32
9,326
1,788
3,260
135
5,183
2,354
6,814
32
9,200
1,730
3,260
135
5,125
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%.
2017 Westpac Group Annual Report
189
3
deposits;
debt issues;
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:
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 106 basis point increase in stable sources in 2017 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
2017
61.8
15.2
14.1
1.0
7.9
100.0
2016
60.9
15.0
15.2
1.2
7.7
100.0
Movements in the Group’s funding composition in 2017 included:
customer deposits increased by 92 basis points to 61.8% of the Group’s total funding at 30 September 2017, as the Group
continued to take steps in preparation for the introduction of the NSFR at the start of 2018.
long term funding with a residual maturity greater than 12 months also increased by 13 basis points to 15.2%, although
funding from securitisation decreased by 19 basis points to 1.0%.
wholesale funding with a residual maturity less than 12 months decreased, down 106 basis points to 14.1%. This portfolio
had a weighted average maturity of 148 days and is more than covered by the $137.8 billion of unencumbered repo-
eligible liquid assets and cash held by the Group.
funding from equity increased by 20 basis points to 7.9%.
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 and the only Australian bank with access to the US SEC registered market (See Note 19).
In 2017 the Group raised $36.6 billion of new term wholesale funding with a weighted average maturity of 5.8 years (excluding
securitisation). This included benchmark senior and covered bond trades in all major currencies, an auto ABS transaction in A$,
as well as smaller senior bond trades and private placements. New term issuance also included $4.4 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 2017 can be found in Note 16, Note 17,
Note 19 and Note 20.
190
2017 Westpac Group Annual Report
Notes to the financial statements
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)
decreased by $6.5 billion to $137.8 billion over the last 12 months.
Given the limited amount of government debt in Australia, the RBA, jointly with APRA, makes available to Australian ADIs a
CLF. Subject to satisfaction of qualifying conditions, the CLF can be accessed to help meet the LCR requirement. In order to
have access to a CLF, ADIs are required to pay a fee of 15 basis points (0.15%) per annum to the RBA on the approved
undrawn facility. APRA approved Westpac’s CLF allocation of $49.1 billion for the 2017 calendar year (2016: $58.6 billion).
APRA has approved a CLF allocation of $57.0 billion for Westpac for the 2018 calendar year reflecting an increase in the total
CLF made available by APRA.
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
2017
2016
Actual Average
Actual Average
17,339
20,594
16,221
19,889
834
662
1,088
618
11,405
12,891
10,062
7,537
Available-for-sale securities
Loans1
Regulatory deposits with central banks
Total liquid assets
1 Loans are self-originated AAA rated mortgage backed securities which are eligible for repurchase with the RBA and Reserve Bank of New Zealand.
493
137,797 143,223 144,284 140,663
59,735
47,935
59,887
60,193
48,561
56,057
55,645
56,481
663
549
628
Credit ratings
As at 30 September 2017 the Parent Entity’s credit ratings were:
2017
S&P Global Ratings
Moody’s Investors Services
Fitch Ratings
Short-term
Long-term
A-1+
P-1
F1+
AA-
Aa3
AA-
Outlook
Negative
Stable
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 19 June 2017, Moody’s lowered the Macro Profile for Australia to “Strong +” from “Very Strong -”. As a result of this
revision, Moody’s lowered the ratings for the major Australian banks, including Westpac, by one notch to Aa3, from Aa2. At the
same time, Moody’s updated their rating outlook on Westpac to “stable” from “negative”.
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
2017
2016
Parent Entity
2017
2016
5,687
8,177
5,315
7,490
15
18
15
18
1,421
3,041
1,421
3,041
18,746
25,869
11,647
22,883
18,728
25,479
11,265
21,814
2017 Westpac Group Annual Report
191
3
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 designated 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 2017
$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 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
16,496
337,821
3,253
22,757
98
865
(737)
3,111
1,603
385,267
5
385,272
15,460
178,443
648
194,551
Over 1 Month Over 3 Months Over 1 Year
to 5 Years
to 3 Months
to 1 Year
Over
5 Years
Total
4,438
76,557
803
-
146
3,368
(3,275)
10,492
575
1,014
102,306
-
23
20,605
-
-
197
-
21,971
537,486
4,056
-
489
1,039
(821)
46,730
2,586
-
1,088
-
108
22,757
1,929
5,617
(4,634)
101,045
-
2,057
(1,745)
18,796
-
12,946
(11,212)
180,174
4,764
93,104
86
93,190
153,343
729
123,744
4,781
19,413
16,548
154,072
128,525
35,961
774,871
22,149
797,020
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,460
178,443
648
-
194,551
192
2017 Westpac Group Annual Report
Note 22. Financial risk (continued)
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 issues1
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
1 Comparatives have been revised for consistency.
Parent Entity 2017
$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
28,588
99
2,205
(2,137)
3,443
1,967
365,386
-
365,386
16,435
176,811
235
193,481
Up to
1 Month
16,364
306,013
3,235
22,791
83
11
-
2,069
143,834
1,576
495,976
5
495,981
14,908
156,423
648
171,979
Notes to the financial statements
Up to
1 Month
12,798
315,122
Over 1 Month Over 3 Months Over 1 Year
to 5 Years
to 3 Months
to 1 Year
Over
5 Years
Total
2,696
82,287
2,596
102,111
177
16,880
-
425
18,267
516,825
3,301
1,403
-
-
-
4,704
-
283
4,140
(3,641)
16,629
543
-
1,140
9,958
(8,625)
44,516
2,443
-
3,196
-
498
28,588
5,216
6,418
(5,564)
100,127
-
722
(628)
14,306
-
23,443
(20,595)
179,021
4,953
104,340
85
104,425
154,139
257
121,234
4,353
15,323
13,275
154,396
125,587
28,598
760,422
17,970
778,392
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,435
176,811
235
-
193,481
Over 1 Month Over 3 Months Over 1 Year
to 5 Years
to 3 Months
to 1 Year
Over
5 Years
Total
4,438
65,078
803
-
128
2,929
(2,861)
9,127
-
523
1,014
91,055
23
18,618
-
197
21,839
480,961
-
-
409
820
(680)
42,116
-
2,353
-
1,000
2,796
(2,376)
84,960
-
-
-
-
4,038
-
106
22,791
1,726
1,294
(1,052)
16,270
-
-
7,850
(6,969)
154,542
143,834
4,452
835,064
22,149
857,213
80,165
86
80,251
137,087
729
105,021
4,781
16,815
16,548
137,816
109,802
33,363
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,908
156,423
648
-
171,979
2017 Westpac Group Annual Report
193
3
Note 22. Financial risk (continued)
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
12,782
286,669
Over 1 Month Over 3 Months Over 1 Year
to 5 Years
to 3 Months
to 1 Year
Over
5 Years
Total
2,696
66,726
2,544
89,864
177
15,181
-
405
18,199
458,845
2,920
1,403
29,223
81
2,182
(2,127)
2,900
142,808
1,932
479,370
-
479,370
15,725
154,783
235
170,743
-
228
3,872
(3,464)
14,221
-
480
86,162
85
86,247
-
-
-
-
-
-
901
6,671
(5,889)
37,773
-
2,159
-
-
4,323
-
2,887
2,473
(2,329)
86,633
-
-
-
494
29,223
4,591
120
(113)
11,969
-
-
15,318
(13,922)
153,496
142,808
4,571
134,023
257
105,022
4,353
12,875
13,275
817,452
17,970
134,280
109,375
26,150
835,422
-
-
-
-
-
-
-
-
-
-
-
15,725
154,783
235
-
170,743
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.
194
2017 Westpac Group Annual Report
Note 22. Financial risk (continued)
Consolidated 2017
$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)
Notes to the financial statements
Due within
12 Months
Greater than
12 Months
18,397
7,128
11,258
18,346
7,988
88,676
1,514
676
-
5,681
159,664
21,885
512,856
4,056
18,435
56,952
1,457
9,907
625,548
1,641
627,189
(467,525)
-
-
14,066
5,687
52,722
596,243
9,129
372
60
13,932
692,211
22
20,735
-
6,940
111,404
7,562
656
147,319
16,025
163,344
528,867
Total
18,397
7,128
25,324
24,033
60,710
684,919
10,643
1,048
60
19,613
851,875
21,907
533,591
4,056
25,375
168,356
9,019
10,563
772,867
17,666
790,533
61,342
2017 Westpac Group Annual Report
195
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)
Parent Entity 2017
$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 associates
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
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
Due within
12 Months
Greater than
12 Months
16,405
6,357
9,812
18,340
6,447
70,868
573
142,455
-
-
4,649
275,906
21,753
458,829
4,038
18,321
50,415
143,834
8,060
705,250
1,641
706,891
(430,985)
-
-
13,134
5,483
49,353
535,369
372
-
46
3,975
11,231
618,963
22
18,864
-
6,590
93,701
-
595
119,772
16,025
135,797
483,166
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
Total
16,405
6,357
22,946
23,823
55,800
606,237
945
142,455
46
3,975
15,880
894,869
21,775
477,693
4,038
24,911
144,116
143,834
8,655
825,022
17,666
842,688
52,181
196
2017 Westpac Group Annual Report
Note 22. Financial risk (continued)
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)
Notes to the financial statements
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
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
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. 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 concentration limits. These are supplemented by escalation triggers for material profits or losses
and stress testing of risks beyond the 99% confidence interval.
The key parameters of VaR are:
Holding period
Confidence level
Period of historical data used
1 day
99%
1 year
2017 Westpac Group Annual Report
197
3
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
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
1
2017
2016
2015
High
Low Average
High
Low Average
High
Low Average
16.0
9.4
0.4
14.1
5.1
n/a
22.9
4.6
0.6
0.0
3.3
3.5
n/a
9.7
8.5
3.1
0.1
6.6
4.2
(8.6)
13.9
14.0
12.2
2.9
4.5
6.0
n/a
18.7
4.6
1.4
0.1
1.4
2.6
n/a
7.7
8.8
5.1
0.3
2.7
3.6
(8.0)
12.5
18.1
11.8
0.6
5.7
6.7
n/a
23.5
7.0
0.5
0.1
1.7
2.9
n/a
9.0
11.4
3.6
0.3
3.1
4.6
(7.2)
15.8
2
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:
2017
2016
%
Consolidated
Parent Entity
Maximum Minimum
Maximum Minimum Average
As at Exposure Exposure Exposure As at Exposure Exposure Exposure
Average
0.62
0.34
0.62
0.34
(0.01)
(0.33)
0.31 0.89
0.05 0.54
1.08
0.85
0.14
(0.11)
0.47
0.23
Value at Risk - IRRBB1
The table below depicts VaR for IRRBB:
$m
Consolidated
2017
2016
As at
57.3
High
57.3
Low
Average As at
27.0
40.8 49.5
High
53.6
Low Average
39.4
31.1
As at 30 September 2017 the Value at Risk – IRRBB for the Parent Entity was $56.9 million (2016: $42.9 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.
198
2017 Westpac Group Annual Report
Notes to the financial statements
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.
product type;
complexity of the transaction.
The availability of observable inputs is influenced by factors such as:
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:
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.
standard industry practice;
economic models; and
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.
2017 Westpac Group Annual Report
199
3
Note 23. Fair values of financial assets and financial liabilities (continued)
A key element of the Framework is the Revaluation Committee, comprising senior valuation specialists from within the Group.
The 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
Balance sheet
category
Includes:
Valuation
Exchange traded interest
rate futures and options and
commodity, energy and
carbon futures.
FX spot and futures
contracts
Listed equities and equity
indices
Exchange traded
products
Derivatives
Foreign exchange
products
Derivatives
Derivatives
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
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
200
2017 Westpac Group Annual Report
All these instruments are traded in liquid, active
markets where prices are readily observable.
No modelling or assumptions are used in the
valuation.
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:
Notes to the financial statements
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:
Valuation
Interest rate
products
Derivatives
Foreign exchange
products
Derivatives
Interest rate and inflation
swaps, swaptions, caps,
floors, collars and other non-
vanilla interest
rate derivatives
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 and active broker quoted
interest rates in the swap, bond and futures
markets. Interest rate volatilities are sourced from
brokers and consensus data providers.
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 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.
2017 Westpac Group Annual Report
201
3
Note 23. Fair values of financial assets and financial liabilities (continued)
Level 2 instruments (continued)
Instrument
Balance sheet category
Includes:
Valuation
Trading securities and
financial assets
designated at fair value
Non-asset backed
debt instruments
Available-for-sale
securities
Regulatory deposits
Other financial liabilities
through income statement
State and other government
bonds, corporate bonds and
commercial paper.
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.
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 Westpac’s implied credit
worthiness.
Valued using observable market prices or other
widely used and accepted valuation techniques
utilising observable market input.
202
2017 Westpac Group Annual Report
Notes to the financial statements
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:
Valuation
Asset backed debt
instruments
Non-asset backed
debt instruments
Trading securities and
financial assets
designated at fair value
Available-for-sale
securities
Trading securities and
financial assets
designated at fair value
Available-for-sale
securities
Collateralised loan
obligations and offshore
asset-backed debt
instruments.
As prices for these securities are not available
from a consensus provider these are revalued
based on third party revaluations (lead manager or
inter-dealer). Due to their illiquidity and/or
complexity they are classified as Level 3 assets.
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.
2017 Westpac Group Annual Report
203
3
Note 23. Fair values of financial assets and financial liabilities (continued)
The table below summaries the attribution of financial instruments carried at fair value to the fair value hierarchy:
Consolidated
2017
2016
$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 value
Financial liabilities measured at
fair value on a recurring basis
Deposits and other borrowings
at fair value
Other financial liabilities at fair
value through income statement
Derivative financial instruments
Debt issues at fair value
Life insurance liabilities
Total financial liabilities carried
at fair value
Valuation
Valuation
Quoted Techniques Techniques
Market
(Market (Non-Market
Prices Observable) Observable)
(Level 3)
(Level 2)
(Level 1)
Valuation
Valuation
Quoted Techniques Techniques
(Market (Non-Market
Market
Prices Observable) Observable)
(Level 3)
(Level 2)
Total (Level 1)
Total
6,815
9
7,252
-
2,768
17,742
24,009
52,841
4,587
7,875
767 25,324
15 24,033
617 60,710
-
4,587
- 10,643
2,431
21
5,047
-
5,076
17,897
32,163
54,914
5,562
9,116
840 21,168
43 32,227
704 60,665
-
5,562
- 14,192
-
659
-
659
-
1,008
-
1,008
16,844
107,713
1,399 125,956
12,575
120,660
1,587 134,822
-
46,569
- 46,569
-
44,227
- 44,227
208
8
-
-
3,848
25,358
4,673
9,019
4,056
-
9 25,375
4,673
-
9,019
-
151
12
-
1,180
4,601
36,047
6,303
11,181
-
4,752
17 36,076
-
6,303
- 12,361
216
89,467
9 89,692
1,343
102,359
17 103,719
Parent Entity
2017
2016
$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 value
Financial liabilities measured at
fair value on a recurring basis
Deposits and other borrowings
at fair value
Other financial liabilities at fair
value through income statement
Derivative financial instruments
Debt issues at fair value
Total financial liabilities carried
at fair value
Valuation
Valuation
Quoted Techniques Techniques
Market
(Market (Non-Market
Prices Observable) Observable)
(Level 3)
(Level 2)
(Level 1)
Valuation
Valuation
Quoted Techniques Techniques
(Market (Non-Market
Market
Prices Observable) Observable)
(Level 3)
(Level 2)
Total (Level 1)
Total
6,797
9
5,480
-
15,648
23,799
50,256
4,587
501 22,946
15 23,823
64 55,800
4,587
-
1,976
21
3,513
-
15,996
32,027
52,598
5,562
590 18,562
42 32,090
50 56,161
5,562
-
-
659
-
659
-
1,008
-
1,008
12,286
94,949
580 107,815
5,510
107,191
682 113,383
-
46,023
- 46,023
-
43,171
- 43,171
208
8
-
3,830
24,894
2,940
4,038
-
9 24,911
2,940
-
151
12
-
4,220
35,180
3,589
-
4,371
17 35,209
3,589
-
216
77,687
9 77,912
163
86,160
17 86,340
204
2017 Westpac Group Annual Report
Notes to the financial statements
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 2017
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisition and issues
Disposal and settlements
Transfer 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 2017
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
Acquisition and issues
Disposal and settlements
Transfer 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
Trading
Securities and
Financial Assets
Designated
Debt
Issues
at Fair
Total
Level 3
at Fair Value Derivatives Securities Assets Derivatives Value Liabilities
Total
for-Sale Level 3
Available-
840
43
704
1,587
17
-
17
(26)
-
122
(162)
10
(17)
767
(8)
-
5
-
4
(34)
4
1,572
1,699
(13)
(1,645)
(1,820)
(12)
-
15
-
(18)
(2)
(35)
617
1,399
(3)
-
6
(9)
(2)
-
9
-
-
-
-
-
-
-
(3)
-
6
(9)
(2)
-
9
(29)
(2)
-
(31)
(3)
-
(3)
Trading
Securities and
Financial Assets
Designated
Total
Level 3
at Fair Value Derivatives Securities Assets Derivatives Value Liabilities
Total
for-Sale Level 3
Available-
Debt
Issues
at Fair
1,007
44
918
1,969
39
18
57
(1)
-
83
(6)
-
15
-
2
(7)
2
3,135
3,233
(245)
(11)
(3,215)
(3,471)
-
(4)
840
1
-
43
-
1
(136)
(140)
704
1,587
(12)
-
11
(17)
(4)
-
17
6
-
-
(24)
-
-
-
(6)
-
11
(41)
(4)
-
17
(9)
9
-
-
(1)
-
(1)
2017 Westpac Group Annual Report
205
3
Note 23. Fair values of financial assets and financial liabilities (continued)
Parent Entity 2017
Trading
Securities and
Financial Assets
Designated
$m
at Fair Value Derivatives
Available-
for-Sale
Securities
Total
Level 3
Assets Derivatives
Total
Level 3
Liabilities
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisition and issues
Disposal and settlements
Transfer 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 2017
Parent Entity 2016
590
42
50
682
17
17
8
-
32
(122)
10
(17)
501
(7)
-
5
(13)
(12)
-
15
-
-
14
-
-
-
64
1
-
51
(135)
(2)
(17)
580
(3)
-
6
(9)
(2)
-
9
(3)
-
6
(9)
(2)
-
9
1
(2)
-
(1)
(3)
(3)
Trading
Securities and
Financial Assets
Designated
Available-
for-Sale
Securities
Total
Level 3
Assets Derivatives
Total
Level 3
Liabilities
$m
at Fair Value Derivatives
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale reserve
Acquisition and issues
Disposal and settlements
Transfer 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
721
44
79
844
37
37
8
-
72
(207)
-
(4)
590
(7)
-
15
(11)
1
-
42
-
2
81
(109)
-
(3)
50
1
2
168
(327)
1
(7)
682
(10)
-
11
(17)
(4)
-
17
(10)
-
11
(17)
(4)
-
17
1
8
-
9
(1)
(1)
206
2017 Westpac Group Annual Report
Notes to the financial statements
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 $5 million
(30 September 2016: $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 and
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.
2017 Westpac Group Annual Report
207
3
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:
Other financial liabilities
Total financial liabilities
1 The estimated fair value of debt issues includes the impact of changes in Westpac's credit spreads since origination.
7,490
697,768
7,490
695,135
-
2,429
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
Quoted
Market
Prices
(Level 1)
Carrying
Amount
18,397
18,397
7,128
4,834
680,332
389
4,754
-
389
-
711,000
23,620
Financial liabilities not measured at fair value
Payables due to other financial institutions
21,907
2,429
Deposits and other borrowings
Debt issues1
Loan capital
487,022
163,683
17,666
-
-
-
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
Quoted
Market
Prices
(Level 1)
Carrying
Amount
17,015
17,015
9,951
7,128
656,364
382
4,501
-
382
-
688,213
24,525
Financial liabilities not measured at fair value
Payables due to other financial institutions
18,209
1,615
Deposits and other borrowings
Debt issues1
Loan capital
468,844
163,599
15,805
-
-
-
2017
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
-
1,902
-
-
4,754
6,656
19,478
484,929
165,151
18,087
-
1,887
-
-
4,501
6,388
16,594
466,980
164,811
15,773
-
18,397
392
7,128
680,568
680,568
-
-
389
4,754
680,960
711,236
-
21,907
2,794
487,723
-
-
-
2,794
165,151
18,087
7,490
700,358
-
17,015
936
9,951
657,594
657,594
-
-
382
4,501
658,530
689,443
-
18,209
2,729
469,709
-
-
-
2,729
164,811
15,773
7,531
676,033
2016
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
Other financial liabilities
Total financial liabilities
1 The estimated fair value of debt issues includes the impact of changes in Westpac's credit spreads since origination.
7,531
673,988
7,531
671,689
-
1,615
208
2017 Westpac Group Annual Report
Note 23. Fair values of financial assets and financial liabilities (continued)
Notes to the financial statements
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
Quoted
Market
Prices
(Level 1)
Carrying
Amount
16,405
16,405
6,357
4,462
601,650
286
142,455
4,000
-
286
-
-
771,153
21,153
Financial liabilities not measured at fair value
Payables due to other financial institutions
21,775
2,304
Deposits and other borrowings
Debt issues
Due from 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
Loans
Regulatory deposits with central banks overseas
Due from subsidiaries
Other financial assets
Total financial assets
431,670
141,176
143,834
17,666
6,868
762,989
-
-
-
-
-
2,304
Quoted
Market
Prices
(Level 1)
Carrying
Amount
15,186
15,186
8,325
6,441
574,177
261
143,549
3,755
-
261
-
-
745,253
21,888
Financial liabilities not measured at fair value
Payables due to other financial institutions
18,141
1,557
Deposits and other borrowings
Debt issues
Due from subsidiaries
Loan capital
Other financial liabilities
Total financial liabilities
412,571
141,987
142,808
15,805
6,832
738,144
-
-
-
-
-
1,557
2017
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
-
1,895
-
-
-
4,000
5,895
-
-
16,405
6,357
601,784
601,784
-
286
142,455
142,455
-
4,000
744,239
771,287
19,471
431,113
142,474
-
21,775
1,216
432,329
-
142,474
-
143,834
143,834
18,087
6,868
618,013
-
18,087
-
145,050
6,868
765,367
2016
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
-
1,884
-
-
-
3,755
5,639
-
-
15,186
8,325
574,947
574,947
-
261
143,549
143,549
-
3,755
718,496
746,023
16,584
412,289
143,116
-
18,141
1,098
413,387
-
143,116
-
142,808
142,808
15,773
6,832
594,594
-
15,773
-
143,906
6,832
740,057
2017 Westpac Group Annual Report
209
3
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.
Effects of Offsetting
on Balance Sheet
Amounts Subject to Enforceable
Netting Arrangements But Not Offset
Net Amounts
Other
Reported on Recognised
Financial
Financial
Instrument
the Balance
Sheet
Cash
Instruments Collateral
Net
Collateral Amount
Gross Amounts
Offset
Amounts
15
31,686
-
(7,653)
15
24,033
-
(16,707)
-
(2,438)
(14)
(18)
1
4,870
6,887
15,990
2,269
-
(15,925)
(1,615)
6,887
65
654
-
-
-
(42)
-
-
56,847
(25,193)
31,654
(16,707)
(2,480)
34,642
12,960
21,349
13
68,964
(9,267)
-
(15,925)
(1)
(25,193)
25,375
12,960
5,424
12
43,771
(16,707)
-
-
-
(16,707)
(5,552)
(2)
-
-
(5,554)
(6,814)
-
-
(6,846)
(1,421)
(12,958)
-
-
(14,379)
31
65
654
5,621
1,695
-
5,424
12
7,131
18
44,886
-
(12,659)
18
32,227
-
(22,551)
-
(1,774)
(17)
(118)
1
7,784
3,260
22,036
2,926
-
(21,963)
(2,148)
3,260
73
778
-
-
-
(14)
-
-
73,126
(36,770)
36,356
(22,551)
(1,788)
(3,246)
-
-
(3,381)
-
73
778
8,636
Consolidated
$m
2017
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
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
36,076
9,372
7,743
-
53,191
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
(3,041)
(9,371)
-
-
(12,412)
(14,034)
-
(21,963)
(773)
(36,770)
(22,551)
-
-
-
(22,551)
50,110
9,372
29,706
773
89,961
(8,031)
(1)
-
-
(8,032)
2,453
-
7,743
-
10,196
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, where variation margin is receivable
it is 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.
210
2017 Westpac Group Annual Report
Note 24. Offsetting financial assets and financial liabilities (continued)
Notes to the financial statements
Effects of Offsetting
on Balance Sheet
Amounts Subject to Enforceable
Netting Arrangements But Not Offset
Other
Net Amounts
Reported on Recognised
Financial
Financial
Instrument
the Balance
Sheet
Cash
Instruments Collateral
Net
Collateral Amount
Gross Amounts
Offset
Amounts
15
31,476
-
(7,653)
15
23,823
-
(16,552)
-
(2,312)
(14)
(18)
1
4,941
6,887
15,990
2,269
-
(15,925)
(1,615)
6,887
65
654
-
-
-
(42)
-
-
56,637
(25,193)
31,444
(16,552)
(2,354)
34,178
12,942
21,349
13
68,482
(9,267)
-
(15,925)
(1)
(25,193)
24,911
12,942
5,424
12
43,289
(16,522)
-
-
-
(16,522)
(5,179)
(2)
-
-
(5,181)
(6,814)
-
-
(6,846)
(1,421)
(12,940)
-
-
(14,361)
31
65
654
5,692
1,789
-
5,424
12
7,225
18
44,749
-
(12,659)
18
32,090
-
(22,431)
-
(1,716)
(17)
(118)
1
7,825
3,260
22,036
2,926
-
(21,963)
(2,148)
3,260
73
778
-
-
-
(14)
-
-
72,989
(36,770)
36,219
(22,431)
(1,730)
(3,246)
-
-
(3,381)
-
73
778
8,677
Parent Entity
$m
2017
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
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
35,209
8,991
7,743
-
51,943
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
(14,034)
-
(21,963)
(773)
(36,770)
(22,431)
-
-
-
(22,431)
(3,041)
(8,990)
-
-
(12,031)
49,243
8,991
29,706
773
88,713
(7,344)
(1)
-
-
(7,345)
2,393
-
7,743
-
10,136
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, where variation margin is receivable
it is 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.
2017 Westpac Group Annual Report
211
3
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 and liquidity 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 $511 million were provided by Westpac (30 September 2016: $503 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 $392 million at 30 September 2017 (30 September
2016: $936 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 to Notes 16 and 18 for
further details.
212
2017 Westpac Group Annual Report
Note 25. Securitisation, covered bonds and other transferred assets (continued)
The following table presents Westpac’s assets transferred and their associated liabilities:
Notes to the financial statements
Consolidated
$m
2017
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total4
2016
Securitisation - own assets1
Covered bonds2
Repurchase agreements3
Total4
Parent Entity
$m
2017
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total
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
8,249
42,122
18,746
69,117
9,503
45,409
11,647
66,559
8,209
34,516
12,960
55,685
9,445
33,529
9,372
52,346
8,282
n/a
n/a
8,282
9,557
n/a
n/a
9,557
8,223
n/a
n/a
8,223
9,382
n/a
n/a
9,382
59
n/a
n/a
59
175
n/a
n/a
175
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
98,368
35,202
18,728
97,872
29,698
12,942
152,298
140,512
98,434
n/a
n/a
98,434
94,735
n/a
n/a
94,735
3,699
n/a
n/a
3,699
2016
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total
1 The carrying amount of assets securitised exceeds the amount of notes issued primarily because the carrying amount includes both principal and
94,364
30,211
8,991
133,566
94,853
38,237
11,265
144,355
94,944
n/a
n/a
94,944
91,794
n/a
n/a
91,794
3,150
n/a
n/a
3,150
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 Comparatives have been revised for consistency.
4 This table excludes securitisation – customer conduits as the assets securitised are not assets of Westpac.
2017 Westpac Group Annual Report
213
3
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, BankSA 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.
214
2017 Westpac Group Annual Report
Note 26. Intangible assets (continued)
Notes to the financial statements
$m
Goodwill1
Opening balance
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
Amortisation
Closing balance
Cost
Consolidated
2017
2016
Parent Entity
2017
2016
9,030
9,010
6,844
6,844
(18)
20
-
-
9,012
9,030
6,844
6,844
1,781
1,654
1,635
1,512
766
(14)
(614)
(3)
1,916
5,059
696
(6)
(565)
2
1,781
4,453
692
(14)
(558)
3
1,758
4,249
628
(6)
(497)
(2)
1,635
3,693
(3,143)
(2,672)
(2,491)
(2,058)
1,916
1,781
1,758
1,635
670
670
670
187
(166)
21
670
670
670
352
(165)
187
636
636
636
187
(166)
21
636
636
636
352
(165)
187
1,494
1,494
1,279
1,279
(1,473)
(1,307)
(1,258)
(1,092)
21
187
21
187
53
-
(20)
33
398
89
4
(40)
53
398
3
-
(3)
-
160
(160)
-
9,259
27
-
(24)
3
160
(157)
3
9,305
Accumulated amortisation and impairment
(365)
(345)
33
Carrying amount
Total intangible assets1
11,652
1 Comparatives have been revised for changes in accounting policy. Refer to Note 1(iv) for further details.
53
11,721
2017 Westpac Group Annual Report
215
3
Note 26. Intangible assets (continued)
Goodwill has been allocated to the following CGU’s:
$m
Consumer Bank
Business Bank
Westpac Institutional Bank
BT Financial Group (Australia)
New Zealand Retail Banking
BT New Zealand
Hastings
Total goodwill
Consolidated
2017
2016
Parent Entity
2017
2016
3,359
2,513
487
2,048
472
13
120
9,012
3,359
2,513
487
2,048
489
14
120
9,030
3,144
2,378
487
835
-
-
3,144
2,378
487
835
-
-
-
6,844
-
6,844
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% (2016: 11.0%)
Group’s adjusted pre-tax equity rate for:
o Australia was 15.7% (2016: 15.7%)
o New Zealand was 15.3% (2016: 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
2017
2016
Parent Entity
2017
2016
1,193
1,408
86
810
220
149
1,496
5,362
1,118
1,195
101
744
216
171
1,588
5,133
1,029
1,388
1
358
182
64
1,296
4,318
948
1,192
1
305
148
71
1,390
4,055
216
2017 Westpac Group Annual Report
Notes to the financial statements
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 and average salary increases which 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. Judgement has also been applied in determining the measurement of the customer refunds and payments referred to in
Note 29.
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 2016
Additions
Utilisation
Reversal of unutilised provisions
Unwinding of discount
Other
Balance at 30 September 2017
Parent Entity
Balance at 1 October 2016
Additions
Utilisation
Reversal of unutilised provisions
Unwinding of discount
Other
Balance at 30 September 2017
Annual Leave Litigation Provision for
Impairment
and Other and Non-
Lending
Employee
Losses Commitments
Benefits
Long
Service
Leave
on Credit Leasehold Restructuring
Provisions
Premises
379
64
(39)
(5)
-
-
399
346
63
(35)
(5)
-
(2)
367
696
878
(829)
(3)
-
(5)
737
616
831
(792)
(11)
-
-
644
32
56
(43)
(3)
-
-
42
24
42
(36)
-
-
(1)
29
272
-
-
-
5
(24)
253
240
-
-
-
4
(20)
224
27
2
(3)
-
-
-
26
27
2
(3)
-
-
-
26
14
5
(12)
(1)
-
(1)
5
14
5
(12)
(1)
-
(1)
5
Total
1,420
1,005
(926)
(12)
5
(30)
1,462
1,267
943
(878)
(17)
4
(24)
1,295
Legislative liabilities
The Group had the following assessed liabilities as at 30 September 2017:
$23 million (2016: $15 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);
$9 million (2016: $11 million) based on actuarial assessment as a self-insurer under the Accident Compensation Act 1985
(Victoria);
$6 million (2016: $4 million) based on actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1986 (South Australia);
2017 Westpac Group Annual Report
217
3
Note 28. Provisions (continued)
$2 million (2016: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Rehabilitation Act 2003 (Queensland);
$1 million (2016: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act
1951 (Australian Capital Territory);
$2 million (2016: $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 (2016: $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 insurance premiums
Outstanding insurance claims
Defined benefit deficit1
Accrued interest payable
Credit card loyalty program2
Securities purchased not delivered
Consolidated
2017
2016
Parent Entity
2017
2016
396
339
43
2,727
284
1,315
388
331
282
2,579
270
1,695
-
-
30
2,416
16
-
-
256
2,262
15
1,315
1,692
Trade creditors and other accrued expenses
Other2,3
Total other liabilities
1 Refer to Note 38 for more details.
2 Comparatives have been revised for consistency.
3 2017 includes customer refunds and payments of $169 million. Some of the payments provided for include: payment to superannuation customers
who previously had their claims denied, so that these customers now benefit from our improved disclosure practices; payments to customers who
did not receive all the benefits they were entitled to under their ‘packaged accounts’; and refunds where ongoing advice fees were paid but we are
unable to formally demonstrate that the advice service was provided in the relevant period. The determination of the amount recognised for these
payments involves the exercise of significant judgement (refer to critical accounting assumptions and estimates in Note 28). Further information on
regulatory action and internal reviews is included in the contingent liabilities section of Note 31.
2,568
8,783
2,335
9,004
2,457
7,126
1,124
1,111
892
2,177
7,286
884
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 5 years
Total lease commitments
Consolidated
Parent Entity
2017
548
1,591
1,994
4,133
2016
537
1,319
1,275
3,131
2017
480
1,395
1,652
3,527
2016
463
1,120
1,046
2,629
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 $9 million (2016: $11 million) for both
the Group and Parent Entity.
218
2017 Westpac Group Annual Report
Notes to the financial statements
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:
Consolidated
2017
Parent Entity
2017
2016
$m
Undrawn credit commitments
Letters of credit and guarantees1
Commitments to extend credit2
Other
Total undrawn credit commitments
1 Letters of credit are undertakings to pay, against presentation documents, an obligation in the event of a default by a customer. Guarantees
are unconditional undertakings given to support the obligations of a customer to third parties. The Group may hold cash as collateral for
certain guarantees issued.
16,435
176,811
235
193,481
15,460
178,443
648
194,551
14,908
156,423
648
171,979
2016
15,725
154,783
235
170,743
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 2017 the Group had offered $5.5 billion (2016: $5.6 billion) of facilities to customers, which had not yet been accepted.
Consolidated 2017
$m
Letters of credit and guarantees
Commitments to extend credit
Other
Total undrawn credit commitments
Up to
1 Year
8,797
66,663
-
75,460
Over 1
to 3 Years
2,860
34,523
-
37,383
Over 3
to 5 Years
1,009
16,906
100
18,015
Over
5 Years
2,794
60,351
548
63,693
Total
15,460
178,443
648
194,551
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
Regulatory action and internal reviews
Globally, regulators continue to progress various reviews involving the financial services sector. The nature of these reviews
can be wide ranging and, in Australia, currently include investigations into potential misconduct in credit and financial services.
For example, regulators such as ASIC, APRA, ACCC and AUSTRAC are currently conducting reviews (some of which are
industry-wide) that consider a range of matters, including in relation to sales practices, responsible lending (including in the
context of reverse mortgages and interest only lending), financial adviser conduct (including compliance with the obligation to
act in the client’s best interests), the provision of personal and general advice, life insurance claims handling and the pricing of
residential mortgages. These reviews may result in litigation, fines, penalties, revocation, suspension or variation of conditions
of relevant regulatory licences or other enforcement or administrative action by regulators. Westpac has received various
notices and requests for information from its regulators as part of both industry-wide and Westpac-specific reviews.
In addition, Westpac is undertaking a number of reviews to identify and resolve prior issues that have the potential to impact
our customers and reputation. These reviews have identified, and may continue to identify, some prior instances where we are
now taking or will take action to put things right (including in relation to areas of industry focus such as record keeping and the
way some product terms and conditions are operationalised) so that our customers are not at a disadvantage from certain past
practices.
An assessment of the likely cost to the Group of these reviews and actions has been made on a case-by-case basis for the
purpose of the financial statements and specific provisions have been made where appropriate.
2017 Westpac Group Annual Report
219
3
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Litigation
There are outstanding court proceedings, claims and possible claims for and against the Group. Contingent liabilities exist in
respect of actual and potential claims and proceedings, including those listed below. An assessment of the Group’s likely loss
has been made on a case-by-case basis for the purpose of the financial statements and specific provisions have been made
where appropriate.
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 Australian and international banks alleging misconduct in relation to BBSW. Those
proceedings are at a very early stage and the level of damages sought has not been specified. Westpac is defending these
proceedings.
On 1 March 2017, ASIC commenced litigation in relation to certain Westpac home loans (including certain interest only
loans) alleging contraventions of the National Consumer Credit Protection Act 2009 (Cth). For further information, refer to
‘Significant developments’ under ‘Information on Westpac’ in Section 1.
On 22 December 2016, ASIC commenced Federal Court proceedings against BT Financial Management Limited (BTFM)
and Westpac Securities Administration Limited (WSAL) in relation to a number of superannuation account consolidation
campaigns conducted between 2013 and 2016. ASIC has alleged that in the course of some of these campaigns,
customers were provided with personal advice in contravention of a number of Corporations Act 2001 (Cth) provisions,
BTFM and WSAL are defending the proceedings.
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 and regulatory authorities are reviewing the taxation treatment of certain transactions undertaken by the Group in the
course of normal business activities and the claiming of tax incentives (including research and development tax incentives).
The Group also responds to various notices and requests for information it receives from tax and regulatory authorities.
Risk reviews and audits are also being undertaken by revenue authorities in other jurisdictions, as part of normal revenue
authority activity in those countries. These reviews, notices and requests may result in additional tax liabilities (including interest
and penalties).
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:
220
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.
2017 Westpac Group Annual Report
Notes to the financial statements
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.
Non-controlling interests
Non-controlling interests represent the share in the net assets of subsidiaries attributable to equity interests that are not owned
directly or indirectly by the Parent Entity.
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
Non-controlling interests
1 2017: 3,549,035 unvested shares held (2016: 3,472,010).
2 2017: 4,652,579 shares held (2016: 5,577,632).
Consolidated
2017
2016
Parent Entity
2017
2016
34,889
33,469
34,889
33,469
(434)
(61)
(495)
(366)
(89)
(455)
(434)
(3)
(437)
(366)
(3)
(369)
34,394
54
33,014
61
34,452
-
33,100
-
2017 Westpac Group Annual Report
221
3
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.
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 equity.
2 The price for the issuance of shares in relation to the dividend reinvestment plan for the 2017 interim dividend was $29.79 (2016 final
dividend was $31.32, 2016 interim dividend was $30.43 and 2015 final dividend was $31.83).
Consolidated and Parent Entity
(number)
Opening balance
Share entitlement offer1
Dividend reinvestment plan2
Ordinary shares purchased on market
Consolidated and Parent Entity
For share-based payment arrangements:
Employee share plan (ESP)
Restricted share plan (RSP)1
WPP - options exercised2
WPP - share rights exercised
LTI - options exercised2
As treasury shares:
Treasury shares purchased (excluding RSP)3,4
Treasury shares sold5
2017
2016
3,346,166,853
3,183,907,786
-
138,998,404
48,197,426
3,394,364,279
23,260,663
3,346,166,853
2017
Number
2017
Average Price ($)
862,912
2,123,635
52,745
142,093
326,178
275,014
(1,200,067)
2,582,510
30.97
32.08
31.55
31.03
33.52
33.59
32.62
Total ordinary shares purchased/(sold) on market6
1 Ordinary shares allocated to employees under the RSP are classified as treasury shares until the shares vest.
2 The average exercise price received was $23.98 on the exercise of the WPP options and $28.54 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 Treasury shares purchased (excluding RSP) by the Parent Entity during the year was nil.
5 Treasury shares sold by the Parent Entity during the year was 6,321 shares at an average price of $31.35.
6 The purchase of ordinary shares on market resulted in a tax benefit of $0.7 million being recognised as contributed equity.
For details of the share-based payment arrangements refer to Note 37.
222
2017 Westpac Group Annual Report
Note 32. Shareholders’ equity (continued)
Reconciliation of movement in reserves
Notes to the financial statements
$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
2017
2016
Parent Entity
2017
2016
10
75
(19)
(3)
1
-
64
(25)
53
(15)
(8)
2
3
10
10
88
(26)
(3)
1
-
70
(41)
69
(19)
(1)
-
2
10
1,333
1,217
1,221
1,108
98
116
101
113
1,431
1,333
1,322
1,221
(172)
(91)
27
115
(33)
26
(304)
89
21
(4)
(154)
(172)
(413)
(116)
(529)
(19)
1
(18)
-
794
(175)
(238)
(413)
(17)
(2)
(19)
(12)
727
(78)
(42)
13
19
(6)
(94)
(404)
(77)
(481)
41
-
41
-
858
131
(193)
58
(106)
32
(78)
(299)
(105)
(404)
41
-
41
-
790
2017 Westpac Group Annual Report
223
3
Note 33. Capital adequacy
APRA measures an ADI’s regulatory capital using three measures:
Level of capital
Definition
Common Equity Tier 1 Capital (CET1)
Tier 1 Capital
Total Regulatory Capital
Comprises the highest quality components of capital that consists of
paid-up share capital, retained profits and certain reserves, less certain
intangible assets, capitalised expenses and software, and investments
and retained profits in insurance and funds management subsidiaries
that are not consolidated for capital adequacy purposes.
The sum of CET1 and Additional Tier 1 Capital. Additional Tier 1 Capital
comprises high quality components of capital that consist of certain
securities not included in CET1, but which include loss absorbing
characteristics.
The sum of Tier 1 Capital and Tier 2 Capital. Tier 2 Capital includes
subordinated instruments and other components of capital that, to
varying degrees, do not meet the criteria for Tier 1 Capital, but
nonetheless contribute to the overall strength of an ADI and its capacity
to absorb losses.
Under APRA’s Prudential Standards, Australian ADIs, including Westpac, are required to maintain a minimum Common Equity
Tier 1 (CET1) ratio of at least 4.5%, Tier 1 ratio of at least 6.0% and Total Regulatory Capital of at least 8.0%. APRA may also
require ADIs, including, Westpac, to meet Prudential Capital Requirements (PCRs) above the minimum capital ratios. APRA
does not allow the PCRs for individual ADIs to be disclosed.
APRA also requires ADIs to hold additional CET1 buffers comprising of:
a capital conservation buffer (CCB) of 3.5% for ADIs designated by APRA as domestic systemically important banks
(D-SIBs) unless otherwise determined by APRA, which includes a 1.0% surcharge for D-SIBs. APRA has determined that
Westpac is a D-SIB; and
a countercyclical capital buffer. The countercyclical buffer is set on a jurisdictional basis and APRA is responsible for
setting the requirement in Australia. The countercyclical buffer requirement is currently set to zero for Australia and New
Zealand.
Collectively, the above buffers are referred to as the “Capital Buffer” (CB). Should the CET1 capital ratio fall within the capital
buffer range restrictions on the distributions of earnings will apply. This includes restrictions on the amount of earnings that can
be distributed through dividends, Additional Tier 1 Capital distributions and discretionary staff bonuses.
Capital management strategy
Westpac’s approach to capital management 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 consideration of regulatory minimums, capital buffers and
contingency plans;
consideration of both economic and regulatory capital requirements;
a stress testing framework that challenges the capital measures, coverage and requirements including the impact of
adverse economic scenarios; and
consideration of the perspective of external stakeholders’, including rating agencies and equity and debt investors.
In light of APRA’s announcement on ‘unquestionably strong’ capital on 19 July 2017, Westpac has ceased to use its preferred
range of 8.75% to 9.25% as a guide to managing capital levels. Westpac will revise its preferred range for the CET1 ratio once
APRA finalises its review of the capital adequacy framework. In the interim, Westpac will seek to operate with a CET1 ratio of at
least 10.5% in March and September as measured under the existing capital framework. This also takes into consideration:
current regulatory capital minimums and the capital conservation buffer (CCB), which together are the total CET1
requirement;
224
stress testing to calibrate an appropriate buffer against a downturn; and
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
2017 Westpac Group Annual Report
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 (2016: 94 cents, 2015: 94 cents)
all fully franked at 30%
Total dividends not recognised at year end
Notes to the financial statements
Consolidated
2017
2016
2015
Parent Entity
2017
2016
3,186
3,186
3,142
3,142
2,988
2,988
3,191
3,191
3,145
3,145
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 2017 final dividend. The DRP
will not include a discount.
The Board considered a range of factors including the impact of the Bank Levy on shareholders (which equated to 2 cents per
share in the second half of 2017), however decided to leave the dividend unchanged at 94 cents per share.
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 $1,063 million (2016: $911 million; 2015:
$793 million). This is calculated as the year end franking credit balance, adjusted for the Australian current tax liability and the
proposed 2017 final dividend.
New Zealand imputation credits
New Zealand imputation credits of NZ$0.07 (2016: NZ$0.07, 2015: NZ$0.06) per share will be attached to the proposed 2017
final dividend. New Zealand imputation credits available to the Parent Entity for subsequent years are NZ$375 million (2016:
NZ$423 million, 2015: NZ$522 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.
2017 Westpac Group Annual Report
225
3
Note 35. Investments in subsidiaries and associates (continued)
The following table includes the material controlled entities of the Group as at 30 September 2017.
Name
Country of
Incorporation
Name
Australia
Advance Asset Management Limited
Australia
Asgard Capital Management Limited
Australia
Asgard Wealth Solutions Limited
Australia
BT Financial Group Pty Limited
Australia
BT Funds Management Limited
Australia
BT Portfolio Services Limited
Australia
Capital Finance Australia Limited
Australia
Crusade ABS Series 2016-1 Trust
Australia
Crusade ABS Series 2017-1 Trust
New Zealand
Crusade Trust No.2P of 2008
New Zealand
Hastings Funds Management Limited
New Zealand
Hastings Management Pty Limited
New Zealand
Series 2008-1M WST Trust
New Zealand
Series 2014-1 WST Trust
Series 2014-2 WST Trust
New Zealand
New Zealand
Series 2015-1 WST Trust
St. George Finance Limited
New Zealand
St. George Motor Finance Limited
Papua New Guinea
1 The Group indirectly owns 19% of Westpac NZ Covered Bond Limited (WNZCBL) and Westpac NZ Securitisation Limited (WNZSL), however, due to
Westpac Covered Bond Trust
Westpac Equity Holdings Pty Limited
Westpac Financial Services Group Limited
Westpac General Insurance Limited
Westpac General Insurance Services Limited
Westpac Lenders Mortgage Insurance Limited
Westpac Life Insurance Services Limited
Westpac Securities Limited
Westpac Securitisation Holdings Pty Limited
BT Funds Management (NZ) Limited
Westpac Life-NZ-Limited
Westpac New Zealand Group Limited
Westpac New Zealand Limited
Westpac NZ Covered Bond Limited1
Westpac NZ Securitisation Limited1
Westpac Securities NZ Limited
Westpac Term PIE Fund2
Westpac Bank-PNG-Limited
Country of
Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
contractual and structural arrangements both WNZCBL and WNZSL are considered to be controlled entities within the Group.
2 The Group has funding agreements in place with this entity and is deemed to have exposure to the associated risks and rewards. The entity is
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.
The following controlled entities have been granted relief from compliance with the balance date synchronisation provisions in
the Corporations Act 2001:
Westpac Cash PIE Fund;
Westpac Notice Saver PIE Fund; 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
Westpac NZ Covered Bond Limited
Westpac NZ Securitisation Limited
2017
75.0%
89.9%
19.0%
19.0%
2016
75.0%
89.9%
19.0%
19.0%
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 subject to local regulatory requirements. There
were also no significant restrictions on Westpac’s ability to access or use the assets and settle the liabilities of the Group
resulting from protective rights of non-controlling interests.
Associates
On 26 May 2017, the Group sold 60 million shares of BTIM, which reduced the Group’s ownership to approximately 10%.
Following completion of the sale, the remaining interest in BTIM was reclassified to available-for-sale securities.
The following table summarises the financial information of BTIM and reconciles the summarised financial information to the
carrying amount of the Group’s 29.0% investment in BTIM as at 26 May 2017 immediately prior to the sale (30 September
2016: 29.5%). The table also summarises the gain recognised on the sale of the Group’s interest in BTIM as well as the fair
value of the remaining interest in BTIM initially recognised in available-for-sale securities.
226
2017 Westpac Group Annual Report
Note 35. Investments in subsidiaries and associates (continued)
Notes to the financial statements
Period ended
26 May 2017
262
90
11
101
26
(13)
13
4
(1)
16
22
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 profit1
Equity accounting adjustments
Group's share in net profit recognised in the income statement
Group's share of other comprehensive income1
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 assets1
Other equity accounting adjustments
Fair value adjustments (including notional goodwill) on acquisition (net of amortisation)
Carrying amount of interest in BTIM2
Carrying amount of interest in BTIM sold
Carrying amount of remaining interest reclassified to available-for-sale securities
Remaining interest in BTIM accounted for under equity method
Fair value of remaining interest reclassified to available-for-sale securities
Proceeds from sale of BTIM interest, net of transaction costs
Amount of reserves recycled to profit or loss
Gain on sale of interest in BTIM
Fair value of investment
1 Represents the Group's share of BTIM (26 May 2017: 29.0%, 30 September 2016: 29.5%).
2 The amount disclosed as at 26 May 2017 represented the carrying value of interest in BTIM immediately prior to the sale.
887
(122)
765
222
-
491
713
(471)
(242)
-
375
630
(13)
279
n/a
12 months ended
30 September 2016
455
142
(83)
59
42
(22)
20
(24)
7
3
34
913
(169)
744
220
(6)
504
718
n/a
n/a
718
n/a
n/a
n/a
n/a
807
Changes in ownership of subsidiaries
Businesses disposed during the year ending 30 September 2017
No businesses were sold in the year ended 30 September 2017.
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.
Details of the assets and liabilities over which control was lost are provided in Note 41.
2017 Westpac Group Annual Report
227
3
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.
228
2017 Westpac Group Annual Report
Notes to the financial statements
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 2017
Investment in
Third Party
Mortgage and
Other
Interest
in Other
Asset-Backed Securitisation Managed Structured
Financing to
Group
$m
Securities1
Vehicles
Funds
Entities
Total
Assets
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans
Life insurance assets
Other assets
Total on-balance sheet exposures
Total notional amounts of off-balance sheet exposures
-
1,740
6,981
-
-
-
8,721
-
392
-
-
-
-
-
-
674
-
392
2,414
6,981
20,032
44
22,488
42,564
-
-
4,344
52
1,735
6,079
-
52
20,424
4,440
24,897
58,482
5,802
66
7,718
13,586
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
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).
32,615
134,548
4,506
70,070
26,226
26,226
8,721
60,573
72,068
291,417
Consolidated 2016
Investment in
Third Party
Mortgage and
Other
Interest
in Other
Asset-Backed Securitisation Managed Structured
Financing to
Group
$m
Securities1
Vehicles
Funds
Entities
Total
Assets
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans
Life insurance assets
Other assets
Total on-balance sheet exposures
Total notional amounts of off-balance sheet exposures
-
1,955
4,253
-
90
3
6,301
-
936
-
-
18,339
-
-
19,275
3,469
-
4
-
111
291
55
461
62
-
1,870
-
936
3,829
4,253
23,673
42,123
2,450
2,831
-
58
27,993
54,030
7,078
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
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).
35,071
146,488
523
62,397
6,301
40,320
22,744
22,744
64,639
271,949
Non-contractual financial support
The Group does not provide non-contractual financial support to these unconsolidated structured entities.
2017 Westpac Group Annual Report
229
3
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 issued 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
Type of share-
based
payment
Westpac Long Term
Incentive Plan (LTI)
Westpac Performance Plan (WPP)
Restricted Share
Plan (RSP)
Employee Share Plan
(ESP)
Share rights (allocated at
no cost).
Share rights (allocated at no
cost).
Share options (no longer
issued since October
2009).
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 Aligns executive
remuneration and
accountability with
shareholder interests over
the long term.
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.
230
2017 Westpac Group Annual Report
Scheme name
Performance
hurdles
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)
Notes to the financial statements
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
average cash Return on
Equity (cash ROE) over a
three year performance
period plus 1 year holding
lock, each applying to half
of the award1
(commencing with the
2016 LTI award)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.
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 cash ROE performance targets are provided in the Remuneration Report in section 4.3.
2 For the 2015 LTI awards, the TSR is subject to a four year performance period and Cash EPS compound annual growth rate (CAGR) over a three
year performance period plus 1 year holding lock. For awards granted for the periods 2011 to 2014 both the TSR and CAGR hurdles are subject to a
three year performance and vesting period. TSR hurdled awards granted prior to 2011 were measured 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.
2017 Westpac Group Annual Report
231
3
Note 37. Share-based payments (continued)
Each share-based payment scheme is quantified below:
(i) Westpac Long Term Incentive Plan
2017
Share options
Weighted average exercise price
Weighted average remaining
contractual life
Share rights
Weighted average remaining
contractual life
2016
Share options
Weighted average exercise price
Performance share rights
Outstanding at
1 October
2016
Granted
During
the Year
583,018
$27.58
1.5 years
-
-
Exercised
During
the Year
326,178
$28.54
Lapsed
During
the Year
-
-
5,275,652
930,012
-
973,760
9.9 years
1 Oct 2015
588,876
$27.61
4,632,477
-
-
1,788,881
5,858
$29.96
334,095
-
-
811,611
Outstanding at
30 September 2017
256,840
$26.36
0.7 years
5,231,904
10.3 years
30 Sept 2016
583,018
$27.58
5,275,652
Outstanding
and Exercisable at
30 September 2017
256,840
$26.36
6,648
583,018
$27.58
6,648
The weighted average fair value at grant date of LTI share rights issued during the year was $19.17 (2016: $19.84).
(ii) Westpac Performance Plan (WPP)
2017
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
Four-year vesting period
Total share rights
Weighted average remaining
contractual life
2016
Share options
Weighted average exercise price
Performance share rights
Outstanding at
1 October
2016
Granted
During
the Year
74,094
$23.98
-
-
Exercised
During
the Year
52,745
$23.98
Lapsed
During
the Year
21,349
-
0.2 years
92,248
187,523
111,732
-
391,503
114,758
124,382
27,874
126,522
393,536
51,124
55,745
35,224
-
142,093
463
22,704
-
-
23,167
7.7 years
1 Oct 2015
158,276
$23.49
546,282
-
-
168,154
84,182
$23.05
289,807
-
-
33,126
Outstanding at
30 September 2017
-
-
n/a
155,419
233,456
104,382
126,522
619,779
12.3 years
30 Sept 2016
74,094
$23.98
391,503
Outstanding
and Exercisable at
30 September 2017
-
-
41,124
38,967
38,821
-
118,912
74,094
$23.98
106,863
The weighted average fair value at grant date of unhurdled share rights issued during the year was $27.40 (2016: $29.85).
(iii) Restricted Share Plan (RSP)
Allocation date1
Granted prior to October 2009
Granted subsequent to October 2009
Outstanding at
1 October
2016
994,050
3,432,822
Granted
During
the Year
-
2,195,572
Released
318,721
2,014,264
Forfeited
During
the Year
-
84,706
Total 2017
Total 2016
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
October 2009, shares are released from the RSP on vesting.
4,426,872
5,653,085
2,332,985
3,145,121
2,195,572
1,971,204
84,706
52,296
(iv) Employee Share Plan (ESP)
Allocation
Date
Number of
Participants
25 November 2016
18 November 2015
26,966
27,816
Average Number
of Shares Allocated
per Participant
Total Number
of Shares
Allocated
32
32
862,912
890,112
Market
Price per Share
$31.25
$30.32
Total
Fair Value
$26,966,000
$26,988,196
2017 Westpac Group Annual Report
2017
2016
232
Outstanding at
30 September 2017
675,329
3,529,424
4,204,753
4,426,872
Notes to the financial statements
Note 37. Share-based payments (continued)
The 2016 ESP award was satisfied through the purchase of shares on market.
The liability accrued for the ESP at 30 September 2017 is $28 million (2016: $27 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 (2.1% for share rights issued to the CEO);
a dividend yield on Westpac shares of 6.0% (5.9% for share rights issued to the CEO);
volatility in the Westpac share price of 20.7%; 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.
2017 Westpac Group Annual Report
233
3
Note 38. Superannuation commitments (continued)
Westpac had the following defined benefit plans at 30 September 2017:
Name of Plan
Westpac Group Plan (WGP)
Type
Defined benefit and
accumulation
Westpac New Zealand
Superannuation Scheme (WNZS)1
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
Defined benefit
Medical benefits
n/a
Westpac UK Medical Benefits
Scheme
1
The 30 June 2017 actuarial assessment for WNZS will be available in January 2018, where applicable the 30 June 2017 interim valuation
data has been used.
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.
inflation rate – increases in the inflation rate would increase the payments to pensioners;
discount rate – reductions in the discount rate would increase the present value of the future payments;
The defined benefit schemes expose the Group to the following risks:
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:
provide an opportunity for capital appreciation and dividend growth, which gives some protection against inflation.
secure attractive long term investment returns; and
Funding recommendations for the WGP, WNZS and the UKSS are made based on triennial actuarial valuations. These
valuations resulted in a funding surplus of $315 million for the year ended 30 September 2017 (2016: $354 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 £1.05 million per year.
Contributions
$m
Employer contributions
Member contributions
Consolidated
2017
2016
Parent Entity
2017
2016
33
13
61
14
33
12
61
13
Expected employer contributions for the year ended 30 September 2018 are $32 million.
Expense recognised
$m
Current service cost
Net interest cost on net benefit liability
Total defined benefit expense
Consolidated
2017
2016
2015
Parent Entity
2017
2016
42
8
50
43
7
50
49
12
61
41
7
48
42
7
49
234
2017 Westpac Group Annual Report
Note 38. Superannuation commitments (continued)
Defined benefit balances recognised
$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)
Net surplus/(deficit)
Notes to the financial statements
Consolidated
2017
2016
Parent Entity
2017
2016
2,284
2,289
5
48
(43)
5
2,476
2,226
(250)
32
(282)
(250)
2,209
2,227
18
48
(30)
18
2,385
2,160
(225)
32
(257)
(225)
The average duration of the defined benefit obligation is 11 years (2016: 12 years).
Significant assumptions
2017
2016
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
Australian Overseas Australian Overseas
Funds
Funds
Funds
Funds
4.2%
2.7%-3%
3.3%
2.3%
3.0%
3%-5%
2.8%
3%-4.8%
2.0%
2%-3.5%
1.8%
2%-3.2%
30.8
33.7
27.7-28.9
29.2-30.3
30.6
33.5
27.5-28.8
29.1-30.2
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
Asset allocation
Consolidated and Parent Entity
%
Cash
Equity instruments
Debt instruments
Property
Other Assets
Total
Increase in obligation
2016
2017
116
10
106
29
146
19
122
42
2017
2016
Australian Overseas Australian Overseas
Funds
Funds
Funds
Funds
4%
44%
29%
10%
13%
100%
2%
13%
65%
10%
10%
100%
2%
42%
26%
9%
21%
100%
2%
20%
59%
10%
9%
100%
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.
2017 Westpac Group Annual Report
235
3
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
2017
2016
Parent Entity
2017
2016
17,886
18,233
17,833
18,189
3,225
3,086
852
564
21,111
21,319
18,685
18,753
3,938
1,485
3,739
1,380
68
126
65
-
4,006
1,611
3,804
1,380
25,117
22,930
22,489
20,133
5
8
13
23
-
23
-
-
-
23
-
23
1,853
2,380
912
2,176
90
614
90
142
1,943
27,073
2,994
25,947
1,002
23,491
2,318
22,474
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 $6.0 million (2016: $8.1 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.
236
2017 Westpac Group Annual Report
Notes to the financial statements
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
Balances due to / from subsidiaries
Dividend income / Transactions with subsidiaries
Interest income
Tax consolidated group transactions and undertakings
Guarantees and undertakings
Details disclosed in
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 $329 million (2016: $318 million) to defined contribution plans and $33 million to defined benefit plans
(2016: $61 million; refer to Note 38).
Remuneration of KMP
Total remuneration of the KMP was:
$
Consolidated
2017
2016
Parent Entity
2017
2016
Short-term
Benefits
Post Employment
Benefits
Other Long-term
Benefits
Termination Share-based
Payments
Benefits
Total
25,048,403
24,423,422
23,859,466
23,265,771
621,606
577,061
545,524
500,968
156,590
220,264
156,590
220,264
-
-
-
-
16,106,111
41,932,710
16,177,450
41,398,197
15,268,712
15,230,171
39,830,292
39,217,174
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
2017
2016¹
1 Balances have been revised to include additional individual loans as at 30 September 2016.
739,466
709,238
Closing Loan
Balance
15,290,320
16,388,429
Number of KMP
with Loans
9
9
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.
2017 Westpac Group Annual Report
237
3
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 2017 by the CEO and other key management
personnel (including their related parties):
Managing Director & Chief Executive Officer
Brian Hartzer
Ranges from 1 October 2024 to 1 October 2031
Latest Date of Exercise
Group Executives
Lyn Cobley
Brad Cooper
David Curran
George Frazis
Ranges from 1 October 2030 to 1 October 2031
Ranges from 1 October 2024 to 1 October 2031
Ranges from 1 October 2024 to 1 October 2031
Ranges from 1 October 2024 to 1 October 2031
Alexandra Holcomb
Ranges from 1 October 2024 to 1 October 2031
Peter King
Rebecca Lim
David Linberg
David McLean
Christine Parker
Gary Thursby
Ranges from 1 October 2024 to 1 October 2031
Ranges from 1 October 2024 to 1 October 2031
Ranges from 1 October 2024 to 1 October 2031
Ranges from 1 October 2024 to 1 October 2031
Ranges from 1 October 2024 to 1 October 2031
Ranges from 1 October 2024 to 1 October 2031
Number of
Share Rights
Number
of Options
Exercise Price
of Options
664,710
179,282
316,120
210,876
258,835
242,930
269,616
101,518
196,484
212,538
219,225
112,636
-
-
-
-
-
-
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Former Group Executive
Philip Coffey
Ranges from 1 October 2024 to 1 October 2031
371,237
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
2017
2016
2015
Parent Entity
2017
2016
11,006
10,838
9,282
10,492
10,229
7,391
18,397
6,177
17,015
5,488
14,770
5,913
16,405
4,957
15,186
238
2017 Westpac Group Annual Report
Note 41. Notes to the cash flow statements (continued)
Reconciliation of net cash provided by/(used in) operating activities to net profit for the year is set out below:
Notes to the financial statements
$m
Net profit for the year
Adjustments:
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
Consolidated
2016
2017
2015
Parent Entity
2017
2016
7,997
7,460
8,068
7,843
6,307
1,671
1,122
1,269
1,021
(34)
(75)
148
42
1,208
1,261
(285)
25
(47)
(68)
884
(78)
115
(291)
(31)
(242)
(311)
(1,379)
991
(572)
(81)
154
28
219
1,061
1,016
(706)
9
(39)
(64)
(246)
operating assets and liabilities
10,126
9,243
8,959
9,704
7,338
Net (increase)/decrease in derivative financial instruments
(5,042)
(5,107)
11,730
(5,378)
(3,796)
Net (increase)/decrease in life insurance assets and liabilities
219
(253)
(191)
-
-
(Increase)/decrease in other operating assets:
Trading securities and financial assets designated at fair value
(5,054)
6,755
21,538
(5,194)
6,706
Loans
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
Other assets
(Decrease)/increase in other operating liabilities:
(26,815)
(38,082)
(39,569)
(27,677)
(35,852)
2,653
308
200
(896)
(209)
(476)
(1,000)
1,817
497
95
294
136
(128)
(219)
4
Other financial liabilities at fair value through income statement
(681)
(4,488)
(10,027)
(325)
(4,861)
Deposits and other borrowings
Payables due to other financial institutions
Other liabilities
Net cash provided by/(used in) operating activities
23,062
38,771
8,526
22,518
33,508
3,859
(15)
2,820
(73)
(1,194)
3,792
312
5,497
95
(541)
78
(235)
459
284
3,443
2017 Westpac Group Annual Report
239
3
Note 41. Notes to the cash flow statements (continued)
Details of the assets and liabilities over which control ceased
Details of the entities over which control ceased 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
2017
2016
2015
Parent Entity
2017
2016
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
138
-
1
95
75
90
132
226
5
3
1
1
27
8
11
36
450
84
308
1,075
264
267
-
2
1
-
6
273
35
-
35
34
-
20
14
98
23
55
477
598
(84)
514
743
745
34
1,488
2
1
62
1,036
34
(138)
(104)
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)
$m
Shares issued under the dividend reinvestment plan
Consolidated
2017
1,452
2016
726
2015
1,412
Parent Entity
2017
1,452
2016
726
Restricted cash
The amount of cash and cash equivalents not available for use at 30 September 2017 was $38 million (2016: $48 million) for
the Group and nil for the parent entity (2016: nil).
Note 42. Subsequent events
On 3 November 2017, the Group announced that it had entered into an agreement with Northill Capital regarding the sale of its
interest in Hastings Management Pty Limited (HMPL). The proposed sale is subject to confirmatory due diligence and
regulatory approvals.
No other matters have arisen since the year ended 30 September 2017 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.
240
2017 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 2017’ 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
2017 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
6 November 2017
Brian Hartzer
Managing Director &
Chief Executive Officer
2017 Westpac Group Annual Report
241
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 2017 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 2017 was effective.
The effectiveness of Westpac’s internal control over financial reporting as of 30 September 2017 has been audited by
PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which is included herein.
242
2017 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:
(a)
giving a true and fair view of the Parent Entity’s and Group's financial positions as at 30
September 2017 and of their financial performance for the year then ended
(b)
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 2017
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 a summary of significant accounting policies
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
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.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
2017 Westpac Group Annual Report
243
3
Materiality for the Group audit
For the purpose of our audit we used overall Group materiality of $531 million, which represents
approximately 5% of the Group’s profit before tax.
We applied this threshold, together with qualitative considerations, to determine the scope of our
audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements on the financial report as a whole.
We chose profit before tax because it is a key financial statement metric and, in our view, it is the
benchmark against which the performance of the Group is commonly measured.
We utilised a 5% threshold based on our professional judgement, noting it is within the range of
commonly accepted profit-related thresholds.
Audit scope for the Group audit
We focused our audit where the Group made significant judgements; for example, significant
accounting estimates involving assumptions and inherently uncertain future events.
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 financially significant operations, being the Consumer Bank,
Business Bank and Westpac Institutional Bank 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 audit procedures over specified financial
statement line items in relation to the Westpac New Zealand, BT Financial Group (Australia)
divisions and the Group Businesses.
Further audit procedures were performed over the remaining balances and the consolidation
process, including substantive and analytical procedures. The work carried out in these 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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit 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. The key audit matters identified below relate to both
the Parent Entity and Group audit.
Key audit matter
How our audit addressed the key audit matter
Provisions for impairment charges on loans
(Refer to Note 14 of the consolidated financial
statements)
We assessed the design and tested the
operating effectiveness of key controls over the
provisioning for impairment charges on loans.
244
2017 Westpac Group Annual Report
Statutory statements
Key audit matter
How our audit addressed the key audit matter
We focused on this area because of the highly
subjective and complex judgements made by
the Group in determining the necessity for,
and then estimating the size of, impairment
provisions against loans.
Provisions for impairment charges on loans that
exceed specific thresholds are individually
assessed by the Group 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 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
internal models developed by the Group.
Key elements in the provisioning for impairment
charges on loans include:
(cid:127)
(cid:127)
(cid:127)
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;
the design of the impairment models used in
the collectively assessed provision
calculations, and the appropriateness of the
key assumptions used in the impairment
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 impairment
models’ calculations, to reflect emerging trends
or particular situations which are not
otherwise captured by the impairment models,
such as the current persisting downturn in
asset value in single industry towns and the
mining sector.
Given the high level of subjectivity involved in
estimating loan impairment provisions, one of our
areas of audit focus is to consider whether the
calculations and underlying assumptions are
Key controls included:
(cid:127) governance, including the continuous re-
assessment by the Group that the
impairment models are calibrated in a way
which is appropriate for the credit risks in
the Group’s loan portfolios;
(cid:127) controls over timely identification of
deterioration in credit quality of individual
loans;
(cid:127) controls inherent in the IT systems that
manage and transfer the data between
underlying source systems and the
impairment models;
(cid:127)
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.
For a sample of individually assessed
provisions, our work included:
(cid:127) considered the latest developments as known
to the Group in relation to the borrower and
the basis of measuring the impairment
provision;
(cid:127) examined the forecast cash flows from the
impaired borrowers, as prepared by the
Group, including the key assumptions in
relation to both the amount and timing of
recoveries; and
(cid:127) 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 impairment
calculations.
For the collectively assessed provisions which
were calculated using impairment models, our
work included:
(cid:127)
for selected portfolios recalculated the
collective provision using the key assumptions
in the model, such as PDs and LGD;
2017 Westpac Group Annual Report
245
3
Key audit matter
How our audit addressed the key audit matter
consistent with those applied in the previous year,
or that any changes are appropriate in the
circumstances.
See Note 14 to the consolidated financial
statements which explains the critical accounting
estimates and assumptions in determining
provisions for impairment charges, including loss
rates and emergence periods.
Valuation of financial instruments held at fair
value
(Refer to Note 23 of the consolidated financial
statements)
(cid:127) performing analyses on key assumptions and
considering key ratios, including provision-to-
loan ratios at product and geographic levels;
and
(cid:127)
for a sample of collectively assessed
provisions, considered the latest financial
information provided to the Group in relation
to the borrower as it relates to the basis of
measuring the impairment provision.
For economic overlays to model calculations, we
considered the potential for impairment to be
affected by events not captured by the Group’s
models, and assessed whether the economic
overlays (for example, in relation to single industry
towns and the mining sector) were appropriate.
We assessed the design and tested the operating
effectiveness of key controls over the valuation of
financial instruments held at fair value. Key
controls included:
Financial instruments held by the Group at fair
value include derivative assets and liabilities,
trading securities, available-for-sale securities, life
insurance assets and liabilities, various debt
instruments and some other assets and liabilities
designated at fair value.
(cid:127) governance mechanisms and monitoring over
the valuation processes, including over
derivative valuation adjustments;
(cid:127) controls to ensure valuation models remain fit-
for-purpose (‘model validation’);
(cid:127) unit pricing controls and confirmations with
The Group’s financial instruments are
predominantly valued using quoted market prices
(‘Level 1’) or market observable prices (‘Level 2’).
The balances of ‘Level 3’ or ‘hard to value’
instruments remained similar to the prior year and
significantly less than Level 1 and Level 2
instruments.
There are two factors that led to our focus on this
area. First, the magnitude of financial instruments
held at fair value is material, being 15% of total
assets and 11% of total liabilities. Second,
judgement and inherent complexity is involved in
estimating the fair value of financial instruments.
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
external custodians;
(cid:127) controls inherent in the IT systems that
manage and transfer the data between
underlying source systems and the valuation
models;
(cid:127) controls to independently validate valuations
produced by the front office; and
(cid:127) controls to approve new products.
For a sample of financial instruments, our work
included:
(cid:127)
independently gathering pricing for
instruments where market data existed and
comparing the prices to the Group’s prices;
(cid:127) assessed any significant differences; and
(cid:127)
independently modelled instruments fair
value, including testing key inputs to selected
models. This involved sourcing independent
inputs from market data providers, and using
246
2017 Westpac Group Annual Report
Statutory statements
Key audit matter
How our audit addressed the key audit matter
DVA) and funding valuation adjustments (FVA).
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 consolidated financial
statements which explains the ‘Levels’ and the
valuation techniques used.
our valuation models. We considered
variances where appropriate to assess
whether a systemic bias or error was
apparent.
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 collateral
disputes to identify possibly inappropriate
valuations.
Operation of IT systems and controls
The Group is heavily dependent on complex IT
systems for the processing and recording of
significant volumes of transactions. We focused on
this area because over 80% of the key financial
controls we seek to rely on in our audit are related
to IT systems and automated controls.
In particular, in common with all banks, access
rights to technology are important because they
are intended to ensure that changes to
applications and data are appropriately
authorised. 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.
For significant financial statement balances we
developed 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 relevant
IT systems. This involved assessing:
(cid:127)
technology control environment: the governance
processes and controls used to monitor and
enforce control consciousness throughout the
Group’s technology teams;
(cid:127) change management: the processes and controls
used to develop, test and authorise changes to
the functionality and configurations within
systems;
(cid:127) security: the access controls designed to enforce
segregation of duties or ensure that data is only
changed through authorised means;
(cid:127) system development: 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: the controls over key operations
occur when they should and that any issues that
arise are managed appropriately.
(cid:127)
For in-scope IT operations where technology
services are provided by a third party, we:
(cid:127) considered assurance reports from the third
party’s auditor on the design and operating
effectiveness of controls; and/or
2017 Westpac Group Annual Report
247
3
Key audit matter
How our audit addressed the key audit matter
(cid:127)
tested internal control design and operating
effectiveness ourselves.
We also carried out further independent tests
of the operation of key programs to establish
the accuracy of selected calculations, the
correct generation of certain reports, and to
assess the correct operation of selected
automated controls and technology-dependent
manual controls.
While we noted some design and effectiveness
issues with the change management and security
controls, some of which are long-standing, the
combination of compensating control tests and
direct tests gave us sufficient evidence for our
audit.
We assessed the design and tested the operating
effectiveness of key controls over provisions,
customer refunds and contingent liabilities
relating to operational and reputational matters,
litigation and regulatory actions. The key controls
included:
(cid:127) controls over compilation and monitoring of
reports covering operational and reputational
matters, litigation, regulatory actions and other
matters;
(cid:127) controls over accounting judgments to assess
loss contingencies and the related accounting
impacts; and
(cid:127) controls inherent in the IT systems that
manage the data utilised.
We read the minutes of the Group’s Audit
Committee, Risk and Compliance Committee and
Board of Directors, attended the Audit Committee
and Risk and Compliance Committee meetings
and considered key correspondence with relevant
regulatory bodies.
We obtained solicitor letters and discussed
ongoing legal and regulatory matters with
management. We also obtained access to
relevant documents to develop our understanding
of the Group’s conclusions in these matters.
We considered the Group’s judgement as to
Provisions, customer refunds and contingent
liabilities relating to operational and reputational
matters, litigation and regulatory actions including
related disclosures
(Refer to Note 28, Note 29 and Note 31 of the
consolidated financial statements)
The Group is exposed to risk related to
operational and reputational matters, litigation
and regulatory actions or other matters which
could give rise to significant liabilities for the
Group.
We focused on this area because in assessing
and measuring such potential provisions and
customer refunds the Group is required to make
significant judgements based on available
information in relation to the probability and
estimation of potential future financial outcomes.
These outcomes may be dependent on legal and
regulatory processes.
See Note 28, Note 29 and Note 31 for disclosure
of provisions, customer refunds and contingent
liabilities.
248
2017 Westpac Group Annual Report
Statutory statements
Key audit matter
How our audit addressed the key audit matter
whether there is a potential material financial
exposure for the Group and if so the amount of
any provision or customer refund required and the
adequacy of related disclosures.
Where the Group determined they were unable to
reliably estimate the possible financial impact of a
legal or regulatory action, we assessed the
appropriateness of their conclusion and
disclosure within the financial report.
Other information
The directors are responsible for the other information. The other information comprises the
Performance Highlights and Sections 1, 2 and 4 included in the Group’s annual report for the year
ended 30 September 2017 but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly 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
identified above 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.
Responsibilities of the directors 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 ability of the Group 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 the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
2017 Westpac Group Annual Report
249
3
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.
A further description of our responsibilities for the audit of the financial report is located at the Auditing
and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This
description forms part of our auditor's report.
Report on the Remuneration Report
Our opinion on the Remuneration Report
We have audited the Remuneration Report included in Section 1 of the Group’s annual report for the
year ended 30 September 2017.
In our opinion, the Remuneration Report of Westpac Banking Corporation for the year ended 30
September 2017 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Parent Entity 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
Lona Mathis
Partner
Sydney
6 November 2017
Andrew Wilson
Partner
250
2017 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
judgment under US or other foreign laws rendered against PwC Australia based on or related to its audit report on our financial
statements. Substantially all of PwC Australia's assets are located in Australia. However, the Professional Standards Act and
the NSW Accountants Scheme have not been subject to judicial consideration and therefore how the limitation might be applied
by the courts and the effect of the limitation remain untested in a number of respects, including its effect in respect of the
extensive enforcement of foreign judgments.
2017 Westpac Group Annual Report
251
3
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252
2017 Westpac Group Annual Report
Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations and defined terms
Contact us
4
Shareholding information
Westpac ordinary shares
Top 20 ordinary shareholders as at 4 October 2017
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citigroup Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Citigroup Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Australian Foundation Investment Company Limited
AMP Life Limited
Argo Investments Limited
Milton Corporation Limited
IOOF Investment Management Limited
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
UBS Nominees Pty Ltd
Netwealth Investments Limited
JMB Pty Ltd
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Total of Top 20 registered shareholders1
Number of
Fully Paid Ordinary Shares
811,030,138
420,061,024
178,955,828
141,407,769
74,418,788
41,832,919
38,476,758
22,509,159
15,545,000
13,085,344
11,116,768
10,490,827
5,147,258
5,119,236
4,648,669
4,313,715
3,632,822
3,145,364
2,770,466
2,541,183
1,810,249,035
% Held
23.89
12.38
5.27
4.17
2.19
1.23
1.13
0.66
0.46
0.39
0.33
0.31
0.15
0.15
0.14
0.13
0.11
0.09
0.08
0.07
53.33
As at 4 October 2017 there were 633,272 holders of our ordinary shares compared to 641,374 in 2016 and 633,881 in 20152.
Ordinary shareholders with a registered address in Australia held approximately 98% of our fully paid share capital at
4 October 2017 (approximately 98% in 2016 and 98% in 2015).
Substantial shareholders as at 4 October 2017
As at 4 October 2017 BlackRock Group (comprised of BlackRock Inc. and its subsidiaries) 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. As detailed below, BlackRock Group became a substantial shareholder on 4 April 2017.
Significant changes in ordinary share ownership of substantial shareholders
On 30 March 2017, BlackRock Group became a substantial shareholder holding 167,986,663 ordinary shares (5.00% of total
votes outstanding). They ceased to be a substantial shareholder on 31 March 2017. On 4 April 2017, BlackRock Group
became a substantial shareholder holding 167,878,165 ordinary shares (5.00% of total votes outstanding). There have been no
other changes in ordinary share ownership of substantial shareholders notified to Westpac since that date.
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 2017, our Directors and Executive Officers owned beneficially, directly or indirectly, an aggregate of 771,859
(0.02%) of the fully paid ordinary shares outstanding.
1 As recorded on the share register by holder reference number.
2 Numbers include employee holdings previously consolidated on the share registry.
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2017 Westpac Group Annual Report
Shareholding information
Analysis by range of holdings of ordinary shares as at 4 October 2017
Number of Shares
1,000
–
1
5,000
–
1,001
5,001
10,000
–
10,001 – 100,000
100,001 and over
Totals
Number of Holders
of Fully Paid
Ordinary Shares
355,416
213,689
38,340
25,176
651
633,272
%
56.12
33.74
6.06
3.98
0.10
100.00
Number of
Fully Paid
Ordinary Shares
129,437,886
479,399,802
265,081,019
522,397,578
1,998,047,994
3,394,364,279
Number of Holders
of Share Options
and Rights
25
54
10
81
16
186
%
3.81
14.12
7.81
15.39
58.87
100.00
There were 12,748 shareholders holding less than a marketable parcel ($500) based on a market price of $31.86 at the close
of trading on 4 October 2017.
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.
2017 Westpac Group Annual Report
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4
Westpac Convertible Preference Shares (Westpac CPS)
Top 20 holders of Westpac CPS as at 4 October 2017
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
Navigator Australia Ltd
IOOF Investment Management Limited
Nulis Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Australian Executor Trustees Limited
Netwealth Investments Limited
BT Portfolio Services Limited
Dimbulu Pty Ltd
HSBC Custody Nominees (Australia) Limited
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd
Mrs Linda Anne Van Lieshout
Eastcote Pty Ltd
JMB Pty Ltd
Randazzo C & G Developments Pty Ltd
Netwealth Investments Limited
Citigroup Nominees Pty Limited
Avanteos Investments Limited
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
Analysis by range of holdings of Westpac CPS as at 4 October 2017
Number of Securities
1,000
–
1
5,000
–
1,001
5,001
10,000
–
10,001 – 100,000
100,001 and over
Totals
Westpac CPS
16,497
1,322
103
57
8
17,987
Number of Holders of
%
91.72
7.35
0.57
0.32
0.04
100.00
Number of
Westpac CPS
518,627
241,288
209,245
186,446
181,088
143,557
141,078
112,403
100,000
70,000
66,674
65,104
63,022
60,000
50,000
50,000
50,000
45,653
38,722
30,000
2,422,907
Number of
Westpac CPS
5,136,946
2,852,165
798,840
1,371,922
1,733,732
11,893,605
% Held
4.36
2.03
1.76
1.57
1.52
1.21
1.19
0.95
0.84
0.59
0.56
0.55
0.53
0.50
0.42
0.42
0.42
0.38
0.33
0.25
20.38
%
43.19
23.98
6.71
11.54
14.58
100.00
There were seven security holders holding less than a marketable parcel ($500) of Westpac CPS based on a market price of
$100.68 at the close of trading on 4 October 2017.
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2017 Westpac Group Annual Report
Shareholding information
Westpac Capital Notes
Top 20 holders of Westpac Capital Notes as at 4 October 2017
HSBC Custody Nominees (Australia) Limited
BNP Paribas Noms Pty Ltd
J P Morgan Nominees Australia Limited
BT Portfolio Services Limited
IOOF Investment Management Limited
Australian Executor Trustees Limited
National Nominees Limited
Citigroup Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
Navigator Australia Pty Ltd
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd
V S Access Pty Ltd
Nulis Nominees (Australia) Limited
Royal Freemasons Benevolent Institution
Mr Alexander Shaw
Willimbury Pty Ltd
Mutual Trust Pty Ltd
IOOF Investment Management Limited
Plougastel Pty Ltd
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
Number of
Westpac Capital Notes
679,364
280,026
201,898
200,000
180,802
175,097
164,103
159,180
112,391
104,504
97,862
96,231
90,000
85,473
50,000
50,000
50,000
35,721
33,139
30,000
2,875,791
Analysis by range of holdings of Westpac Capital Notes as at 4 October 2017
Number of Securities
1,000
–
1
5,000
–
1,001
5,001
10,000
–
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes
17,128
1,744
112
51
10
19,045
Number of Holders of
%
89.93
9.16
0.59
0.27
0.05
100.00
Number of
Westpac Capital Notes
5,682,593
3,638,142
882,018
1,375,572
2,257,365
13,835,690
% Held
4.91
2.02
1.46
1.45
1.31
1.27
1.19
1.15
0.81
0.76
0.71
0.70
0.65
0.62
0.36
0.36
0.36
0.26
0.24
0.22
20.81
%
41.07
26.30
6.37
9.94
16.32
100.00
There were six security holders holding less than a marketable parcel ($500) of Westpac Capital Notes based on a market
price of $101.30 at the close of trading on 4 October 2017.
2017 Westpac Group Annual Report
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4
Westpac Capital Notes 2
Top 20 holders of Westpac Capital Notes 2 as at 4 October 2017
HSBC Custody Nominees (Australia) Limited
Citigroup Nominees Pty Limited
BT Portfolio Services Limited
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
National Nominees Limited
Netwealth Investments Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
IOOF Investment Management Limited
BNP Paribas Nominees Pty Ltd
Netwealth Investments Limited
Rakio Pty Ltd
Alsop Pty Ltd
BNP Paribas Noms Pty Ltd
Dimbulu Pty Ltd
Domer Mining Co P/L
Royal Freemasons Benevolent Institution
Randazzo C & G Developments Pty Ltd
Longhurst Management Services Pty Ltd
Pratt Property Group Pty Ltd
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
Number of
Westpac Capital Notes 2
545,442
539,680
250,000
154,852
138,079
126,110
116,930
111,609
96,551
83,202
74,798
63,000
60,000
59,571
51,000
50,000
50,000
50,000
49,267
48,825
2,718,916
Analysis by range of holdings of Westpac Capital Notes 2 as at 4 October 2017
Number of Securities
1,000
–
1
5,000
–
1,001
5,001
10,000
–
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 2
14,278
1,658
127
73
8
16,144
Number of Holders of
%
88.44
10.27
0.79
0.45
0.05
100.00
Number of
Westpac Capital Notes 2
4,881,750
3,471,453
947,969
1,821,831
1,982,702
13,105,705
% Held
4.16
4.12
1.91
1.18
1.05
0.96
0.89
0.85
0.74
0.63
0.57
0.48
0.46
0.45
0.39
0.38
0.38
0.38
0.38
0.37
20.73
%
37.25
26.49
7.23
13.90
15.13
100.00
There were five security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 2 based on a market
price of $100.00 at the close of trading on 4 October 2017.
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2017 Westpac Group Annual Report
Westpac Capital Notes 3
Top 20 holders of Westpac Capital Notes 3 as at 4 October 2017
Shareholding information
HSBC Custody Nominees (Australia) Limited
JDB Services Pty Ltd
Navigator Australia Ltd
Citigroup Nominees Pty Limited
Nulis Nominees (Australia) Limited
National Nominees Limited
Balanced Property Pty Ltd
Seymour Group Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Netwealth Investments Limited
V S Access 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
Marshstoke Pty Ltd
Jove Pty Ltd
BNP Paribas Nominees Pty Ltd
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
Number of
Westpac Capital Notes 3
921,805
270,000
203,500
166,278
148,445
103,669
100,000
76,774
68,558
66,976
60,000
50,000
50,000
50,000
50,000
50,000
50,000
47,000
44,550
43,193
2,620,748
Analysis by range of holdings of Westpac Capital Notes 3 as at 4 October 2017
Number of Securities
1,000
–
1
5,000
–
1,001
5,001
10,000
–
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 3
13,696
1,482
120
88
6
15,392
Number of Holders of
%
88.98
9.63
0.78
0.57
0.04
100.00
Number of
Westpac Capital Notes 3
4,720,787
3,329,539
994,801
2,385,456
1,813,697
13,244,280
% Held
6.96
2.04
1.54
1.26
1.12
0.78
0.76
0.58
0.52
0.51
0.45
0.38
0.38
0.38
0.38
0.38
0.38
0.35
0.34
0.33
19.82
%
35.64
25.14
7.51
18.01
13.70
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 $103.50 at the close of trading on 4 October 2017.
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4
Westpac Capital Notes 4
Top 20 holders of Westpac Capital Notes 4 as at 4 October 2017
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citigroup Nominees Pty Limited
Nora Goodridge Investments Pty
National Nominees Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
Netwealth Investments Limited
J P Morgan Nominees Australia Limited
BNP Paribas Noms Pty Ltd
Mutual Trust Pty Ltd
Zashvin Pty Ltd
Dimbulu Pty Ltd
G Harvey Nominees Pty Ltd
Tandom Pty Ltd
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
Willimbury Pty Ltd
Australian Executor Trustees Limited
Netwealth Investments Limited
V S Access Pty Ltd
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
Number of
Westpac Capital Notes 4
3,000,000
960,561
278,585
200,000
178,528
151,844
148,690
132,856
132,729
123,817
104,000
100,000
100,000
80,000
78,143
66,917
60,000
58,859
51,817
51,570
6,058,916
Analysis by range of holdings of Westpac Capital Notes 4 as at 4 October 2017
Number of Securities
1,000
–
1
5,000
–
1,001
5,001
10,000
–
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 4
15,892
1,635
144
69
11
17,751
Number of Holders of
%
89.53
9.21
0.81
0.39
0.06
100.00
Number of
Westpac Capital Notes 4
5,218,307
3,483,779
1,103,731
1,803,107
5,411,610
17,020,534
% Held
17.63
5.64
1.64
1.18
1.05
0.89
0.87
0.78
0.78
0.73
0.61
0.59
0.59
0.47
0.46
0.39
0.35
0.35
0.30
0.30
35.60
%
30.66
20.47
6.49
10.59
31.79
100.00
There were seven security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 4 based on a market
price of $106.12 at the close of trading on 4 October 2017.
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2017 Westpac Group Annual Report
Voting rights of Westpac CPS, Westpac Capital Notes,
Westpac Capital Notes 2, Westpac Capital Notes 3 and
Westpac Capital 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 resolution to approve a
redemption of 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;
Shareholding information
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:
– persons associated with the former Milosevic regime,
and persons indicted or suspected of committing war
crimes during the Balkan wars in the early 1990s;
– 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.
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261
4
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
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 broadly defined. The Treasurer may approve
a higher percentage stake if the Treasurer is satisfied that it
is in the national interest to do so.
In addition, even if a person’s stake in a financial sector
company does not exceed the 15% limit, the Treasurer has
the power to declare that a person has ‘practical control’ of a
financial sector company and require the person to
relinquish that control or reduce their stake in that company.
Corporations Act 2001
The Corporations Act 2001 (Cth) prohibits any person
(including a corporation) from acquiring a relevant interest in
our voting shares if, after the acquisition, that person or any
other person would be entitled to exercise more than 20% of
the voting power in our shares. The prohibition is subject to
certain limited exceptions. In addition, under the
Corporations Act, a person is required to give a notice to us
and to the ASX providing certain prescribed information,
including their name, address and details of their relevant
interests in our voting shares if they begin to have, or cease
to have, a substantial holding in us, or if they already have a
substantial holding and there is a movement of at least 1%
in their holding. Such notice must, generally, be provided
within two business days after the person becomes aware of
that information.
A person will have a substantial holding if the total votes
attached to our voting shares in which they or their
associates have relevant interests is 5% or more of the total
number of votes attached to all our voting shares. The
concepts of ‘associate’ and ‘relevant interest’ are broadly
defined in the Corporations Act and investors are advised to
seek their own advice on their scope. In general terms, a
person will have a relevant interest in a share if they:
a. are the holder of that share;
b. have power to exercise, or control the exercise of, a
right to vote attached to that share; or
c. have power to dispose of, or control the exercise of a
power to dispose of, that share.
It does not matter how remote the relevant interest is or how
it arises. If two or more persons can jointly exercise any one
of these powers, each of them is taken to have that power.
Nor does it matter that the power or control is express or
implied, formal or informal, exercisable either alone or jointly
with someone else.
The American Depositary Shares (ADS) 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 ADS. Holders of our ADS 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 ADS are required by the Deposit
Agreement to comply with our requests for information as to
the capacity in which such holders own ADS and related
ordinary shares as well as to the identity of any other person
interested in such ADS 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.
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2017 Westpac Group Annual Report
This discussion is intended only as a descriptive summary
and does not purport to be a complete analysis of all the
potential Australian tax implications of owning and disposing
of ordinary shares. The specific tax position of each investor
will determine the applicable Australian income tax
implications for that investor and we recommend that
investors consult their own tax advisers concerning the
implications of owning and disposing of ordinary shares.
Taxation of dividends
Under the Australian dividend imputation system, Australian
tax paid at the company level is imputed (or allocated) to
shareholders by means of imputation credits (also called
franking 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.
Shareholding information
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 Australian resident 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 may be able to 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 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
2017 Westpac Group Annual Report
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4
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 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;
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
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.
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2017 Westpac Group Annual Report
Shareholding information
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
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.
2017 Westpac Group Annual Report
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4
Additional information
Our constitution
Overview
We were incorporated in 1850 under the Bank of New South
Wales Act, a special piece of legislation passed by the New
South Wales Parliament at a time when there was no
general companies’ legislation in Australia. On
23 August 2002, Westpac became registered under the
Corporations Act 2001 (Cth) as a public company limited
by shares.
As part of the process of becoming a company regulated
under the Corporations Act, shareholders adopted a new
constitution at the AGM on 15 December 2000, which came
into operation on 23 August 2002. Our constitution has been
subsequently amended by shareholders on
15 December 2005, 13 December 2007 and
13 December 2012.
Our objects and purposes
Our constitution does not contain a statement of our objects
and purposes. As a company regulated by the Corporations
Act, we have the legal capacity and powers of an individual
both within and outside Australia, and all the powers of a
body corporate, including the power to issue and cancel
shares, to issue debentures, to distribute our property
among our equity holders (either in kind or otherwise), to
give security by charging our uncalled capital, to grant a
floating charge over our property and to do any other act
permitted by any law.
Directors’ voting powers
Under clause 9.11(a) of our constitution, subject to
complying with the Corporations Act regarding disclosure of
and voting on matters involving material personal interests,
our Directors may:
a. hold any office or place of profit in our company, except
that of auditor;
b. hold any office or place of profit in any other company,
body corporate, trust or entity promoted by our company
or in which it has an interest of any kind;
c. enter into any contract or arrangement with
our company;
d. participate in any association, institution, fund, trust or
scheme for past or present employees or directors of
our company or persons dependent on or connected
with them;
e. act in a professional capacity (or be a member of a firm
that acts in a professional capacity) for our company,
except as auditor; and
f. participate in, vote on and be counted in a quorum for
any meeting, resolution or decision of the Directors and
be present at any meeting where any matter is being
considered by the Directors.
Under clause 9.11(b) of our constitution, a Director may do
any of the above despite the fiduciary relationship of the
Director’s office:
a. without any liability to account to our company for any
direct or indirect benefit accruing to the Director; and
b. without affecting the validity of any contract
or arrangement.
Under the Corporations Act, however, a Director who has a
material personal interest in any matter to be considered at
any Board meeting must not be present while the matter is
being considered or vote on the matter, unless the other
Directors resolve to allow that Director to be present and
vote or a declaration is made by ASIC permitting that
Director to participate and vote. These restrictions do not
apply to a limited range of matters set out in section 191(2)
of the Corporations Act, where the Director’s interest:
a. arises because the Director is a shareholder of the
company and is held 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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2017 Westpac Group Annual Report
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 claimed or 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 seven years. If
at the end of that period the monies remain unclaimed by the
shareholder concerned, we must submit an annual
unclaimed money return to the Australian Securities and
Investment Commission by 31 March each year containing
the unclaimed money as at 31 December of the previous
year. Upon such payment being made, we are discharged
from further liability in respect of that amount.
Additional information
Our Directors may, before paying any dividend, set aside out
of our profits such sums as they think proper as reserves, to
be applied, at the discretion of our Directors, for any purpose
for which the profits may be properly applied. Our Directors
may carry forward so much of the profits remaining as they
consider ought not to be distributed as dividends without
transferring those profits to a reserve.
The following restrictions apply to our ability to declare
and/or pay dividends:
(i)
if the payment of the dividend would breach or cause a
breach by us of applicable capital adequacy or other
supervisory requirements of APRA, 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. This restriction is subject to a number of
exceptions.
b) Voting rights
Holders of our fully paid ordinary shares have, at 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 Director of a listed entity,
apart from the Managing Director, may continue to hold
office, without offering himself or herself for re-election, past
the third AGM following their appointment or three years,
whichever is the longer.
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Under the Corporations Act, the election or re-election of
each Director by shareholders at a general meeting of a
public company must proceed as a separate item, unless the
shareholders first resolve that the elections or re-elections
may be voted on collectively. A resolution to allow collective
voting in relation to elections or re-elections is effective only
if no votes are cast against that resolution. Any resolution
electing or re-electing two or more Directors in contravention
of this requirement is void.
d) Winding up
Subject to any preferential entitlement of holders of
preference shares on issue at the relevant time, holders of
our ordinary shares are entitled to share equally in any
surplus assets if we are wound up.
e) Sinking fund provisions
We do not have any class of shares on issue that is subject
to any sinking fund provisions.
Variation of rights attaching to our shares
Under the Corporations Act, unless otherwise provided by
the terms of issue of a class of shares, the terms of issue of
a class of shares in Westpac can only be varied or cancelled
in any way by a special resolution of Westpac and with
either the written consent of our shareholders holding at
least three quarters of the votes in that class of shares or
with the sanction of a special resolution passed at a
separate meeting of the holders of that class of shares.
Convening general meetings
Under our constitution, our Directors may convene and
arrange to hold a general meeting of Westpac whenever
they think fit and must do so if required to do so under the
Corporations Act and ASX Listing Rules. Under the
Corporations Act, our Directors must call and arrange to hold
a general meeting of Westpac if requested to do so by our
shareholders who hold at least 5% of the votes that may be
cast at the general meeting. Shareholders who hold at least
5% of the votes that may be cast at a general meeting may
also call and arrange to hold a general meeting of Westpac
at their own expense.
At least 28 days notice must be given of a meeting of our
shareholders. Written notice must be given to all
shareholders entitled to attend and vote at the meeting. All
ordinary shareholders are entitled to attend and, subject to
the constitution and the Corporations Act, to vote at general
meetings of Westpac.
Limitations on securities ownership
A number of limitations apply in relation to the ownership of
our shares, and these are more fully described in the section
‘Limitations affecting security holders’.
Change in control restrictions
Restrictions apply under the Corporations Act, the Financial
Sector (Shareholdings) Act 1998 (Cth) and the Foreign
Acquisitions and Takeovers Act 1975 (Cth).
For more detailed descriptions of these restrictions, refer to
the sections ‘Limitations affecting security holders’, Foreign
Acquisitions and Takeovers Act 1975, Financial Sector
(Shareholdings) Act 1998, and Corporations Act 2001.
Substantial shareholder disclosure
There is no provision in our constitution that requires a
shareholder to disclose the extent of their ownership of
our shares.
Under the Corporations Act, however, any person who
begins or ceases to have a substantial holding of our shares
must notify us within two business days after they become
aware of that information. A further notice must be given to
us if there is an increase or decrease of 1% in a person’s
substantial holding. Copies of these notices must also be
given to the ASX. A person has a substantial holding of our
shares if the total votes attached to our voting shares in
which they or their associates have relevant interests is 5%
or more of the total number of votes attached to all our
voting shares. For more details, refer to the section
‘Corporations Act 2001’.
We also have a statutory right under the Corporations Act to
trace the beneficial ownership of our shares by giving a
direction to a shareholder, or certain other persons, requiring
disclosure to us of, among other things, their own relevant
interest in our shares and the name and address of each
other person who has a relevant interest in those shares, the
nature and extent of that interest and the circumstances that
gave rise to that other person’s interest. Such disclosure
must, except in certain limited circumstances, be provided
within two business days after the direction is received.
Australian Company and Business Numbers
All Australian companies have a unique nine-digit identifier,
referred to as an Australian Company Number (ACN), which
must be included on public documents, eligible negotiable
instruments and the company’s common seal. In addition,
entities can apply for registration on the Australian Business
Register and be allocated a unique eleven-digit identifier
known as an Australian Business Number (ABN). For
Australian companies, the last nine digits of their ABN are
identical to their ACN. The ABN may be quoted on
documents in lieu of the ACN.
Our ACN is 007 457 141 and our ABN is 33 007 457 141.
Documents on display
We are subject to the disclosure requirements of the
US Securities Exchange Act of 1934, as amended. In
accordance with these requirements, we file Annual Reports
with, and furnish other information to, the US Securities &
Exchange Commission (SEC). These materials and other
information furnished by us may be inspected and copied at
the SEC's Conventional and Electronic Reading Room at
100 F Street, N.E., Room 1580, Washington, D.C. 20549 at
prescribed rates. The public may obtain information on the
operation of the SEC’s Conventional and Electronic Reading
Room by calling the SEC in the United States at 1-800-SEC-
0330. The SEC also maintains a website at www.sec.gov
that contains reports, proxy statements and other
information regarding registrants that file electronically with
the SEC. Since April 2002, we have filed our reports on
Form 20-F and have furnished other information to the SEC
in electronic format which may be accessed through this
website.
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2017 Westpac Group Annual Report
Additional information
Exchange rates
For each of the years indicated, the high, low, average and year-end noon buying rates1 for Australian dollars were:
2018²
2017
2016
2015
2014
2013
Year Ended 30 September
High
Low
Average3
Close (on 30 September)4
0.7885
0.7660
n/a
n/a
0.8071
0.7174
0.7624
0.7840
(US$ per A$1.00)
0.7817
0.6855
0.7385
0.7667
0.8904
0.6917
0.7781
0.7020
For each of the months indicated, the high and low noon buying rates for Australian dollars were:
High
Low
October
2017²
September
2017
August
2017
July
2017
Month
0.7885
0.7660
0.8071
0.7831
(US$ per A$1.00)
0.7983
0.7822
0.7991
0.7584
0.9705
0.8715
0.9155
0.8737
June
2017
0.7680
0.7387
1.0579
0.8901
0.9885
0.9342
May
2017
0.7534
0.7352
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 27 October 2017. On 27 October 2017, the noon buying rate was A$1.00 = US$0.7660.
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.
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4
Information for shareholders
Financial calendar
Westpac shares are listed on the securities exchanges in
Australia (ASX) and New Zealand (NZX) and as American
Depository Receipts in New York. Westpac Convertible
Preference Shares, Westpac Capital Notes, Westpac Capital
Notes 2, Westpac Capital Notes 3, Westpac Capital Notes 4
and Westpac Subordinated Notes II are listed on the ASX.
Westpac NZD Subordinated Notes are listed on the NZX.
Important dates to note are set out below, subject to change.
Payment of any distribution, dividend or interest payment is
subject to the relevant payment conditions and the key dates
for each payment will be confirmed to the ASX for securities
listed on the ASX.
Westpac Ordinary Shares
(ASX code: WBC, NYSE code: WBK)
New York ex-dividend date for final
dividend
10 November 2017
Ex-dividend date for final dividend
13 November 2017
New York record date for final dividend
13 November 2017
Record date for final dividend
14 November 2017
Annual General Meeting
Final dividend payable
Financial Half Year end
Interim results and dividend
announcement
8 December 20171
22 December 2017
31 March 2018
7 May 2018
New York ex-dividend date for interim
dividend
16 May 2018
Westpac Convertible Preference Shares
(ASX code: WBCPC)
Ex-date for semi-annual dividend
22 March 2018
Record date for semi-annual dividend
23 March 2018
Payment date for semi-annual dividend
3 April 20181,3
Ex-date for semi-annual dividend
20 September 2018
Record date for semi-annual dividend
21 September 20182
Payment date for semi-annual dividend
1
Adjusted to next business day as payment date falls on a non-ASX
1 October 20181
business day.
2
Adjusted to immediately preceding business day as record date falls on a
non-ASX business day.
3
The First Optional Redemption Date for Westpac CPS will be 31 March
2018. Redemption on this date is subject to APRA’s prior written consent.
There can be no certainty that APRA will provide its consent and Westpac
has not made any decision to redeem Westpac Convertible Preference
Shares.
Westpac Capital Notes (ASX code: WBCPD)
Ex-date for quarterly distribution
29 November 2017
Record date for quarterly distribution
30 November 2017
Payment date for quarterly distribution
8 December 2017
Ex-date for quarterly distribution
27 February 2018
Record date for quarterly distribution
28 February 2018
Payment date for quarterly distribution
8 March 2018
Ex-date for quarterly distribution
30 May 2018
Ex-dividend date for interim dividend
17 May 2018
Record date for quarterly distribution
31 May 2018
New York record date for interim dividend 17 May 2018
Payment date for quarterly distribution
8 June 2018
Record date for interim dividend
18 May 2018
Ex-date for quarterly distribution
30 August 2018
Interim dividend payable
4 July 2018
Record date for quarterly distribution
31 August 2018
Financial Year end
30 September 2018
Payment date for quarterly distribution
10 September 20181
Final results and dividend announcement 5 November 2018
Ex-date for quarterly distribution
29 November 2018
New York ex-dividend date for final
dividend
9 November 2018
Record date for quarterly distribution
30 November 2018
Payment date for quarterly distribution
1
Adjusted to next business day as payment date falls on a non-ASX
10 December 20181
Ex-dividend date for final dividend
13 November 2018
New York record date for final dividend
13 November 2018
business day.
Record date for final dividend
14 November 2018
Annual General Meeting
12 December 20181
Final dividend payable
1
Details regarding the location of the meeting and the business to be dealt
with will be contained in a Notice of Meeting sent to shareholders in the
November before the meeting.
21 December 2018
270
2017 Westpac Group Annual Report
Information for shareholders
Westpac Capital Notes 2 (ASX code: WBCPE)
Westpac Capital Notes 4 (ASX code: WBCPG)
Ex-date for quarterly distribution
14 December 2017
Ex-date for quarterly distribution
21 December 2017
Record date for quarterly distribution
15 December 2017
Record date for quarterly distribution
22 December 2017
Payment date for quarterly distribution
27 December 20171
Payment date for quarterly distribution
2 January 20181
Ex-date for quarterly distribution
14 March 2018
Ex-date for quarterly distribution
21 March 2018
Record date for quarterly distribution
15 March 2018
Record date for quarterly distribution
22 March 2018
Payment date for quarterly distribution
23 March 2018
Payment date for quarterly distribution
3 April 20181
Ex-date for quarterly distribution
14 June 2018
Ex-date for quarterly distribution
21 June 2018
Record date for quarterly distribution
15 June 2018
Record date for quarterly distribution
22 June 2018
Payment date for quarterly distribution
25 June 20181
Payment date for quarterly distribution
2 July 20181
Ex-date for quarterly distribution
13 September 2018
Ex-date for quarterly distribution
20 September 2018
Record date for quarterly distribution
Payment date for quarterly distribution
14 September 20182
24 September 20181
Record date for quarterly distribution
21 September 20182
Payment date for quarterly distribution
1 October 20181
Ex-date for quarterly distribution
13 December 2018
Ex-date for quarterly distribution
20 December 2018
Record date for quarterly distribution
14 December 20182
Record date for quarterly distribution
21 December 20182
Payment date for quarterly distribution
1
Adjusted to next business day as payment date falls on a non-ASX
24 December 20181
business day.
2
Adjusted to immediately preceding business day as record date falls on a
non-ASX business day.
Payment date for quarterly distribution
1
Adjusted to next business day as payment date falls on a non-ASX
31 December 20181
business day.
2
Adjusted to immediately preceding business day as record date falls on a
non-ASX business day.
Westpac Capital Notes 3 (ASX code: WBCPF)
Westpac Subordinated Notes II (ASX code: WBCHB)
Ex-date for quarterly distribution
13 December 2017
Ex-date for quarterly interest payment
13 November 2017
Record date for quarterly distribution
14 December 2017
Record date for quarterly interest payment 14 November 2017
Payment date for quarterly distribution
22 December 2017
Ex-date for quarterly distribution
13 March 2018
Record date for quarterly distribution
14 March 2018
Payment date for quarterly distribution
22 March 2018
Ex-date for quarterly distribution
13 June 2018
Record date for quarterly distribution
14 June 2018
Payment date for quarterly distribution
22 June 2018
Ex-date for quarterly distribution
13 September 2018
Record date for quarterly distribution
14 September 2018
Payment date for quarterly interest
payment
22 November 2017
Ex-date for quarterly interest payment
13 February 2018
Record date for quarterly interest payment 14 February 2018
Payment date for quarterly interest
payment
22 February 2018
Ex-date for quarterly interest payment
11 May 2018
Record date for quarterly interest payment 14 May 2018
Payment date for quarterly interest
payment
22 May 2018
Payment date for quarterly distribution
24 September 20181
Ex-date for quarterly interest payment
13 August 2018
Ex-date for quarterly distribution
13 December 2018
Record date for quarterly interest payment 14 August 2018
Record date for quarterly distribution
14 December 2018
Payment date for quarterly distribution
1
Adjusted to next business day as payment date falls on a non-ASX
24 December 20181
business day.
Payment date for quarterly interest
payment
22 August 20181
Ex-date for quarterly interest payment
13 November 2018
Record date for quarterly interest payment 14 November 2018
22 November 2018
Payment date for quarterly interest
payment
1
The First Optional Redemption Date for Westpac Subordinated Notes II
will be 22 August 2018. Redemption on this date is subject to APRA’s
prior written consent. There can be no certainty that APRA will provide its
consent and Westpac has not made any decision to redeem Westpac
Subordinated Notes.
2017 Westpac Group Annual Report
271
4
Westpac NZD Subordinated Notes (NZX code: WBC010)
Ex-date for quarterly interest payment
20 November 2017
Record date for quarterly interest payment 21 November 2017
Payment date for quarterly interest
payment
1 December 2017
Ex-date for quarterly interest payment
16 February 2018
Record date for quarterly interest payment 19 February 2018
Payment date for quarterly interest
payment
1 March 2018
Ex-date for quarterly interest payment
21 May 2018
Record date for quarterly interest payment 22 May 2018
Payment date for quarterly interest
payment
1 June 2018
Ex-date for quarterly interest payment
21 August 2018
Record date for quarterly interest payment 22 August 2018
Payment date for quarterly interest
payment
3 September 20181
Ex-date for quarterly interest payment
20 November 2018
Record date for quarterly interest payment 21 November 2018
Payment date for quarterly interest
payment
1
Adjusted to next business day as payment date does not fall on a day on which banks are open for general business in Wellington and Auckland, New Zealand
3 December 20181
and Sydney, Australia.
Annual General Meeting
The Westpac Annual General Meeting (AGM) will be held in The Darling Harbour Theatre, on Level 2, at the International
Convention Centre Sydney, on Friday 8 December 2017, commencing at 10:00am (Sydney time).
The AGM will be webcast live on the internet at www.westpac.com.au/investorcentre and an archived version of the webcast
will be placed on the website for viewing at a later time.
272
2017 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 Investor 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 website 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.
Westpac Investor Relations
Information other than that relating to your shareholding can
be obtained from:
Westpac Investor Relations
275 Kent Street
Sydney NSW 2000 Australia
Telephone: +61 2 8253 3143
Facsimile: +61 2 8253 1207
Email: investorrelations@westpac.com.au
Information for shareholders
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).
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, Westpac
Convertible Preference Shares, Westpac Capital Notes,
Westpac Capital Notes 2, Westpac Capital Notes 3,
Westpac Capital Notes 4 and Westpac Subordinated
Notes II
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Postal address: Locked Bag A6015,
Sydney South NSW 1235, Australia
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 and Westpac NZD Subordinated Notes
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 Shares1
Listed on New York Stock Exchange (CUSIP 961214301)
BNY Mellon Shareowner Services
PO Box 305000
Louiseville, KY 740233-5000, USA
www.mybnymdr.com
American Depositary Shares holder enquiries:
Telephone: 1-888-269-2377 (toll free in USA)
International: +1 201 680 6825
Email: shrrelations@cpuchareownerservices.com
1
Each ADS represents one fully paid ordinary share.
2017 Westpac Group Annual Report
273
4
Glossary of abbreviations and defined terms
AAS
AASB
ABS
ACCC
ADI
ADRs
ADS
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
AT1
ATMs
ATO
AUSTRAC
BAC
BankSA
BB
BBSW
BCBS
bps
BRCC
BTFG
BTIM
CAPs
Annual General Meeting
Advanced Internal Ratings Based
Westpac Asset and 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 Corporate Governance Council
Additional Tier 1
Automatic teller machines
Australian Taxation Office
Australian Transaction Reports and Analysis
Centre
Board Audit Committee
Bank of South Australia
Business Bank
Bank Bill Swap Reference Rate
Basel Committee on Banking Supervision
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
CB
CCB
CDS
CEO
Consumer Bank
Capital Conservation Buffer
Credit default swap
Chief Executive Officer
CEOPP
CEO RSP
Chief Executive Officer Performance Plan
Chief Executive Officer Restricted Share Plan
CET1
CFO
CFTC
CGU
CHF
CLF
Common Equity Tier 1
Chief Financial Officer
Commodity Futures Trading Commission
Cash Generating Unit
Swiss franc
Committed Liquidity Facility
Corporations Act
Corporations Act 2001 (Cth)
Committee of Sponsoring Organizations of the
Treadway Commission
Credit Portfolio Management
Customer Risk Grade
Chief Risk Officer
Common Reporting Standard
COSO
CPM
CRG
CRO
CRS
274
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
IMF
IOSCO
IRRBB
IRS
ISDA
LCR
LGBTI
LGD
LIBOR
LMI
LTI Plan
LTIFR
LVR
Moody’s
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 Monetary Fund
International Organization of Securities
Commission
Interest Rate Risk in the Banking Book
Internal Revenue Service
International Swaps and Derivatives
Association
Liquidity Coverage Ratio
Lesbian, gay, bisexual, transgender and
intersex
Loss given default
London InterBank Offer Rate
Lenders mortgage insurance
Westpac Long Term Incentive Plan
Lost Time Injury Frequency Rate
Loan to value ratio
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
2017 Westpac Group Annual Report
Glossary of abbreviations and defined terms
RBNZ
RISKCO
RMBS
ROE
Reserve Bank of New Zealand
Westpac Group Executive Risk Committee
Residential Mortgage Backed Securities
Return on equity
Cash ROE
Return on equity on a cash earnings basis
RSP
RWA
S&P
SEC
SME
SOx
SPS
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
St.George Banking Group
TCE
TLAC
Total committed exposures
Total Loss Absorbing Capacity
2006 TPS
Trust Preferred Securities 2006
TSR
UK
UKSS
UNSC
US
VaR
Total Shareholder Return
United Kingdom
Westpac Banking Corporation 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
2017 Westpac Group Annual Report
275
4
Notes
276
2017 Westpac Group Annual Report
The Westpac Group 2017
Annual Report is printed
on PEFC certified paper.
Compliance with the
certification criteria set out
by the Programme for the
Endorsement of Forest
Certification (PEFC) means
that the paper fibre is sourced
from sustainable forests.
ANNUAL REPORT
CONTACT US
WESTPAC GROUP
Westpac Group
Head office
275 Kent Street
Sydney NSW 2000 Australia
Tel: +61 2 9155 7713
Fax: +61 2 8253 4128
From outside Australia: +61 2 9155 7700
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.westpac.com.au/westpacgroup
www.bt.com.au
Westpac Institutional Bank
Tel: 132 032
www.westpac.com.au
Institutional Bank locations
Hong Kong
India – Mumbai
People’s Republic of China
– Beijing
– Shanghai
Republic of Indonesia – Jakarta
Republic of Singapore – Singapore
United States of America – New York
United Kingdom – London
Westpac Pacific
Westpac PNG
Level 1, Burns Philp Haus
Corner Champion Parade
and Musgrave Street
Port Moresby, NCD, Papua New Guinea
Tel: +67 5 322 0511
Email: westpacpng@westpac.com.au
Westpac Fiji
Level 1, Westpac House
1 Thomson Street
Suva, Fiji
Tel: +67 9 321 7000
Email: westpacfiji@westpac.com.au
www.westpac.com.au/pacific
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
Westpac
Telephone – Consumer 132 032
Telephone – Business 132 142
From outside Australia: +61 2 9155 7700
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
Tel: 13 33 30
www.stgeorge.com.au
Bank of Melbourne
Level 2, 525 Collins Street
Melbourne VIC 3000 Australia
Tel: 13 22 66
From outside Australia: +61 3 8536 7870
www.bankofmelbourne.com.au
BankSA
97 King William Street
Adelaide SA 5000 Australia
Mail: GPO Box 399
Adelaide SA 5001 Australia
Tel: 131 376
From outside Australia: +61 2 9155 7850
www.banksa.com.au
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
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’ from the top
menu bar, then ‘Global locations’
from the drop down menu.
Share Registrar
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000 Australia
Mail: Locked Bag A6015
Sydney South NSW 1235 Australia
Tel: +61 1800 804 255
Fax: +61 2 9287 0303
Email: westpac@
linkmarketservices.com.au
www.linkmarketservices.com.au
Westpac Investor Relations
Tel: +61 2 8253 3143
Email: investorrelations@
westpac.com.au
www.westpac.com.au/
investorcentre
Westpac Group Sustainability
Tel: 1300 130 964
From outside Australia:
+61 2 9767 0064
Email: sustainability@
westpac.com.au
For further information on
Westpac Group’s sustainability
approach, policies and
performance, please visit
www.westpac.com.au/
sustainability.
For information on our
compliance with international
agreements, including the
United Nations Global Compact
and Declaration on Human
Rights, contact the Group
Head of Sustainability at
sustainability@westpac.com.au.
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