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Service.
Trust?
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2018 Westpac Group
Annual Report
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Westpac customer, Susan Cusumano, and
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whose proactive intervention saved Susan from
losing $32,000. Read Susan’s story online at
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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
W
E
S
T
P
A
C
G
R
O
U
P
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
Strength.
Service.
Trust?
Strength.
Service.
Trust?
Strength.
Service.
Trust?
Proudly
Supporting
Australia
2018 Westpac Group
Annual Report
Westpac customer,
Susan Cusumano of
V & V Landscapers.
Proudly
Supporting
Australia
2018 Westpac Group
Annual Review &
Sustainability Report
Greg Woodlock
Farmer and Westpac customer,
The Marra, New South Wales
Proudly
Supporting
Australia
2018 Westpac Group
Sustainability
Performance Report
2018 Annual
Report
2018 Annual Review
& Sustainability
Report
2018 Sustainability
Performance
Report
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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265
277
278
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297
inside back cover
2018 Westpac Group Annual Report
1
Performance highlights
BNet profit after tax $8,095 million, up 1%
BDividends $1.88, unchanged
Net profit after tax1 ($m)
Dividends per ordinary share (cents) Special dividends
1
9
9
,
6
6
4
3
,
6
1
5
7
,
6
6
3
9
,
5
1
6
5
,
7
2
1
0
,
8
5
4
4
,
7
0
9
9
,
7
5
9
0
,
8
9
3
1
6
1
1
0
2
4
7
1
6
5
1
6
6
1
2
8
1
7
8
1
8
8
1
8
8
1
8
8
1
6
4
4
,
3
09
10
11
12
13
14
15
16
17
18
09
10
11
12
13
14
15
16
17
18
BCash earnings $8,065 million, flat
BReturns 13.0%, down 77bps
Cash earnings2,3,4 ($m)
Cash earnings to average ordinary equity2,3,4 (%)
9
7
8
,
5
1
0
3
,
6
3
6
0
,
7
4
6
5
,
6
5
7
6
,
4
8
2
6
,
7
0
2
8
,
7
2
2
8
,
7
2
6
0
,
8
5
6
0
,
8
1
.
6
1
0
.
6
1
4
.
5
1
9
.
5
1
4
.
6
1
8
.
5
1
0
.
4
1
0
.
4
1
8
.
3
1
0
.
3
1
09
10
11
12
13
14
15
16
17
18
09
10
11
12
13
14
15
16
17
18
BCash earnings per ordinary share, down 1%
Cash earnings per ordinary share2,3,4,6 (cents)
3
.
9
0
2
8
.
4
1
2
8
.
7
9
1
7
.
3
6
1
4
.
5
4
2
2
.
8
4
2
5
.
5
3
2
7
.
9
3
2
2
.
6
3
2
8
.
7
2
2
09
10
11
12
13
14
15
16
17
18
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)
2018
2017
8,095.0
7,990.0
237.5
188.0
13.1
43.8
10.6
238.0
188.0
13.6
43.3
10.6
% change
2018 /
2017
1%
-
-
(60bps)
52bps
7bps
8,065.0
8,062.0
236.2
239.7
-
(1%)
13.0
13.8
(77bps)
3,444.0
3,774.0
(9%)
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 2018 financial statements.
3
Figures for 2009 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 2018 Results (incorporating the requirements
of Appendix 4E) lodged with the ASX on 5 November 2018 (the
‘ASX Announcement’).
2
2018 Westpac Group Annual Report
01
Chairman’s report
Chief Executive Officer’s report
Information on Westpac
Directors’ report
(including Remuneration Report)
0
1
2
3
4
Performance highlights
BNet profit after tax $8,095 million, up 1%
BDividends $1.88, unchanged
Net profit after tax1 ($m)
Dividends per ordinary share (cents) Special dividends
1
9
9
,
6
6
4
3
,
6
1
5
7
,
6
6
3
9
,
5
1
6
5
,
7
2
1
0
,
8
5
4
4
,
7
0
9
9
,
7
5
9
0
,
8
9
3
1
6
1
1
0
2
4
7
1
6
5
1
6
6
1
2
8
1
7
8
1
8
8
1
8
8
1
8
8
1
09
10
11
12
13
14
15
16
17
18
09
10
11
12
13
14
15
16
17
18
BCash earnings $8,065 million, flat
BReturns 13.0%, down 77bps
Cash earnings2,3,4 ($m)
Cash earnings to average ordinary equity2,3,4 (%)
9
7
8
,
5
1
0
3
,
6
3
6
0
,
7
4
6
5
,
6
8
2
6
,
7
0
2
8
,
7
2
2
8
,
7
2
6
0
,
8
5
6
0
,
8
1
.
6
1
0
.
6
1
4
.
5
1
9
.
5
1
4
.
6
1
8
.
5
1
0
.
4
1
0
.
4
1
8
.
3
1
0
.
3
1
09
10
11
12
13
14
15
16
17
18
09
10
11
12
13
14
15
16
17
18
6
4
4
,
3
5
7
6
,
4
BCash earnings per ordinary share, down 1%
Cash earnings per ordinary share2,3,4,6 (cents)
3
.
9
0
2
8
.
4
1
2
8
.
7
9
1
7
.
3
6
1
4
.
5
4
2
2
.
8
4
2
5
.
5
3
2
7
.
9
3
2
2
.
6
3
2
8
.
7
2
2
09
10
11
12
13
14
15
16
17
18
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)
2018
2017
8,095.0
7,990.0
237.5
188.0
13.1
43.8
10.6
238.0
188.0
13.6
43.3
10.6
% change
2018 /
2017
1%
-
-
(60bps)
52bps
7bps
8,065.0
8,062.0
236.2
239.7
-
(1%)
13.0
13.8
(77bps)
3,444.0
3,774.0
(9%)
Net profit attributable to ordinary equity holders.
Return on average ordinary equity.
The adjustments to our reported results to derive cash earnings are
Periods prior to 2015 have not been restated for the bonus element
described in Note 2 of our 2018 financial statements.
of the 2015 share entitlement offer.
Figures for 2009 are presented on a ‘pro forma’ basis; that is, as if
Economic profit represents the excess of adjusted cash earnings
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
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
4E) lodged with the ASX on 4 November 2009 and that section of the
of Westpac’s Full Year 2018 Results (incorporating the requirements
ASX Announcement is incorporated by reference into this
of Appendix 4E) lodged with the ASX on 5 November 2018 (the
Annual Report.
‘ASX Announcement’).
5
6
7
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.
1
2
3
4
2
2018 Westpac Group Annual Report
1
01
Chairman’s report
Chief Executive Officer’s report
Information on Westpac
Directors’ report
(including Remuneration Report)
0
1
2
3
4
Chairman’s report
Chairman’s report
Lindsay Maxsted
Chairman
This year has been particularly challenging for financial
services entities, including for Westpac. The sector has
been the subject of intense scrutiny and interrogation from
Government, regulators, the media, and the community
generally. Among various developments, legal actions have
been filed by the Australian Securities and Investments
Commission (ASIC); the Banking Executive Accountability
Regime (BEAR), to be overseen by the Australian Prudential
Regulatory Authority (APRA), was introduced; a review of
competition in the sector was conducted by the Productivity
Commission; and the Australian Competition and Consumer
Commission (ACCC) established its Financial Services Unit.
However, far and away the greatest impact on public
sentiment has been generated by the Royal Commission
into Misconduct in the Banking, Superannuation and
Financial Services Industry (Royal Commission). The Royal
Commission, and its terms of reference, were announced by
the Federal Government on 30 November 2017. I intend to
devote a large part of this Chairman’s letter to the Royal
Commission for the following reasons:
coverage of the Royal Commission has been extensive
and many shareholders will have been shocked by
some of the revelations;
you may feel there is a disconnect between the vision
and values of Westpac and the actual or alleged
misconduct highlighted by the Royal Commission. In
this regard you are owed an explanation to help bridge
that disconnect; and
it is important that shareholders understand how
Westpac has responded, often in advance of the calling
of the Royal Commission, or how we intend to respond
to the important issues the Commission has raised.
First and foremost, Westpac and your Board take the
process of the Royal Commission, and the evidence before
it, very seriously. We have devoted significant time and
resources to the process, including: providing material;
supporting our witnesses so they can fully answer the
questions posed; and in responding both to the Westpac-
specific matters, and general policy questions posed by the
Commission. We will of course continue to do so until the
Royal Commission is complete.
The Royal Commission in context
The terms of reference of the Royal Commission are
instructive. It is an Inquiry into misconduct; whether activity
might have amounted to misconduct and whether any
conduct, practices, behaviour or business activities may
have fallen below community standards and expectations,
as well as seeking to identify the causes and potential
remedies. It is not an investigation into all aspects of
financial services or indeed into conduct generally.
The Letters Patent establishing the Royal Commission
create this focus noting at the same time that “Australia has
one of the strongest and most stable banking,
superannuation and financial services industries in the
world, which performs a critical role in underpinning the
Australian economy.” The Royal Commission does not
challenge these important observations.
The Royal Commission, whilst obviously focusing on matters
of extreme importance and interest for financial services
companies and regulators, captures only a fraction of the
activity taking place inside these institutions.
All four major banks had at various times leading up to the
Royal Commission recognised that certain conduct did not
meet legal or regulatory requirements, or had fallen short of
community expectations. Building on this point, the
Commissioner commenced his enquiry by asking entities to
submit details of conduct over the previous ten years
identified as misconduct or conduct that fell below
community expectations. These submissions, together with
other information gathered, have been subject to scrutiny
and informed the themes identified by the Commission. For
Westpac, much of this conduct is historical, has been
reported to regulators and in many instances, been resolved
or is being addressed. There are, of course, many areas
where we need to do more to improve which I address
below.
Putting these points in context, we need to be careful in
generalising what the Royal Commission is finding and
reporting. In particular noting that:
whilst the Royal Commission is often reported as the
“Bank” Royal Commission (and for many that reads the
“four major banks”) it is actually an inquiry into the
financial services sector and all of the organisations that
participate therein. While much effort has been directed
to banking, a significant part of the Royal Commission’s
review has covered non-banking (as in non-lending)
activities such as financial planning, superannuation
and insurance, noting that Westpac participates in these
activities through BT Financial Group. Indeed a number
of case studies reviewed involved entities other than the
four major banks.
the degree of misconduct, or potential misconduct,
exposed by the Royal Commission has varied across
the banks and other financial institutions. Each of you,
as shareholders, may draw your own conclusions on
where Westpac sits in this spectrum. My point is simply
that while there may be some common areas of
misconduct, it is wrong to generalise this across
individual institutions.
there is a risk that this misconduct may inadvertently
come to define the culture of the sector. Speaking for
Westpac, I can categorically say that it does not define
our culture (nor our governance and accountability
which can be wrapped up with culture). Westpac’s
culture is defined by how our 39,000 people go about
sheet. We prioritised the largest potential financial risks
and devoted insufficient attention to emerging conduct
risk, compliance and reputation risks. This relative lack
of maturity of management of non-financial risks was
compounded by a raft of ever-increasing, and at times
overlapping, rules and regulations. This has sometimes
been further complicated by changing regulatory
expectations over time.
Some employee remuneration arrangements
inadvertently contributed to poor behaviour. While
remuneration is not directly related to all of our conduct
failures, in some cases our remuneration practices were
poorly designed and the payment of commissions or the
existence of other short term incentives linked to sales,
may have resulted in poor behaviour.
We did not fully appreciate the underlying risks in
the financial planning business. Better training and
supervision, changes to the way financial planners were
their daily business, which overwhelmingly, as set out in
remunerated, and/or better documentation of advice
our vision statement, is to help our customers and
communities to prosper and grow. It is challenging for
the Royal Commission to form a view on overall culture
when, by its terms, it is focused on misconduct.
As we consider culture it is clear that we, along with the
broader industry, face a number of challenges. These
provided was required.
Needless to say, having identified the above points, your
Board and management team have moved quickly to shore
up the resources, systems and related reporting to deal with
any shortcomings. Some of the improvements cannot
happen overnight, particularly when technology systems
include the need to rebuild trust and drive better customer
need to change, but in these cases, our monitoring of the
outcomes. And programs are already underway to
risks has been heightened and extra steps have been put in
strengthen our culture and remove structures that may
place. We are also accelerating customer remediation,
encourage poor behaviour. We are committed to continuing
recognising that where Westpac has made mistakes, we
this work and meeting these challenges with honesty,
need to promptly take steps to fix these issues for
integrity and transparency, and to being accountable to our
customers. In his letter, Brian Hartzer also discusses what
stakeholders for our actions. We also regularly review and
we are doing to address and learn from issues raised.
benchmark our corporate governance frameworks and
practices. Your Board views good corporate governance as
essential to achieving our goals, helping to underpin
accountability and effective oversight, as well as providing a
clear and consistent foundation for decision making.
Lessons for Westpac
Given the above context, my view on some of the important
Again, recognising that the work of the Royal Commission
still needs to be completed, for me at least, this intense
scrutiny has also reinforced some very positive aspects of
Westpac. There are five particular observations that support
my earlier points of thinking about the Royal Commission in
context both as to Westpac’s conduct and culture generally
and our relative position in the sector.
lessons for the Westpac Board and Group Executive team
1. We are an organisation that has long taken a
from the Royal Commission are set out below. Some of
these points had been identified prior to the Royal
Commission and hence actions to address shortcomings
had commenced before this year. Those lessons are:
“customer first” philosophy very seriously – and this is
enshrined in Westpac’s vision. Actions to reinforce our
vision and deal with some of the shortcomings
identified have included:
We did not sufficiently understand and analyse
– Appointment of a Customer Advocate, Adrian
customer complaints and, in many cases, they were
not dealt with promptly. Westpac has over 12 million
customers in Australia and the overwhelming majority
have somewhere between a reasonable and positive
experience with Westpac. We know this from numerous
data points including customer surveys, Net Promoter
Score (NPS) data, as well as directly talking to
customers. However, we didn’t focus enough time,
resources or empathy on many of the customers we
had let down.
We were slower to focus on certain non-financial
risks such as conduct, compliance and reputation.
In the aftermath of the Global Financial Crisis, quite
properly, there was significant focus on credit risk,
liquidity risk and the overall strength of the balance
Ahern. Joining in late 2016, Adrian and his team
have established a new avenue for customers not
satisfied with how a complaint has been handled.
Reviews by the Advocate are completely
independent and decisions are binding on the
Group. Adrian and his team have made particular
progress in resolving long-standing issues and in
providing objective feedback on how we can better
manage complaints.
– Appointment of a new Group Executive for
Customer and Corporate Relations. Reporting to
the CEO and with a direct line to your Board, this
role is redefining how we manage, resolve and
report customer complaints. The new division has
brought together various teams with complaint
4
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
5
Chairman’s report
Lindsay Maxsted
Chairman
This year has been particularly challenging for financial
services entities, including for Westpac. The sector has
been the subject of intense scrutiny and interrogation from
Government, regulators, the media, and the community
generally. Among various developments, legal actions have
been filed by the Australian Securities and Investments
Commission (ASIC); the Banking Executive Accountability
Regime (BEAR), to be overseen by the Australian Prudential
Regulatory Authority (APRA), was introduced; a review of
competition in the sector was conducted by the Productivity
Commission; and the Australian Competition and Consumer
Commission (ACCC) established its Financial Services Unit.
However, far and away the greatest impact on public
sentiment has been generated by the Royal Commission
into Misconduct in the Banking, Superannuation and
Financial Services Industry (Royal Commission). The Royal
Commission, and its terms of reference, were announced by
the Federal Government on 30 November 2017. I intend to
devote a large part of this Chairman’s letter to the Royal
Commission for the following reasons:
coverage of the Royal Commission has been extensive
and many shareholders will have been shocked by
some of the revelations;
you may feel there is a disconnect between the vision
and values of Westpac and the actual or alleged
misconduct highlighted by the Royal Commission. In
this regard you are owed an explanation to help bridge
that disconnect; and
it is important that shareholders understand how
The Royal Commission in context
The terms of reference of the Royal Commission are
instructive. It is an Inquiry into misconduct; whether activity
might have amounted to misconduct and whether any
conduct, practices, behaviour or business activities may
have fallen below community standards and expectations,
as well as seeking to identify the causes and potential
remedies. It is not an investigation into all aspects of
financial services or indeed into conduct generally.
The Letters Patent establishing the Royal Commission
create this focus noting at the same time that “Australia has
one of the strongest and most stable banking,
superannuation and financial services industries in the
world, which performs a critical role in underpinning the
Australian economy.” The Royal Commission does not
challenge these important observations.
The Royal Commission, whilst obviously focusing on matters
of extreme importance and interest for financial services
companies and regulators, captures only a fraction of the
activity taking place inside these institutions.
All four major banks had at various times leading up to the
Royal Commission recognised that certain conduct did not
meet legal or regulatory requirements, or had fallen short of
community expectations. Building on this point, the
Commissioner commenced his enquiry by asking entities to
submit details of conduct over the previous ten years
identified as misconduct or conduct that fell below
community expectations. These submissions, together with
other information gathered, have been subject to scrutiny
Westpac has responded, often in advance of the calling
and informed the themes identified by the Commission. For
of the Royal Commission, or how we intend to respond
Westpac, much of this conduct is historical, has been
to the important issues the Commission has raised.
reported to regulators and in many instances, been resolved
First and foremost, Westpac and your Board take the
process of the Royal Commission, and the evidence before
it, very seriously. We have devoted significant time and
resources to the process, including: providing material;
supporting our witnesses so they can fully answer the
specific matters, and general policy questions posed by the
Commission. We will of course continue to do so until the
Royal Commission is complete.
questions posed; and in responding both to the Westpac-
reporting. In particular noting that:
or is being addressed. There are, of course, many areas
where we need to do more to improve which I address
below.
Putting these points in context, we need to be careful in
generalising what the Royal Commission is finding and
whilst the Royal Commission is often reported as the
“Bank” Royal Commission (and for many that reads the
“four major banks”) it is actually an inquiry into the
financial services sector and all of the organisations that
participate therein. While much effort has been directed
to banking, a significant part of the Royal Commission’s
review has covered non-banking (as in non-lending)
activities such as financial planning, superannuation
and insurance, noting that Westpac participates in these
activities through BT Financial Group. Indeed a number
of case studies reviewed involved entities other than the
four major banks.
the degree of misconduct, or potential misconduct,
exposed by the Royal Commission has varied across
the banks and other financial institutions. Each of you,
as shareholders, may draw your own conclusions on
where Westpac sits in this spectrum. My point is simply
that while there may be some common areas of
misconduct, it is wrong to generalise this across
individual institutions.
there is a risk that this misconduct may inadvertently
come to define the culture of the sector. Speaking for
Westpac, I can categorically say that it does not define
our culture (nor our governance and accountability
which can be wrapped up with culture). Westpac’s
culture is defined by how our 39,000 people go about
their daily business, which overwhelmingly, as set out in
our vision statement, is to help our customers and
communities to prosper and grow. It is challenging for
the Royal Commission to form a view on overall culture
when, by its terms, it is focused on misconduct.
As we consider culture it is clear that we, along with the
broader industry, face a number of challenges. These
include the need to rebuild trust and drive better customer
outcomes. And programs are already underway to
strengthen our culture and remove structures that may
encourage poor behaviour. We are committed to continuing
this work and meeting these challenges with honesty,
integrity and transparency, and to being accountable to our
stakeholders for our actions. We also regularly review and
benchmark our corporate governance frameworks and
practices. Your Board views good corporate governance as
essential to achieving our goals, helping to underpin
accountability and effective oversight, as well as providing a
clear and consistent foundation for decision making.
Lessons for Westpac
Given the above context, my view on some of the important
lessons for the Westpac Board and Group Executive team
from the Royal Commission are set out below. Some of
these points had been identified prior to the Royal
Commission and hence actions to address shortcomings
had commenced before this year. Those lessons are:
Chairman’s report
sheet. We prioritised the largest potential financial risks
and devoted insufficient attention to emerging conduct
risk, compliance and reputation risks. This relative lack
of maturity of management of non-financial risks was
compounded by a raft of ever-increasing, and at times
overlapping, rules and regulations. This has sometimes
been further complicated by changing regulatory
expectations over time.
1
Some employee remuneration arrangements
inadvertently contributed to poor behaviour. While
remuneration is not directly related to all of our conduct
failures, in some cases our remuneration practices were
poorly designed and the payment of commissions or the
existence of other short term incentives linked to sales,
may have resulted in poor behaviour.
We did not fully appreciate the underlying risks in
the financial planning business. Better training and
supervision, changes to the way financial planners were
remunerated, and/or better documentation of advice
provided was required.
Needless to say, having identified the above points, your
Board and management team have moved quickly to shore
up the resources, systems and related reporting to deal with
any shortcomings. Some of the improvements cannot
happen overnight, particularly when technology systems
need to change, but in these cases, our monitoring of the
risks has been heightened and extra steps have been put in
place. We are also accelerating customer remediation,
recognising that where Westpac has made mistakes, we
need to promptly take steps to fix these issues for
customers. In his letter, Brian Hartzer also discusses what
we are doing to address and learn from issues raised.
Again, recognising that the work of the Royal Commission
still needs to be completed, for me at least, this intense
scrutiny has also reinforced some very positive aspects of
Westpac. There are five particular observations that support
my earlier points of thinking about the Royal Commission in
context both as to Westpac’s conduct and culture generally
and our relative position in the sector.
1. We are an organisation that has long taken a
“customer first” philosophy very seriously – and this is
enshrined in Westpac’s vision. Actions to reinforce our
vision and deal with some of the shortcomings
identified have included:
We did not sufficiently understand and analyse
– Appointment of a Customer Advocate, Adrian
customer complaints and, in many cases, they were
not dealt with promptly. Westpac has over 12 million
customers in Australia and the overwhelming majority
have somewhere between a reasonable and positive
experience with Westpac. We know this from numerous
data points including customer surveys, Net Promoter
Score (NPS) data, as well as directly talking to
customers. However, we didn’t focus enough time,
resources or empathy on many of the customers we
had let down.
We were slower to focus on certain non-financial
risks such as conduct, compliance and reputation.
In the aftermath of the Global Financial Crisis, quite
properly, there was significant focus on credit risk,
liquidity risk and the overall strength of the balance
Ahern. Joining in late 2016, Adrian and his team
have established a new avenue for customers not
satisfied with how a complaint has been handled.
Reviews by the Advocate are completely
independent and decisions are binding on the
Group. Adrian and his team have made particular
progress in resolving long-standing issues and in
providing objective feedback on how we can better
manage complaints.
– Appointment of a new Group Executive for
Customer and Corporate Relations. Reporting to
the CEO and with a direct line to your Board, this
role is redefining how we manage, resolve and
report customer complaints. The new division has
brought together various teams with complaint
4
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
5
Chairman’s report
handling responsibilities and is improving the
complaints process for customers and identifying
and addressing the root cause of problems.
– We have established a new Vulnerable Customer
Council – to better support customers who may be
at risk, and to help them to avoid hardship and
financial harm. The Council is supported by
specialist teams with access to expertise in areas
such as health and counselling to help manage
customers often in complex circumstances. We
have recently developed a customer vulnerability
action plan and are actively looking at how we can
respond to other socially important issues – like
St.George becoming Australia’s first dementia-
friendly bank.
2. We are an organisation that values our employees and
is a great place to work. Our people are our greatest
asset and underpin our success. Reflecting our
commitment, employee sentiment has remained high
and stable this year at 73%1. Examples of our
commitments to our people include:
– Providing a comprehensive selection of personal
development opportunities. In 2018 employees
completed over 100,000 courses on our self-
directed learning platform, LearningBank. Over 850
leaders graduated from the AGSM-accredited
Certificate of Executive Leadership Program and
350 new leaders completed the Foundational
Leadership Program. We also introduced a Young
Leader Program to develop and support emerging
leaders.
– Providing opportunities for employees to get
involved in their local communities and the causes
that matter to them through a range of initiatives.
Last year, employees shared over 29,000 hours
volunteering their time and skills. In addition, over
$6 million was collectively donated to registered
charities through our matching gifts program.
– Continuing to build on the diversity of our
workforce. Last year Westpac reached the
important milestone of– 50% Women in Leadership
roles2 and we’ve maintained that level – a
culmination of various initiatives over many years.
3. We have always understood the need to be conscious
of all stakeholders’ needs if we are to provide
satisfactory long-term returns for investors. We are not
an organisation based on “greed” or on short-term
profit. For example:
–
In 2015 Westpac commenced a comprehensive
review of its products, reassessing items such as
fees, terms and conditions and how products are
sold. From this review we have taken action to
1 An employee sentiment survey is conducted monthly. Six month
rolling average stable at 73%.
2 Proportion of women (permanent and maximum term) in leadership
roles across the Group, including 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.
reduce certain transaction fees, we’ve changed
teller incentives and removed many products from
sale. In this review we’ve prioritised good customer
outcomes over financial gain.
– BT Financial Group has led the market in helping to
transform the wealth industry for customers. Over
recent years BT has increased education standards
for its financial planners, changed planner
remuneration and led the market in publishing
feedback on planners from customers. This year
the division removed grandfathered advice
payments at a cost of around $28 million (post tax)
per annum and materially reduced the cost to
customers of using its wealth system Panorama.
– Similarly, as indicated earlier, our people are
deeply committed to our vision and doing the right
thing by customers. This is embedded in our
values, and has been reinforced across the Group
through additional training and updates to our code
of conduct.
– Westpac has been consistently rated a
sustainability leader by external governance
bodies. This has included being a Leader in the
Dow Jones Sustainability Index for much of the last
decade. In 2018, Westpac ranked 17th. This year
we also enhanced our disclosures on climate
change and human rights, helping to maintain our
leadership.
4. We have continued to lend prudently all through the
recent period. Notwithstanding recognised issues with
certain processes, which Brian Hartzer explains in
more detail in his letter, our detailed work has
confirmed that the credit quality of our mortgage
portfolio remains sound, with Australian delinquencies
remaining low and properties in possession lower than
the same period last year. In addition, significant
benefits have subsequently flowed to individual
borrowers, and to the broader economy.
As a bank whose success is inextricably linked to the
fortunes of Australia and New Zealand, we have no
interest in lending to individuals and companies that
cannot repay their loans. This has not changed over
recent years and it is not something the Board would
tolerate. Unfortunately recent market commentary
continues to imply that banks are lax in their standards,
lend irresponsibly and our processes are prone to
systemic fraud. For Westpac, this is just not true.
That is not to say there have not been some
shortcomings, instances where we have let down a
customer, or where we’ve been subject to fraud. When
we do find issues we act promptly on our processes or
on any individual or third party involved.
While I could easily write my whole letter on this topic,
shareholders need to only look to the outcomes of our
lending for evidence. Today our credit quality metrics
remain near cyclical lows across both businesses and
consumers. In mortgages for example, less than 1% of
our mortgage loans are more than 90 days in arrears,
Chairman’s report
and for a portfolio with an exposure of more than $550
2018 financial performance
billion, the losses in 2018 were $86 million1.
In 2018 our financial performance was mixed; we’ve further
I will not repeat more statistics on this topic and urge
built on the balance sheet and financial strengths that are a
shareholders to seek out the facts for themselves if
they need any more comfort on our practices. We
hallmark of Westpac but our annual results were relatively
flat over the year. Cash earnings (our preferred measure of
report an extraordinary amount of information on asset
performance) for the year ended 30 September 2018 was
quality in our presentations, in our Annual Report and
$8,065 million, $3 million higher than the 2017 financial year.
in our detailed Pillar 3 report – and it is readily
Our reported profit reached $8,095 million up 1% in Full
available.
Year 2018.
5. Our purposeful, consistent and large investment in
The Group began the year solidly with good growth and well-
technology is the way forward to further improve the
managed margins in the first half. Conditions in the second
customer and employee experience and hence
shareholder value.
At the centre of this investment is the modernisation of
our technology infrastructure. While it is often hard to
visualise our progress, it is real and in 2018 we have
had particular success in:
– Commissioning a new private cloud infrastructure
for the storage and management of data. This
major milestone significantly reduces our storage
costs, enhances flexibility and slashes the time
needed to create capacity for new initiatives.
– Continuing the development of Panorama, our
funds administration system, rolling out new
reporting functionality and enhancing the mobile
app.
– Reaching major milestones on development of our
Customer Service Hub, the Group’s multiple brand
operating system. The system is built around the
customer and will help us materially improve
service. The system will go live with new Westpac
mortgages in 2019.
At the same time, Westpac is underway transforming the
company using digital technology. This has involved
automating manual activity and allowing customers to self-
serve more of their routine banking. Amongst various
changes this year we have introduced a new online
mortgage application in St.George, voice banking for Apple
devices, and created the ability to cancel a credit card
online. Our online services have also expanded, including
allowing customers to access historical statements from
closed accounts.
One change over the year that many shareholders may
appreciate is the ability to deposit a cheque using the
Westpac mobile app on their phone – an Australian first.
This new feature eliminates a major reason why people go
to a branch and allows customers to take an image of a
cheque and deposit it directly into their account - at any time
of the day. It’s just another way we are making banking
easier.
1 Actual mortgage losses net of insurance.
half of the year however were more difficult with higher
funding costs, lower mortgage spreads, and a reduced
markets and treasury contribution. In addition, we needed to
lift provisions associated with customer refunds and
regulatory/litigation costs as we continue to address some of
the legacy issues alluded to earlier. Brian will speak to
performance in more detail in his letter.
On the balance sheet, the story is a strong one. Our
common equity tier 1 capital after deductions increased by
6% over the year and we have maintained our common
equity tier 1 capital ratio at 10.6% - above APRA’s
unquestionably strong benchmark. Westpac’s liquidity
position is similarly strong with $154 billion in liquid assets
providing the Group with significant funding flexibility. Our
two key liquidity ratios, the Liquidity Coverage Ratio and Net
Stable Funding Ratio, were both comfortably ahead of
regulatory benchmarks.
Credit quality has continued to be a highlight with all
dimensions of the portfolio in good shape. The ratio of
stressed assets to total committed exposures has remained
near cyclical lows at 1.08%.
This strength in our balance sheet has continued to come at
a cost – increasing shareholders’ equity, lifting shares on
issue and maintaining a strong liquidity position impacts
returns. More specifically, as a result of the increase in
shares on issue, our cash earnings per share of 236.2 cents
was 1% lower over the year while the Group’s return on
equity (ROE) was 13.0%, down from 13.8% in 2017.
Dividends
This year the Board has determined a final dividend of 94
cents per share, which is unchanged over the prior half and
consistent with the final dividend for 2017. This brings the
full year dividend to 188 cents per share, unchanged from
2017.
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 around
8 cents per share) was also considered.
The Dividends for the full year represent a payout ratio of
80% which is slightly above our longer term target of 70% -
75%. The 94 cents final dividend represents a dividend yield
of 6.7% based on the closing share price at 29 September
2018 of $27.93, or a yield of over 9.5% after adjusting for
franking.
6
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
7
Chairman’s report
handling responsibilities and is improving the
complaints process for customers and identifying
and addressing the root cause of problems.
– We have established a new Vulnerable Customer
Council – to better support customers who may be
at risk, and to help them to avoid hardship and
financial harm. The Council is supported by
specialist teams with access to expertise in areas
such as health and counselling to help manage
customers often in complex circumstances. We
have recently developed a customer vulnerability
action plan and are actively looking at how we can
respond to other socially important issues – like
St.George becoming Australia’s first dementia-
friendly bank.
2. We are an organisation that values our employees and
is a great place to work. Our people are our greatest
asset and underpin our success. Reflecting our
commitment, employee sentiment has remained high
and stable this year at 73%1. Examples of our
commitments to our people include:
– Providing a comprehensive selection of personal
development opportunities. In 2018 employees
completed over 100,000 courses on our self-
directed learning platform, LearningBank. Over 850
leaders graduated from the AGSM-accredited
Certificate of Executive Leadership Program and
350 new leaders completed the Foundational
Leadership Program. We also introduced a Young
Leader Program to develop and support emerging
leaders.
– Providing opportunities for employees to get
involved in their local communities and the causes
that matter to them through a range of initiatives.
Last year, employees shared over 29,000 hours
volunteering their time and skills. In addition, over
$6 million was collectively donated to registered
charities through our matching gifts program.
– Continuing to build on the diversity of our
workforce. Last year Westpac reached the
important milestone of– 50% Women in Leadership
roles2 and we’ve maintained that level – a
culmination of various initiatives over many years.
3. We have always understood the need to be conscious
of all stakeholders’ needs if we are to provide
satisfactory long-term returns for investors. We are not
an organisation based on “greed” or on short-term
profit. For example:
–
In 2015 Westpac commenced a comprehensive
review of its products, reassessing items such as
fees, terms and conditions and how products are
sold. From this review we have taken action to
1 An employee sentiment survey is conducted monthly. Six month
rolling average stable at 73%.
2 Proportion of women (permanent and maximum term) in leadership
roles across the Group, including 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.
reduce certain transaction fees, we’ve changed
teller incentives and removed many products from
sale. In this review we’ve prioritised good customer
outcomes over financial gain.
– BT Financial Group has led the market in helping to
transform the wealth industry for customers. Over
recent years BT has increased education standards
for its financial planners, changed planner
remuneration and led the market in publishing
feedback on planners from customers. This year
the division removed grandfathered advice
payments at a cost of around $28 million (post tax)
per annum and materially reduced the cost to
customers of using its wealth system Panorama.
– Similarly, as indicated earlier, our people are
deeply committed to our vision and doing the right
thing by customers. This is embedded in our
values, and has been reinforced across the Group
through additional training and updates to our code
of conduct.
– Westpac has been consistently rated a
sustainability leader by external governance
bodies. This has included being a Leader in the
Dow Jones Sustainability Index for much of the last
decade. In 2018, Westpac ranked 17th. This year
we also enhanced our disclosures on climate
change and human rights, helping to maintain our
leadership.
4. We have continued to lend prudently all through the
recent period. Notwithstanding recognised issues with
certain processes, which Brian Hartzer explains in
more detail in his letter, our detailed work has
confirmed that the credit quality of our mortgage
portfolio remains sound, with Australian delinquencies
remaining low and properties in possession lower than
the same period last year. In addition, significant
benefits have subsequently flowed to individual
borrowers, and to the broader economy.
As a bank whose success is inextricably linked to the
fortunes of Australia and New Zealand, we have no
interest in lending to individuals and companies that
cannot repay their loans. This has not changed over
recent years and it is not something the Board would
tolerate. Unfortunately recent market commentary
continues to imply that banks are lax in their standards,
lend irresponsibly and our processes are prone to
systemic fraud. For Westpac, this is just not true.
That is not to say there have not been some
shortcomings, instances where we have let down a
customer, or where we’ve been subject to fraud. When
we do find issues we act promptly on our processes or
on any individual or third party involved.
While I could easily write my whole letter on this topic,
shareholders need to only look to the outcomes of our
lending for evidence. Today our credit quality metrics
remain near cyclical lows across both businesses and
consumers. In mortgages for example, less than 1% of
our mortgage loans are more than 90 days in arrears,
Chairman’s report
and for a portfolio with an exposure of more than $550
billion, the losses in 2018 were $86 million1.
I will not repeat more statistics on this topic and urge
shareholders to seek out the facts for themselves if
they need any more comfort on our practices. We
report an extraordinary amount of information on asset
quality in our presentations, in our Annual Report and
in our detailed Pillar 3 report – and it is readily
available.
2018 financial performance
In 2018 our financial performance was mixed; we’ve further
built on the balance sheet and financial strengths that are a
hallmark of Westpac but our annual results were relatively
flat over the year. Cash earnings (our preferred measure of
performance) for the year ended 30 September 2018 was
$8,065 million, $3 million higher than the 2017 financial year.
Our reported profit reached $8,095 million up 1% in Full
Year 2018.
1
5. Our purposeful, consistent and large investment in
technology is the way forward to further improve the
customer and employee experience and hence
shareholder value.
At the centre of this investment is the modernisation of
our technology infrastructure. While it is often hard to
visualise our progress, it is real and in 2018 we have
had particular success in:
– Commissioning a new private cloud infrastructure
for the storage and management of data. This
major milestone significantly reduces our storage
costs, enhances flexibility and slashes the time
needed to create capacity for new initiatives.
– Continuing the development of Panorama, our
funds administration system, rolling out new
reporting functionality and enhancing the mobile
app.
– Reaching major milestones on development of our
Customer Service Hub, the Group’s multiple brand
operating system. The system is built around the
customer and will help us materially improve
service. The system will go live with new Westpac
mortgages in 2019.
At the same time, Westpac is underway transforming the
company using digital technology. This has involved
automating manual activity and allowing customers to self-
serve more of their routine banking. Amongst various
changes this year we have introduced a new online
mortgage application in St.George, voice banking for Apple
devices, and created the ability to cancel a credit card
online. Our online services have also expanded, including
allowing customers to access historical statements from
closed accounts.
One change over the year that many shareholders may
appreciate is the ability to deposit a cheque using the
Westpac mobile app on their phone – an Australian first.
This new feature eliminates a major reason why people go
to a branch and allows customers to take an image of a
cheque and deposit it directly into their account - at any time
of the day. It’s just another way we are making banking
easier.
1 Actual mortgage losses net of insurance.
The Group began the year solidly with good growth and well-
managed margins in the first half. Conditions in the second
half of the year however were more difficult with higher
funding costs, lower mortgage spreads, and a reduced
markets and treasury contribution. In addition, we needed to
lift provisions associated with customer refunds and
regulatory/litigation costs as we continue to address some of
the legacy issues alluded to earlier. Brian will speak to
performance in more detail in his letter.
On the balance sheet, the story is a strong one. Our
common equity tier 1 capital after deductions increased by
6% over the year and we have maintained our common
equity tier 1 capital ratio at 10.6% - above APRA’s
unquestionably strong benchmark. Westpac’s liquidity
position is similarly strong with $154 billion in liquid assets
providing the Group with significant funding flexibility. Our
two key liquidity ratios, the Liquidity Coverage Ratio and Net
Stable Funding Ratio, were both comfortably ahead of
regulatory benchmarks.
Credit quality has continued to be a highlight with all
dimensions of the portfolio in good shape. The ratio of
stressed assets to total committed exposures has remained
near cyclical lows at 1.08%.
This strength in our balance sheet has continued to come at
a cost – increasing shareholders’ equity, lifting shares on
issue and maintaining a strong liquidity position impacts
returns. More specifically, as a result of the increase in
shares on issue, our cash earnings per share of 236.2 cents
was 1% lower over the year while the Group’s return on
equity (ROE) was 13.0%, down from 13.8% in 2017.
Dividends
This year the Board has determined a final dividend of 94
cents per share, which is unchanged over the prior half and
consistent with the final dividend for 2017. This brings the
full year dividend to 188 cents per share, unchanged from
2017.
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 around
8 cents per share) was also considered.
The Dividends for the full year represent a payout ratio of
80% which is slightly above our longer term target of 70% -
75%. The 94 cents final dividend represents a dividend yield
of 6.7% based on the closing share price at 29 September
2018 of $27.93, or a yield of over 9.5% after adjusting for
franking.
6
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
7
Chairman’s report
The final ordinary dividend will be paid on 20 December
2018 with the record date of 14 November 2018.
continue to benefit from Peter’s expertise as a member of
the Bank of Melbourne Advisory Board.
Chief Executive Officer’s report
As part of our detailed Board renewal process, we are likely
to announce the appointment of one or two new Non-
executive Directors in the first half of calendar 2019.
My commitment
Reverting to the main theme of this year’s letter there are
two final, very important, points to raise. Your Board is here
to represent shareholders and we shall unashamedly
continue to do so including striving to provide you with the
best possible returns on your equity over the long term. We
understand that for a well-run bank (or any commercial
organisation) this will not, and cannot be, at the expense of
the customer. The most successful organisations treat their
customers and employees well and from there the financial
returns flow.
The final paragraph in my Chairman’s letter to you last year
concluded:
“One of the key things our 200th anniversary (April 2017)
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.”
I believed that statement then and I believe it now. I hope
that, if as a result of the Royal Commission or otherwise, you
were beginning to question what Westpac stands for, and
what drives us as an organisation, this commentary provides
you with answers and context. We will learn from the Royal
Commission but we are not defined by it.
LINDSAY MAXSTED
Chairman
Remuneration outcomes
In the Board’s assessment of Westpac’s performance,
earnings were below expectations while the balance sheet
was stronger across capital, liquidity and credit quality. The
Group made good strategic progress with its service strategy
and has continued to build the quality and diversity of its
workforce.
In aggregate, the Group’s balanced scorecard outcome was
below target. Further, to reflect executive accountability for
risk and reputation matters (related to the Royal Commission
in the context I have outlined above), the Board has applied
discretion to further reduce short term variable reward
outcomes.
As a result, short term variable reward outcomes for the
CEO and Group Executives in Australia are on average 25%
lower than 2017 levels. At the same time, the performance
hurdles for the 2015 Long Term Variable Reward (LTVR)
plan were not met and, as a result, the awards were forfeited
in full for the third consecutive year. Forfeiting of long term
variable reward is consistent with the relatively weak
performance of shares in the banking sector, including
Westpac, over the last few years, including the 2018
financial year.
Given the significant reduction in short term variable reward,
and no vesting under the long term variable reward, the
Board feels that 2018 remuneration adequately reflects both
performance (on all fronts including financial, customer and
risk management) as well as shareholder outcomes.
Board changes
Strong governance is underpinned by a strong Board.
Bringing together the right mix of skills and experience and
succession planning are critical elements of my role as
Chairman.
Over the year we appointed two new directors on the Board
with Peter Nash starting in March 2018 and Anita Fung
joining the board in October 2018. We also announced that
Peter Hawkins would retire post Westpac’s 2018 AGM.
As a former Senior Partner at KPMG, including serving as
the National Chairman of KPMG, Peter brings significant
financial, accounting, risk management and strategy
expertise to the Board. During his time at KPMG, Peter
worked as the Lead Audit Partner for another major
Australian bank and so also brings a deep understanding of
the risks and workings of Banks.
Anita is a highly respected career banker and our first Board
member residing outside Australia and New Zealand. With
her extensive experience at HSBC in Hong Kong, Anita adds
new international banking and financial services experience
to your Board.
Peter Hawkins first joined the Board in the volatile times of
2008, and with his deep banking experience helped steer
this company through a decade of significant change.
Personally, Peter has been a great support to me and an
excellent shareholder advocate and I wish him all the best in
his future endeavours. While leaving the Board, we will
Brian Hartzer
Chief Executive Officer
Dear fellow shareholders,
were not enough to offset the negative impacts on our P&L
The 2018 financial year has been exceptionally difficult for
in the second half.
the banking industry, and for Westpac. It has also been a
On a more positive note, our balance sheet remained strong
disappointing year for our shareholders, both in terms of the
across all key measures and indeed strengthened in several
reduction in our share price and the uncertainty that has
areas—notably our common equity tier 1 ratio which finished
been introduced as a result of various regulatory actions and
the year at 10.6%—above APRA’s ‘unquestionably strong’
the Royal Commission.
I therefore wanted to start my letter this year by
acknowledging the effect these factors have had on you, and
by thanking you for your continued support for Westpac. My
management team and I are incredibly conscious of the trust
benchmark of 10.5%. You’ll recall from my previous
messages that a strong balance sheet is always our first
priority, and we are especially pleased with our results in
terms of credit quality, deposit funding, and liquidity
management.
that you place in us through your investment in our shares,
The financial sections in the Annual Report and our 2018
and we do not take that trust for granted. I also want to
Full Year Financial Results contain a detailed discussion of
reassure you that we are fully committed to resolving the
the various remediation provisions that affected our result
current issues we face, creating better outcomes for
this year—particularly on the non-interest income line, which
customers, and to delivering on our strategy to grow the
includes a number of negative income adjustments. At a
sustainable value of your company.
high level these provisions fall into two categories.
Our Chairman, Lindsay Maxsted, has set out in his letter an
The first relates to financial advice delivered by BT. As part
excellent summary of the causes of and lessons from the
of an ASIC industry-wide review we are participating in, we
current issues faced by Westpac and the financial services
have identified a number of cases where customers of our
industry as a whole. Rather than repeat these here, my
letter focuses on:
The drivers of our financial performance this year
What we are doing to address—and learn from—the
issues that have been raised
with interest.
A progress update on our “Service Revolution” strategy;
and
An overview of our priorities for next year.
Financial Performance
Our cash earnings were relatively flat this financial year, with
a solid first half increase offset by a second half decline.
Our first half earnings reflected a strong margin
performance, disciplined loan and deposit growth, improved
contribution from markets and good cost control. In the
second half, however, we experienced a significant margin
decline—primarily in mortgages—as a function of an
increase in both funding costs and competitive pressure.
Global financial markets were relatively quiet this year,
which meant that financial markets revenue was lower,
particularly in the second half. We also recognised
provisions of $380 million ($281 million after tax) to cover
estimated customer payments and refunds and related costs
associated with a number of past customer issues, as well
as litigation. As these challenges emerged we took further
action on pricing and productivity during the year, but they
employed BT financial planners paid annual fees under a
‘fee for service’ arrangement, but those customers either
didn’t receive the advice they had paid for, or our records
were insufficient to demonstrate that the advice was in fact
delivered. In those cases we refunded the fees in question,
Last year we outlined provisions associated with refunding
customers who we identified as having received poor advice
from their BT financial planner. These provisions reflect the
cost of putting the customer back into the position that they
would have been if they had not received poor advice. This
year we increased these provisions, reflecting an increase in
the number of affected customers we have identified and, in
some cases, sizes relative to last year.
The second provision category relates to operational errors
in the management and servicing of our various products,
identified through our ‘get it right, put it right’ initiative. Over
the last three years we have conducted hundreds of detailed
product reviews across our Consumer, Business and wealth
areas. These reviews check that our products are
performing as expected, that our disclosures are
appropriate, and that operational processes and calculations
are accurate. In some cases these reviews have identified
legacy product issues; for example where operational errors
led to some customers not being switched to principal and
interest status once their contractual interest-only period
expired, or where customers did not receive packaged
discounts to which they were entitled. Here too, we are
8
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
9
Chairman’s report
The final ordinary dividend will be paid on 20 December
continue to benefit from Peter’s expertise as a member of
2018 with the record date of 14 November 2018.
the Bank of Melbourne Advisory Board.
Remuneration outcomes
In the Board’s assessment of Westpac’s performance,
earnings were below expectations while the balance sheet
was stronger across capital, liquidity and credit quality. The
My commitment
Group made good strategic progress with its service strategy
and has continued to build the quality and diversity of its
workforce.
As part of our detailed Board renewal process, we are likely
to announce the appointment of one or two new Non-
executive Directors in the first half of calendar 2019.
Reverting to the main theme of this year’s letter there are
two final, very important, points to raise. Your Board is here
to represent shareholders and we shall unashamedly
In aggregate, the Group’s balanced scorecard outcome was
continue to do so including striving to provide you with the
below target. Further, to reflect executive accountability for
best possible returns on your equity over the long term. We
risk and reputation matters (related to the Royal Commission
understand that for a well-run bank (or any commercial
in the context I have outlined above), the Board has applied
organisation) this will not, and cannot be, at the expense of
discretion to further reduce short term variable reward
outcomes.
the customer. The most successful organisations treat their
customers and employees well and from there the financial
As a result, short term variable reward outcomes for the
returns flow.
CEO and Group Executives in Australia are on average 25%
The final paragraph in my Chairman’s letter to you last year
lower than 2017 levels. At the same time, the performance
concluded:
Given the significant reduction in short term variable reward,
continue to deliver sustainable returns for you, our
“One of the key things our 200th anniversary (April 2017)
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
shareholders.”
I believed that statement then and I believe it now. I hope
that, if as a result of the Royal Commission or otherwise, you
were beginning to question what Westpac stands for, and
what drives us as an organisation, this commentary provides
you with answers and context. We will learn from the Royal
Commission but we are not defined by it.
LINDSAY MAXSTED
Chairman
hurdles for the 2015 Long Term Variable Reward (LTVR)
plan were not met and, as a result, the awards were forfeited
in full for the third consecutive year. Forfeiting of long term
variable reward is consistent with the relatively weak
performance of shares in the banking sector, including
Westpac, over the last few years, including the 2018
financial year.
and no vesting under the long term variable reward, the
Board feels that 2018 remuneration adequately reflects both
performance (on all fronts including financial, customer and
risk management) as well as shareholder outcomes.
Board changes
Strong governance is underpinned by a strong Board.
Bringing together the right mix of skills and experience and
succession planning are critical elements of my role as
Chairman.
Over the year we appointed two new directors on the Board
with Peter Nash starting in March 2018 and Anita Fung
joining the board in October 2018. We also announced that
Peter Hawkins would retire post Westpac’s 2018 AGM.
As a former Senior Partner at KPMG, including serving as
the National Chairman of KPMG, Peter brings significant
financial, accounting, risk management and strategy
expertise to the Board. During his time at KPMG, Peter
worked as the Lead Audit Partner for another major
Australian bank and so also brings a deep understanding of
the risks and workings of Banks.
Anita is a highly respected career banker and our first Board
member residing outside Australia and New Zealand. With
her extensive experience at HSBC in Hong Kong, Anita adds
new international banking and financial services experience
to your Board.
Peter Hawkins first joined the Board in the volatile times of
2008, and with his deep banking experience helped steer
this company through a decade of significant change.
Personally, Peter has been a great support to me and an
excellent shareholder advocate and I wish him all the best in
his future endeavours. While leaving the Board, we will
Chief Executive Officer’s report
1
Brian Hartzer
Chief Executive Officer
Dear fellow shareholders,
The 2018 financial year has been exceptionally difficult for
the banking industry, and for Westpac. It has also been a
disappointing year for our shareholders, both in terms of the
reduction in our share price and the uncertainty that has
been introduced as a result of various regulatory actions and
the Royal Commission.
I therefore wanted to start my letter this year by
acknowledging the effect these factors have had on you, and
by thanking you for your continued support for Westpac. My
management team and I are incredibly conscious of the trust
that you place in us through your investment in our shares,
and we do not take that trust for granted. I also want to
reassure you that we are fully committed to resolving the
current issues we face, creating better outcomes for
customers, and to delivering on our strategy to grow the
sustainable value of your company.
Our Chairman, Lindsay Maxsted, has set out in his letter an
excellent summary of the causes of and lessons from the
current issues faced by Westpac and the financial services
industry as a whole. Rather than repeat these here, my
letter focuses on:
The drivers of our financial performance this year;
What we are doing to address—and learn from—the
issues that have been raised;
A progress update on our “Service Revolution” strategy;
and
An overview of our priorities for next year.
Financial Performance
Our cash earnings were relatively flat this financial year, with
a solid first half increase offset by a second half decline.
Our first half earnings reflected a strong margin
performance, disciplined loan and deposit growth, improved
contribution from markets and good cost control. In the
second half, however, we experienced a significant margin
decline—primarily in mortgages—as a function of an
increase in both funding costs and competitive pressure.
Global financial markets were relatively quiet this year,
which meant that financial markets revenue was lower,
particularly in the second half. We also recognised
provisions of $380 million ($281 million after tax) to cover
estimated customer payments and refunds and related costs
associated with a number of past customer issues, as well
as litigation. As these challenges emerged we took further
action on pricing and productivity during the year, but they
were not enough to offset the negative impacts on our P&L
in the second half.
On a more positive note, our balance sheet remained strong
across all key measures and indeed strengthened in several
areas—notably our common equity tier 1 ratio which finished
the year at 10.6%—above APRA’s ‘unquestionably strong’
benchmark of 10.5%. You’ll recall from my previous
messages that a strong balance sheet is always our first
priority, and we are especially pleased with our results in
terms of credit quality, deposit funding, and liquidity
management.
The financial sections in the Annual Report and our 2018
Full Year Financial Results contain a detailed discussion of
the various remediation provisions that affected our result
this year—particularly on the non-interest income line, which
includes a number of negative income adjustments. At a
high level these provisions fall into two categories.
The first relates to financial advice delivered by BT. As part
of an ASIC industry-wide review we are participating in, we
have identified a number of cases where customers of our
employed BT financial planners paid annual fees under a
‘fee for service’ arrangement, but those customers either
didn’t receive the advice they had paid for, or our records
were insufficient to demonstrate that the advice was in fact
delivered. In those cases we refunded the fees in question,
with interest.
Last year we outlined provisions associated with refunding
customers who we identified as having received poor advice
from their BT financial planner. These provisions reflect the
cost of putting the customer back into the position that they
would have been if they had not received poor advice. This
year we increased these provisions, reflecting an increase in
the number of affected customers we have identified and, in
some cases, sizes relative to last year.
The second provision category relates to operational errors
in the management and servicing of our various products,
identified through our ‘get it right, put it right’ initiative. Over
the last three years we have conducted hundreds of detailed
product reviews across our Consumer, Business and wealth
areas. These reviews check that our products are
performing as expected, that our disclosures are
appropriate, and that operational processes and calculations
are accurate. In some cases these reviews have identified
legacy product issues; for example where operational errors
led to some customers not being switched to principal and
interest status once their contractual interest-only period
expired, or where customers did not receive packaged
discounts to which they were entitled. Here too, we are
8
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
9
Chief Executive Officer’s report
Chief Executive Officer’s report
refunding customers affected by these issues as we identify
them.
condition meant that they essentially got ‘stuck in the
system’—with no clear path to a sensible resolution.
in banking, in recent years, non-financial risks—operational
important component of a high performance culture that
risk, cyber, legal/regulatory risk, financial crime, and conduct
delivers for customers and shareholders alike.
Revenue was also impacted by the full year impact of the
Bank Levy—the cost of which has been entirely borne by
shareholders. The Levy cost us $378 million this year, $283
million higher than 2017 and on an after tax basis reduced
cash earnings growth by 2.5%.
With revenue growth under pressure, expense control
remains an important priority for the Group. This year, our
productivity initiatives generated $304 million in savings,
helping to offset volume-related cost growth and the large
increase in regulatory-related costs. These savings were
broad based, and reflect our consistent approach to driving
efficiency - every year, each division is tasked with
identifying productivity improvements that offset inflation and
volume growth, which allows us to invest in longer-term
structural productivity initiatives.
As examples, this year we drove significant savings through
reducing management layers, we streamlined the use of
external suppliers and digitised more activity. With more
customers using digital we’ve been able to close 47
branches and remove over 400 ATMs.
We’ve also had particular success removing paper through
greater adoption of e-statements, development of more agile
work spaces, and increasing the portion of documents that
are handled digitally. In aggregate we’ve eliminated over
500 tonnes of paper this year.
Despite these savings, increases in the cost of regulatory
and compliance-related projects, along with a rise in our
investment spend, contributed to an overall growth in
expenses of 5%, and an increase in our expense to income
ratio to 43.7%.
To put this in perspective, total regulatory and compliance
costs exceeded $1.1 billion this year - that’s more than 20%
up over the last two years. While some of these cost
increases are permanent, we expect that over the next
several years much of this cost will reduce as we further
simplify our products and business processes, deliver large
regulatory projects like the New Payments Platform and the
Government’s ‘Open Banking’ initiative, automate manual
controls, and complete current remediation efforts.
Addressing reputational and risk issues
In his letter, the Chairman identified some lessons for
Westpac emerging from the Royal Commission: complaints
handling, non-financial risks, remuneration and financial
advice. I’d like to share my perspective on each and what
we are doing to address the underlying issues.
Complaints handling
For me, complaints handling was the most disappointing
issue to emerge this year. Since I joined Westpac in 2012 I
have personally driven a focus on complaints—in particular
the identification and elimination of the root causes of
complaints. This has been successful with complaint
volumes more than halving over the last five years.
However what we—and I—missed in this focus was the
relatively small number of vulnerable customers, and
customers for whom the consequences of their situation
were severe. For some of these people, their situation or
I should point out that not all of these cases actually
represent failures by Westpac. In some cases the customer
was mistreated by a third party advisor, had been the victim
of fraud, or simply made a poor business judgment.
Nevertheless, there are also examples where members of
staff have not lived up to our code of conduct or, at a
minimum, have not been sufficiently empathetic to a
customer’s situation or have not been proactive enough to
help the customer resolve a matter. The case studies at the
Royal Commission have made this all too clear.
To address this issue we have made substantial changes to
the way we manage complaints and deal with vulnerable
customers. In June of this year I appointed Carolyn McCann
as Group Executive, Customer and Corporate Relations,
reporting to me. This new Division centralises all complaints
handling and related policies across the Group, and
complements the work of our independent Customer
Advocate. A particular focus of the Group has been the
identification and resolution of long-outstanding customer
matters, with our team working to make things right for
customers. As part of this effort our senior executives,
including me, have stepped up the amount of time we spend
reviewing specific customer complaints and meeting
personally with some of the affected customers to ensure we
fully understand the issues and the impact of our actions and
what we need to do to improve.
In the short term, the media attention surrounding the Royal
Commission, as well as the launch of the new Australian
Financial Complaints Authority (AFCA), will likely see
complaint volumes remain elevated for some time. However
we are confident that we now have the right level of focus
across the company on resolving customer issues and the
root causes of complaints.
More broadly on reputation, we know that what we do is
more important than what we say. That is why we continue
to make changes that improve the customer experience for
all customers. For example, all St.George branches are now
recognised as ‘dementia-friendly’, a program developed in
partnership with Dementia Australia. Dementia Australia
has helped us develop a staff training program for creating a
safe environment for those with dementia, and further
assists us by auditing our branches to confirm that our
training is working in practice.
Other changes include improvements to customer fraud
handling and providing customers experiencing hardship
with ‘breathing space’ and options to pause repayments if
needed.
We’ve changed our remuneration structures for our
customer facing staff to ensure the emphasis is on service
and doing the right thing, not sales, and have simplified our
products and fees.
We know there is still much to do to demonstrate our
commitment to looking after every customer–but we’re on
the right track.
Management of non-financial risks
While managing financial risks in our balance sheet—credit,
market, funding, and liquidity—is always an essential priority
risk—are being given increased attention.
In some cases—such as cyber risk—risks have emerged
from developments in technology and changes in customer
behaviour. In others—such as regulatory and conduct risk—
they reflect the fact that the bar has lifted on the industry’s
practices and that banks, including Westpac, needed to do
more to look after their customers.
Cyber and fraud risk are an example of where our focus has
paid off. We have invested heavily in our capabilities to
protect and detect cyber-attacks against both Westpac and
our customers. As a result, our total fraud losses have fallen
by around 20% since 2016. However the constantly shifting
nature of cyber-attacks means that we can never be
complacent in this area.
Another challenging area this year was in relation to
‘responsible lending’ rules. In essence, these rules require
lenders to ensure that retail loans are ‘not unsuitable’ for the
customer. Westpac uses a multi-layered approach to credit
approval to meet these requirements. Our regulators have
raised concerns about the methodologies we use to achieve
this, including the steps we have taken to verify information
provided by customers. In response, we have made
changes to our policies and processes, including more
detailed steps to verify information provided by customers
and less reliance on benchmarks for assessing customer
expenses.
Remuneration and incentives must be aligned with our
service-led strategy. That is why we have accelerated
implementation of the Sedgwick Reforms1, which are in
place from 1 October 2018 for all customer-facing Consumer
and Business Banking employees —two years prior to the
recommended time frame.
At a more senior level, we have now implemented the BEAR
regime2, which sets out explicitly who is accountable for
what, and made further changes to the weightings in our
executive scorecards and deferral periods for incentive pay
to ensure that our senior people are fully on the hook for
delivering good customer and risk outcomes. We have also
strengthened our approach to consequence management
with a new Group-wide framework which sets out conduct
expectations and the consequences of failing to meet those
standards. The framework consolidates and builds on pre-
existing consequence management policies, processes and
practices. This includes reinforcing reward practices by
providing guidance on impacts to individual incentive
payments to make sure they properly and fairly reflect
failures in customer or risk outcomes.
We believe the changes we have made are now consistent
with better practice on remuneration, although we will
continue to watch and evolve our policies and practices over
time.
Underlying risks in financial planning
While we continue to believe that our lending decisions were
As described earlier, failings in Financial Advice have been
appropriate, and that loans were not unsuitable for our
the most costly area of remediation this year across the
customers, in September this year we reached agreement
industry, and for Westpac in particular.
with ASIC that between December 2011 and March 2015
our home lending assessment process didn’t meet the
standard required and sought court approval of that
settlement. We are waiting to hear from the court in that
regard. Nevertheless, I do want to emphasise that we have
not compromised our credit standards and our lending
portfolio continues to perform well.
In 2013 the Federal Parliament’s Future of Financial Advice
(‘FOFA’) legislation came into effect, which imposed a ‘best
interests’ duty on financial advisers and mandated changes
to the way advisers could be paid—essentially, shifting from
a ‘product commission’ model to a ‘fee-for-service’ model.
This represented a major change in the way the financial
advice industry worked, and imposed significant new control
At a senior level we now devote as much, if not more, time
and compliance requirements on advisers and firms that
to non-financial risks as we do to financial risks. We track
provide financial advice.
and manage the number of open issues within each division,
and I meet regularly with my executive team to review
progress on closing these issues out. Through our ‘get it
right, put it right’ initiative, each business is tasked with
identifying and changing policies or practices that no longer
pass muster—our decision this year to eliminate
‘grandfathered’ payments to BT salaried planners in BT is an
example.
Employee remuneration
The Royal Commission has brought significant attention to
bank remuneration policies and practices, identifying them
as a contributor to poor conduct. We are conscious of this
risk, and over recent years have continued to modify the way
we pay our people to encourage good behaviour while
discouraging behaviour that is not in customers’ interest.
For example, in 2016 we were the first major bank to
eliminate all sales incentives for our tellers, with incentives
tied exclusively to customer satisfaction results.
What has become clear is that in implementing these
changes, we did not embed strong enough controls and
record-keeping around ensuring that customers who had
signed up to an ongoing advice relationship in fact received
that advice, and that those fees were stopped when the
advice relationship ceased. We are now going back through
all of these files to ensure that our planners’ records show
that advice was provided, and, if not, that fees were stopped
and where appropriate refunded. We provided $195 million
in 2018 as an estimate of what this will ultimately cost in
refunds and administration for our salaried financial
planners. Further work is under way to determine the extent
to which this is also an issue for our ‘aligned’ planners, who
operate their own independent businesses, but under our
licence.
1 Stephen Sedgwick AO led independent Review of product sales
commissions and product based payments in retail banking in
We do however continue to believe that properly structured
incentives aligned with good customer outcomes are an
Australia. Final Report was released in April 2017.
2 Banking Executive Accountability Regime.
10
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
11
Chief Executive Officer’s report
refunding customers affected by these issues as we identify
condition meant that they essentially got ‘stuck in the
them.
system’—with no clear path to a sensible resolution.
Revenue was also impacted by the full year impact of the
Bank Levy—the cost of which has been entirely borne by
I should point out that not all of these cases actually
represent failures by Westpac. In some cases the customer
shareholders. The Levy cost us $378 million this year, $283
was mistreated by a third party advisor, had been the victim
million higher than 2017 and on an after tax basis reduced
of fraud, or simply made a poor business judgment.
cash earnings growth by 2.5%.
With revenue growth under pressure, expense control
remains an important priority for the Group. This year, our
productivity initiatives generated $304 million in savings,
helping to offset volume-related cost growth and the large
increase in regulatory-related costs. These savings were
Nevertheless, there are also examples where members of
staff have not lived up to our code of conduct or, at a
minimum, have not been sufficiently empathetic to a
customer’s situation or have not been proactive enough to
help the customer resolve a matter. The case studies at the
Royal Commission have made this all too clear.
broad based, and reflect our consistent approach to driving
To address this issue we have made substantial changes to
efficiency - every year, each division is tasked with
the way we manage complaints and deal with vulnerable
identifying productivity improvements that offset inflation and
customers. In June of this year I appointed Carolyn McCann
volume growth, which allows us to invest in longer-term
as Group Executive, Customer and Corporate Relations,
structural productivity initiatives.
As examples, this year we drove significant savings through
reducing management layers, we streamlined the use of
external suppliers and digitised more activity. With more
customers using digital we’ve been able to close 47
branches and remove over 400 ATMs.
We’ve also had particular success removing paper through
greater adoption of e-statements, development of more agile
work spaces, and increasing the portion of documents that
are handled digitally. In aggregate we’ve eliminated over
500 tonnes of paper this year.
Despite these savings, increases in the cost of regulatory
and compliance-related projects, along with a rise in our
investment spend, contributed to an overall growth in
expenses of 5%, and an increase in our expense to income
ratio to 43.7%.
To put this in perspective, total regulatory and compliance
costs exceeded $1.1 billion this year - that’s more than 20%
up over the last two years. While some of these cost
increases are permanent, we expect that over the next
several years much of this cost will reduce as we further
simplify our products and business processes, deliver large
regulatory projects like the New Payments Platform and the
Government’s ‘Open Banking’ initiative, automate manual
controls, and complete current remediation efforts.
Addressing reputational and risk issues
In his letter, the Chairman identified some lessons for
Westpac emerging from the Royal Commission: complaints
handling, non-financial risks, remuneration and financial
advice. I’d like to share my perspective on each and what
we are doing to address the underlying issues.
Complaints handling
For me, complaints handling was the most disappointing
issue to emerge this year. Since I joined Westpac in 2012 I
have personally driven a focus on complaints—in particular
the identification and elimination of the root causes of
complaints. This has been successful with complaint
volumes more than halving over the last five years.
However what we—and I—missed in this focus was the
relatively small number of vulnerable customers, and
customers for whom the consequences of their situation
were severe. For some of these people, their situation or
reporting to me. This new Division centralises all complaints
handling and related policies across the Group, and
complements the work of our independent Customer
Advocate. A particular focus of the Group has been the
identification and resolution of long-outstanding customer
matters, with our team working to make things right for
customers. As part of this effort our senior executives,
including me, have stepped up the amount of time we spend
reviewing specific customer complaints and meeting
personally with some of the affected customers to ensure we
fully understand the issues and the impact of our actions and
what we need to do to improve.
In the short term, the media attention surrounding the Royal
Commission, as well as the launch of the new Australian
Financial Complaints Authority (AFCA), will likely see
complaint volumes remain elevated for some time. However
we are confident that we now have the right level of focus
across the company on resolving customer issues and the
root causes of complaints.
More broadly on reputation, we know that what we do is
more important than what we say. That is why we continue
to make changes that improve the customer experience for
all customers. For example, all St.George branches are now
recognised as ‘dementia-friendly’, a program developed in
partnership with Alzheimer’s Australia. Alzheimer’s Australia
has helped us develop a staff training program for creating a
safe environment for those with dementia, and further
assists us by auditing our branches to confirm that our
training is working in practice.
Other changes include improvements to customer fraud
handling and providing customers experiencing hardship
with ‘breathing space’ and options to pause repayments if
needed.
We’ve changed our remuneration structures for our
customer facing staff to ensure the emphasis is on service
and doing the right thing, not sales, and have simplified our
products and fees.
We know there is still much to do to demonstrate our
commitment to looking after every customer–but we’re on
the right track.
Management of non-financial risks
While managing financial risks in our balance sheet—credit,
market, funding, and liquidity—is always an essential priority
in banking, in recent years, non-financial risks—operational
risk, cyber, legal/regulatory risk, financial crime, and conduct
risk—are being given increased attention.
In some cases—such as cyber risk—risks have emerged
from developments in technology and changes in customer
behaviour. In others—such as regulatory and conduct risk—
they reflect the fact that the bar has lifted on the industry’s
practices and that banks, including Westpac, needed to do
more to look after their customers.
Cyber and fraud risk are an example of where our focus has
paid off. We have invested heavily in our capabilities to
protect and detect cyber-attacks against both Westpac and
our customers. As a result, our total fraud losses have fallen
by around 20% since 2016. However the constantly shifting
nature of cyber-attacks means that we can never be
complacent in this area.
Another challenging area this year was in relation to
‘responsible lending’ rules. In essence, these rules require
lenders to ensure that retail loans are ‘not unsuitable’ for the
customer. Westpac uses a multi-layered approach to credit
approval to meet these requirements. Our regulators have
raised concerns about the methodologies we use to achieve
this, including the steps we have taken to verify information
provided by customers. In response, we have made
changes to our policies and processes, including more
detailed steps to verify information provided by customers
and less reliance on benchmarks for assessing customer
expenses.
While we continue to believe that our lending decisions were
appropriate, and that loans were not unsuitable for our
customers, in September this year we reached agreement
with ASIC that between December 2011 and March 2015
our home lending assessment process didn’t meet the
standard required and sought court approval of that
settlement. We are waiting to hear from the court in that
regard. Nevertheless, I do want to emphasise that we have
not compromised our credit standards and our lending
portfolio continues to perform well.
At a senior level we now devote as much, if not more, time
to non-financial risks as we do to financial risks. We track
and manage the number of open issues within each division,
and I meet regularly with my executive team to review
progress on closing these issues out. Through our ‘get it
right, put it right’ initiative, each business is tasked with
identifying and changing policies or practices that no longer
pass muster—our decision this year to eliminate
‘grandfathered’ payments to BT salaried planners in BT is an
example.
Employee remuneration
The Royal Commission has brought significant attention to
bank remuneration policies and practices, identifying them
as a contributor to poor conduct. We are conscious of this
risk, and over recent years have continued to modify the way
we pay our people to encourage good behaviour while
discouraging behaviour that is not in customers’ interest.
For example, in 2016 we were the first major bank to
eliminate all sales incentives for our tellers, with incentives
tied exclusively to customer satisfaction results.
We do however continue to believe that properly structured
incentives aligned with good customer outcomes are an
Chief Executive Officer’s report
important component of a high performance culture that
delivers for customers and shareholders alike.
Remuneration and incentives must be aligned with our
service-led strategy. That is why we have accelerated
implementation of the Sedgwick Reforms1, which are in
place from 1 October 2018 for all customer-facing Consumer
and Business Banking employees —two years prior to the
recommended time frame.
1
At a more senior level, we have now implemented the BEAR
regime2, which sets out explicitly who is accountable for
what, and made further changes to the weightings in our
executive scorecards and deferral periods for incentive pay
to ensure that our senior people are fully on the hook for
delivering good customer and risk outcomes. We have also
strengthened our approach to consequence management
with a new Group-wide framework which sets out conduct
expectations and the consequences of failing to meet those
standards. The framework consolidates and builds on pre-
existing consequence management policies, processes and
practices. This includes reinforcing reward practices by
providing guidance on impacts to individual incentive
payments to make sure they properly and fairly reflect
failures in customer or risk outcomes.
We believe the changes we have made are now consistent
with better practice on remuneration, although we will
continue to watch and evolve our policies and practices over
time.
Underlying risks in financial planning
As described earlier, failings in Financial Advice have been
the most costly area of remediation this year across the
industry, and for Westpac in particular.
In 2013 the Federal Parliament’s Future of Financial Advice
(‘FOFA’) legislation came into effect, which imposed a ‘best
interests’ duty on financial advisers and mandated changes
to the way advisers could be paid—essentially, shifting from
a ‘product commission’ model to a ‘fee-for-service’ model.
This represented a major change in the way the financial
advice industry worked, and imposed significant new control
and compliance requirements on advisers and firms that
provide financial advice.
What has become clear is that in implementing these
changes, we did not embed strong enough controls and
record-keeping around ensuring that customers who had
signed up to an ongoing advice relationship in fact received
that advice, and that those fees were stopped when the
advice relationship ceased. We are now going back through
all of these files to ensure that our planners’ records show
that advice was provided, and, if not, that fees were stopped
and where appropriate refunded. We provided $195 million
in 2018 as an estimate of what this will ultimately cost in
refunds and administration for our salaried financial
planners. Further work is under way to determine the extent
to which this is also an issue for our ‘aligned’ planners, who
operate their own independent businesses, but under our
licence.
1 Stephen Sedgwick AO led independent Review of product sales
commissions and product based payments in retail banking in
Australia. Final Report was released in April 2017.
2 Banking Executive Accountability Regime.
10
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
11
Chief Executive Officer’s report
Through detailed reviews and compliance checking, we
have also found further instances where planners provided
inappropriate advice for individual customers. A significant
remediation program is underway as part of an industry-wide
initiative overseen by ASIC. The goal of this program is to
identify and remediate any customer who has received poor
advice from one of our financial planners. We have invested
significantly in this program, with over 75 employees
currently reviewing files of advisers that have been identified
through our work.
Looking ahead, we have introduced significant additional
controls to minimise the possibility of customers receiving
poor advice in the future. This includes additional training,
increased oversight of planner activity, and more severe
consequences—including participation in an industry-wide
register for planners who contravene our policies.
There has been significant reputational damage for the
financial advice industry as a whole, including BT. It has
also meant a significant uplift in compliance costs, including
more than doubling support and compliance resources for
financial advisers over recent years. This creates real
challenges for the ongoing provision of affordable advice for
the majority of consumers. It remains our view that large
companies like Westpac are in fact best placed to provide
advice to the mass market, given that we have the
experience and resources to meet the required compliance
practices (and to put things right when they occasionally go
wrong). However we have to be pragmatic about this and
are continuing to look at ways that we can provide access to
affordable and unbiased advice to customers who require it.
Investment in Compliance and Risk
We know we have more to do to improve the way we
manage non-financial risks, and this work is well underway.
To address the issues that we’ve seen this year we have
taken a number of steps, including substantially increased
staffing levels in our ‘first line’ compliance and risk teams—
who undertake a number of important steps to help us do
the right thing for our customers, including checking the
quality of work done by our front line teams, monitoring
transactions for fraud or other suspicious activity such as
money laundering—as well as in teams working on
remediation across our various business units.
In the short term this has come at a substantial cost to our
financial results. We expensed over $1.1 billion on
regulation and compliance this year—significantly more than
what we wrote off in credit provisions.
Nevertheless, we believe this is money well spent: The focus
of this investment includes upgrades to technology to close
control gaps, improve stability, and provide better detective
control and reporting on fraud and financial crime; extra
staffing to verify customer documentation; and new tools to
automate data collection and storage. Over time this should
dramatically reduce the incidence of control failures and the
cost of manual intervention and remediation.
Delivering our Service Revolution
With all of the attention on improving risk controls and
remediation, it would be easy to lose sight of the substantial
progress we have made on our strategic agenda to build one
of the world’s great service companies. While there has
inevitably been some ‘crowding out’ of investment, overall
we have maintained momentum on our response to a once-
in-a-generation change in the banking industry.
Our strategy reflects dramatic changes we are seeing in
customer behaviour—through the adoption of digital
channels—along with new capabilities in technology and
data analysis. We believe that by recognising that banking is
a service business, not a product business, we can harness
these developments to create a strong and growing
customer franchise while substantially reducing the cost to
serve—thereby translating into a more profitable and
sustainable business.
The foundation of this strategy is delivering great service—
which we define as a culture devoted to helping customers
achieve what’s important to them.
We measure great service through growth in our customer
base across our brands, along with various measures of
customer satisfaction and engagement—most notably, the
net promoter score (NPS). This year we grew customers
numbers by around 250,000, or 2%, which saw total
Australian banking customer numbers surpass 11 million for
the first time. We also saw substantial improvements across
our business on NPS1, relative to our peers. In business, we
finished the year #1 on NPS for Commercial, SME, and
Micro-business segments. In Consumer, our relative Group
ranking increased to #2 on NPS among the major banks.
We believe these outcomes reflect improvements in both the
quality of our training and the extent of customer contact by
our bankers, as well as improved stability in our systems—a
critical success factor given the increased reliance by
customers on mobile and digital banking.
We still have more work to do, however: absolute NPS
scores actually fell across the sector in consumer this year,
which we think reflects the string of negative news on the
sector. Across the company we continue to set high
standards for our people on service delivery for example,
every staff member is encouraged to participate in a ‘service
huddle’ at least weekly, where we share good and bad
stories on service delivery and reinforce the behaviours
needed to build superior service.
The second element of our service revolution program is the
development of our digital channels and the renewal of our
technology platforms. This year we switched on the core of
our new technology infrastructure, the Customer Service
Hub. It re-orients our systems around the customer and will
make it much easier to provide the level of integrated service
that customers expect. The system is still in pilot but we
expect to complete the roll-out for mortgages across our
brands in 2019.
1 Net Promoter Score measures the net likelihood of recommendation
to others of the customer’s main financial institution. Net Promoter
ScoreSM is a trademark of Bain & Co Inc., Satmetrix Systems, Inc.,
and Mr Frederick Reichheld. Using a scale of 0 to 10 (0 means
‘extremely unlikely’ and 10 means ‘extremely likely’), the 0-6 raters
(detractors) are deducted from the 9-10 raters (promoters).
Chief Executive Officer’s report
goal in 2019 is to put as many of the outstanding
issues behind us as possible. We still have more
analysis to do in areas such as financial advice, but we
feel we are well progressed on the known issues.
There are however a number of reviews and inquiries
outstanding (e.g., matters arising from the Royal
Commission) and their findings, along with how the
Government and regulators will respond, remain
uncertain. Nevertheless we will continue to work
constructively to implement any change while seeking
to ensure that the strength of our financial system and
support for the broader economy are not compromised.
2. Maintain momentum in the customer franchise: The
ultimate source of sustainable revenue (and value) for
Westpac is the size and quality of our customer
franchise. So it’s important we continue building our
service proposition, growing customer numbers,
deepening relationships, and improving retention.
Across our bank we now have 27 separate business
unit leaders, each of whom is supported by cross
functional teams of marketers, designers,
technologists, and re-engineering experts (among
others). Together they are improving processes and
innovating in ways that give our customers more
reasons to join our brands and consolidate their
financial services needs with us—for reasons that
aren’t just about price.
3. Structural cost reduction: Given the lower outlook for
revenue growth we need to work even harder on our
cost base to maintain returns for shareholders. We are
already one of the more efficient banks in the world,
which means there aren’t enough “quick wins” to meet
our cost objectives. Rather we need to focus on
structural cost reduction by automating tasks,
reengineering activities and streamlining our
products—but this also requires investment. Over
recent years, our approach has delivered productivity
savings of around $250 - $300 million per annum. In
2019 we aim to lift that over $400 million—almost one
third higher than in 2018. Many of the required
initiatives are already underway, as we digitise
processes and reduce bureaucracy, but it remains a
stretching target that will require discipline across the
company.
In conclusion, I would like to once again thank our investors
for your continued support this year. While it is no doubt a
difficult time to be investing in banks, shareholders should
be confident that our balance sheet has never been
stronger, we have an excellent customer franchise, and what
I believe to be the strongest management team in the sector.
As a result we continue to believe that Westpac will continue
to deliver good value and returns for shareholders.
Yours sincerely,
We’ve also introduced a range of new digital solutions for
customers that make their banking easier. This includes
simple things like being able to deposit a cheque with a
mobile phone or check a balance and make a payment just
by asking Siri. For businesses, we are gradually turning off
paper-based systems through the use of digital documents,
and reengineering how we originate loans to simplify and
speed up the process for customers.
These innovations have contributed to a lift in digital sales
and allowed us to streamline our network.
The third, critical aspect of our transformation is around our
people and culture. While our people are overwhelmingly
focused on doing the right thing for customers, we have
sought to weed out systems and processes that may have
encouraged poor behaviours.
At the same time, we are supporting our people to prepare
for the changing nature of work with increased training
resources, more flexible work arrangements and a drive to
further build the diversity and capability of our workforce.
During the year we completed the roll-out of a new
performance management framework called “Motivate”. The
framework starts with an employee’s behaviours, and
focuses each staff member on individual quarterly goals and
development objectives. We’ve also sought to help our
people manage unclear or complex decisions with all
employees involved in “Navigate” workshops. These
sessions have sought to bring together our vision, values,
code of conduct and service promise to help our people
understand the behaviours expected of them. This is on top
of the changes to remuneration structures to focus on sales,
which I mentioned earlier.
Together, these initiatives are creating an environment
where the best people can prosper and grow—a critical
aspect to attracting and retaining a talented and motivated
workforce in an increasingly competitive market for talent.
We are fortunate that we start from a position of strength.
Westpac already has an engaged and high quality
workforce. We can see that in our employee engagement
scores, our leadership position in diversity and the way we
support the communities in which we operate.
Priorities for 2019
We believe our service-led strategy remains the right one for
the times. The combination of building a great service
culture, simplifying our business, and using digital
technology to deliver innovative services at a significantly
lower cost will be an increasing differentiator for Westpac.
We therefore intend to maintain our level of investment at
around $1.4 billion per year for the next few years, which
should see us largely complete the upgrades to our systems
(although a level of ongoing investment will always be
required).
profitability.
for 2019:
However we are conscious of the current environment and
the need to continue to deliver an acceptable level of
Considering all the above, we have set three main priorities
1. Deal with outstanding issues: The current environment
has created significant uncertainty for investors and our
BRIAN HARTZER
Chief Executive Officer
The Westpac Group
12
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
13
Chief Executive Officer’s report
Through detailed reviews and compliance checking, we
have also found further instances where planners provided
inappropriate advice for individual customers. A significant
remediation program is underway as part of an industry-wide
initiative overseen by ASIC. The goal of this program is to
identify and remediate any customer who has received poor
advice from one of our financial planners. We have invested
significantly in this program, with over 75 employees
currently reviewing files of advisers that have been identified
through our work.
Looking ahead, we have introduced significant additional
controls to minimise the possibility of customers receiving
poor advice in the future. This includes additional training,
increased oversight of planner activity, and more severe
consequences—including participation in an industry-wide
register for planners who contravene our policies.
There has been significant reputational damage for the
financial advice industry as a whole, including BT. It has
also meant a significant uplift in compliance costs, including
more than doubling support and compliance resources for
financial advisers over recent years. This creates real
challenges for the ongoing provision of affordable advice for
the majority of consumers. It remains our view that large
companies like Westpac are in fact best placed to provide
advice to the mass market, given that we have the
experience and resources to meet the required compliance
practices (and to put things right when they occasionally go
wrong). However we have to be pragmatic about this and
are continuing to look at ways that we can provide access to
affordable and unbiased advice to customers who require it.
Investment in Compliance and Risk
We know we have more to do to improve the way we
manage non-financial risks, and this work is well underway.
To address the issues that we’ve seen this year we have
taken a number of steps, including substantially increased
staffing levels in our ‘first line’ compliance and risk teams—
who undertake a number of important steps to help us do
the right thing for our customers, including checking the
quality of work done by our front line teams, monitoring
transactions for fraud or other suspicious activity such as
money laundering—as well as in teams working on
remediation across our various business units.
In the short term this has come at a substantial cost to our
financial results. We expensed over $1.1 billion on
regulation and compliance this year—significantly more than
what we wrote off in credit provisions.
Nevertheless, we believe this is money well spent: The focus
of this investment includes upgrades to technology to close
control gaps, improve stability, and provide better detective
control and reporting on fraud and financial crime; extra
staffing to verify customer documentation; and new tools to
automate data collection and storage. Over time this should
dramatically reduce the incidence of control failures and the
cost of manual intervention and remediation.
Delivering our Service Revolution
With all of the attention on improving risk controls and
remediation, it would be easy to lose sight of the substantial
progress we have made on our strategic agenda to build one
of the world’s great service companies. While there has
inevitably been some ‘crowding out’ of investment, overall
we have maintained momentum on our response to a once-
in-a-generation change in the banking industry.
Our strategy reflects dramatic changes we are seeing in
customer behaviour—through the adoption of digital
channels—along with new capabilities in technology and
data analysis. We believe that by recognising that banking is
a service business, not a product business, we can harness
these developments to create a strong and growing
customer franchise while substantially reducing the cost to
serve—thereby translating into a more profitable and
sustainable business.
The foundation of this strategy is delivering great service—
which we define as a culture devoted to helping customers
achieve what’s important to them.
We measure great service through growth in our customer
base across our brands, along with various measures of
customer satisfaction and engagement—most notably, the
net promoter score (NPS). This year we grew customers
numbers by around 250,000, or 2%, which saw total
Australian banking customer numbers surpass 11 million for
the first time. We also saw substantial improvements across
our business on NPS1, relative to our peers. In business, we
finished the year #1 on NPS for Commercial, SME, and
Micro-business segments. In Consumer, our relative Group
ranking increased to #2 on NPS among the major banks.
We believe these outcomes reflect improvements in both the
quality of our training and the extent of customer contact by
our bankers, as well as improved stability in our systems—a
critical success factor given the increased reliance by
customers on mobile and digital banking.
We still have more work to do, however: absolute NPS
scores actually fell across the sector in consumer this year,
which we think reflects the string of negative news on the
sector. Across the company we continue to set high
standards for our people on service delivery for example,
every staff member is encouraged to participate in a ‘service
huddle’ at least weekly, where we share good and bad
stories on service delivery and reinforce the behaviours
needed to build superior service.
The second element of our service revolution program is the
development of our digital channels and the renewal of our
technology platforms. This year we switched on the core of
our new technology infrastructure, the Customer Service
Hub. It re-orients our systems around the customer and will
make it much easier to provide the level of integrated service
that customers expect. The system is still in pilot but we
expect to complete the roll-out for mortgages across our
brands in 2019.
1 Net Promoter Score measures the net likelihood of recommendation
to others of the customer’s main financial institution. Net Promoter
ScoreSM is a trademark of Bain & Co Inc., Satmetrix Systems, Inc.,
and Mr Frederick Reichheld. Using a scale of 0 to 10 (0 means
‘extremely unlikely’ and 10 means ‘extremely likely’), the 0-6 raters
(detractors) are deducted from the 9-10 raters (promoters).
We’ve also introduced a range of new digital solutions for
customers that make their banking easier. This includes
simple things like being able to deposit a cheque with a
mobile phone or check a balance and make a payment just
by asking Siri. For businesses, we are gradually turning off
paper-based systems through the use of digital documents,
and reengineering how we originate loans to simplify and
speed up the process for customers.
These innovations have contributed to a lift in digital sales
and allowed us to streamline our network.
The third, critical aspect of our transformation is around our
people and culture. While our people are overwhelmingly
focused on doing the right thing for customers, we have
sought to weed out systems and processes that may have
encouraged poor behaviours.
At the same time, we are supporting our people to prepare
for the changing nature of work with increased training
resources, more flexible work arrangements and a drive to
further build the diversity and capability of our workforce.
During the year we completed the roll-out of a new
performance management framework called “Motivate”. The
framework starts with an employee’s behaviours, and
focuses each staff member on individual quarterly goals and
development objectives. We’ve also sought to help our
people manage unclear or complex decisions with all
employees involved in “Navigate” workshops. These
sessions have sought to bring together our vision, values,
code of conduct and service promise to help our people
understand the behaviours expected of them. This is on top
of the changes to remuneration structures to focus on sales,
which I mentioned earlier.
Together, these initiatives are creating an environment
where the best people can prosper and grow—a critical
aspect to attracting and retaining a talented and motivated
workforce in an increasingly competitive market for talent.
We are fortunate that we start from a position of strength.
Westpac already has an engaged and high quality
workforce. We can see that in our employee engagement
scores, our leadership position in diversity and the way we
support the communities in which we operate.
Priorities for 2019
We believe our service-led strategy remains the right one for
the times. The combination of building a great service
culture, simplifying our business, and using digital
technology to deliver innovative services at a significantly
lower cost will be an increasing differentiator for Westpac.
We therefore intend to maintain our level of investment at
around $1.4 billion per year for the next few years, which
should see us largely complete the upgrades to our systems
(although a level of ongoing investment will always be
required).
However we are conscious of the current environment and
the need to continue to deliver an acceptable level of
profitability.
Considering all the above, we have set three main priorities
for 2019:
1. Deal with outstanding issues: The current environment
has created significant uncertainty for investors and our
Chief Executive Officer’s report
goal in 2019 is to put as many of the outstanding
issues behind us as possible. We still have more
analysis to do in areas such as financial advice, but we
feel we are well progressed on the known issues.
There are however a number of reviews and inquiries
outstanding (e.g., matters arising from the Royal
Commission) and their findings, along with how the
Government and regulators will respond, remain
uncertain. Nevertheless we will continue to work
constructively to implement any change while seeking
to ensure that the strength of our financial system and
support for the broader economy are not compromised.
1
2. Maintain momentum in the customer franchise: The
ultimate source of sustainable revenue (and value) for
Westpac is the size and quality of our customer
franchise. So it’s important we continue building our
service proposition, growing customer numbers,
deepening relationships, and improving retention.
Across our bank we now have 27 separate business
unit leaders, each of whom is supported by cross
functional teams of marketers, designers,
technologists, and re-engineering experts (among
others). Together they are improving processes and
innovating in ways that give our customers more
reasons to join our brands and consolidate their
financial services needs with us—for reasons that
aren’t just about price.
3. Structural cost reduction: Given the lower outlook for
revenue growth we need to work even harder on our
cost base to maintain returns for shareholders. We are
already one of the more efficient banks in the world,
which means there aren’t enough “quick wins” to meet
our cost objectives. Rather we need to focus on
structural cost reduction by automating tasks,
reengineering activities and streamlining our
products—but this also requires investment. Over
recent years, our approach has delivered productivity
savings of around $250 - $300 million per annum. In
2019 we aim to lift that over $400 million—almost one
third higher than in 2018. Many of the required
initiatives are already underway, as we digitise
processes and reduce bureaucracy, but it remains a
stretching target that will require discipline across the
company.
In conclusion, I would like to once again thank our investors
for your continued support this year. While it is no doubt a
difficult time to be investing in banks, shareholders should
be confident that our balance sheet has never been
stronger, we have an excellent customer franchise, and what
I believe to be the strongest management team in the sector.
As a result we continue to believe that Westpac will continue
to deliver good value and returns for shareholders.
Yours sincerely,
BRIAN HARTZER
Chief Executive Officer
The Westpac Group
12
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
13
innovate and simplify to reinvent the customer
simplify products and processes by digitising end-to-
experience.
end; and
As part of our delivery of the Service Revolution, we have
drive efficiency opportunities from digitisation and
Information on Westpac
Westpac is one of the four major banking organisations in
Australia and one of the largest banking organisations in
New Zealand. We provide a broad range of banking and
financial services in these markets, including consumer1,
business and institutional banking and wealth
management services.
We have branches, affiliates and controlled entities2
throughout Australia, New Zealand, Asia and 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 2018, our market capitalisation was $96
billion4 and we had total assets of $880 billion.
External environment
Full Year 2018 has been a challenging year for the financial
services sector in Australia, including for Westpac. The
sector has been the subject of intense scrutiny from
Government, regulators, the media and the community in
general. Among various developments, legal actions have
been filed by the Australian Securities and Investments
Commission, the Banking Executive Accountability Regime,
to be overseen by the Australian Prudential Regulatory
Authority, was introduced, a review of competition in the
sector was conducted by the Productivity Commission, and
the Australian Competition and Consumer Commission
established its Financial Services Unit.
In addition, the Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry
(Royal Commission) was established on 14 December 2017
and has generated a serious impact on public sentiment and
the financial services industry. The terms of reference for the
Royal Commission require it to consider (amongst other
things) the conduct of banks, insurers, financial service
providers, superannuation funds (not including self-managed
superannuation funds) and intermediaries between
borrowers and lenders, and the effectiveness of Australian
regulators in addressing misconduct in financial institutions.
The Royal Commission has been a valuable and rigorous
process.
Since its establishment, the Royal Commission has
completed the majority of its hearings, and on 28 September
2018 released its interim report. The interim report raised a
number of important points of policy and principle for
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 2018.
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 2018.
consideration by Westpac, the industry, its regulators and
policy makers. It signalled that financial services
organisations, including Westpac, need to do more to meet
the needs of customers and the community, including by
preventing, detecting and addressing misconduct, and
consistently meeting legal and regulatory obligations.
Westpac provided a formal response to the interim report on
26 October 2018.
Business strategy
The Royal Commission and the broader environment in
which we operate have reinforced the need to deliver better
customer outcomes and experiences, and underlined the
importance of continuing to deliver on our vision and
strategy, including the Service Revolution.
Westpac’s vision is ‘To be one of the world’s great service
companies, helping our customers, communities and people
to prosper and grow’.
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 we believe assist us in meeting the financial
services needs of customers. With over 14 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
flexibility to offer solutions that better meet individual
customer needs.
As we continue to build the business, the financial services
environment remains challenging and has required us to
maintain focus on our financial position. This has involved:
maintaining the high level and quality of our capital;
continuing to improve our funding and liquidity position;
and
seeking to maintain a high level of asset quality and
appropriate provisioning.
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 better for our people. We believe these
improvement efforts deliver better customer outcomes while
also creating capacity for investment.
Throughout 2018 we continued our focus on seeking to
deliver positive 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
5 All customers with an active relationship (excludes channel only and
potential relationships) as at 30 September 2018.
developed an integrated, multi-year plan that will be
executed across the Group. In 2018, we continued to deliver
outcomes and 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 transform customer
experiences and drive operational efficiency. At the same
time, we believe 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 continued on
conduct and culture, with work focused on continuing to
strengthen our conduct management across the Group. In
the context of the Royal Commission, much of the effort this
year has been focused on improving customer outcomes
and on our product reviews, as well as working to ensure we
meet customer and community expectations. We are
continuing to make adjustments and improvements to our
business. In addition, work continues on ensuring that we
are responding to the changing regulatory and industry
landscape.
Sustainability is part of our strategy of seeking to anticipate
and shape the most pressing emerging social issues where
we have the skills and experience to make a meaningful
difference and drive business value. Our approach makes
sustainability part of the way we do business, embedded in
our strategy, values, culture and processes.
Supporting our customer-focused strategy is a strong set of
company-wide values, which are embedded in our culture.
These are:
integrity;
service;
one team;
courage; and
achievement.
In delivering our strategy, we have five strategic priorities
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;
acquire new customers by making it simpler, easier and
better for customers to choose us; and
resolve legacy customer issues and ensure that our
service creates good customer outcomes.
b)
Digital transformation
create a 21st century, digitised bank with multi-brand
capabilities;
Information on Westpac
consolidation of systems.
c)
Performance discipline
to be the region’s best performing bank;
manage the business in a balanced way across
strength, growth, return and productivity;
focus on reducing structural costs;
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:
– specific business segments, in particular, small to
medium enterprises; and
– supporting our customers’ insurance and investment
needs.
e)
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.
14
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
15
Westpac is one of the four major banking organisations in
consideration by Westpac, the industry, its regulators and
Information on Westpac
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 2018, our market capitalisation was $96
billion4 and we had total assets of $880 billion.
External environment
Full Year 2018 has been a challenging year for the financial
services sector in Australia, including for Westpac. The
sector has been the subject of intense scrutiny from
policy makers. It signalled that financial services
organisations, including Westpac, need to do more to meet
the needs of customers and the community, including by
preventing, detecting and addressing misconduct, and
consistently meeting legal and regulatory obligations.
Westpac provided a formal response to the interim report on
26 October 2018.
Business strategy
The Royal Commission and the broader environment in
which we operate have reinforced the need to deliver better
customer outcomes and experiences, and underlined the
importance of continuing to deliver on our vision and
strategy, including the Service Revolution.
Westpac’s vision is ‘To be one of the world’s great service
companies, helping our customers, communities and people
to prosper and grow’.
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 we believe assist us in meeting the financial
services needs of customers. With over 14 million
customers5, our focus is on organic growth, growing
customer numbers in our chosen segments and building
stronger and deeper customer relationships.
Government, regulators, the media and the community in
A key element of this approach is our portfolio of financial
general. Among various developments, legal actions have
services brands, which we believe enables us to appeal to a
been filed by the Australian Securities and Investments
broader range of customers and provides us with the
Commission, the Banking Executive Accountability Regime,
flexibility to offer solutions that better meet individual
to be overseen by the Australian Prudential Regulatory
Authority, was introduced, a review of competition in the
sector was conducted by the Productivity Commission, and
the Australian Competition and Consumer Commission
established its Financial Services Unit.
In addition, the Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry
(Royal Commission) was established on 14 December 2017
and has generated a serious impact on public sentiment and
the financial services industry. The terms of reference for the
Royal Commission require it to consider (amongst other
things) the conduct of banks, insurers, financial service
providers, superannuation funds (not including self-managed
superannuation funds) and intermediaries between
borrowers and lenders, and the effectiveness of Australian
regulators in addressing misconduct in financial institutions.
The Royal Commission has been a valuable and rigorous
process.
Since its establishment, the Royal Commission has
completed the majority of its hearings, and on 28 September
2018 released its interim report. The interim report raised a
number of important points of policy and principle for
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 2018.
3 Contact details for our head office, major businesses and offshore
locations can be found on the inside back cover.
customer needs.
As we continue to build the business, the financial services
environment remains challenging and has required us to
maintain focus on our financial position. This has involved:
maintaining the high level and quality of our capital;
continuing to improve our funding and liquidity position;
and
seeking to maintain a high level of asset quality and
appropriate provisioning.
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 better for our people. We believe these
improvement efforts deliver better customer outcomes while
also creating capacity for investment.
Throughout 2018 we continued our focus on seeking to
deliver positive 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
4 Based on the closing share price of our ordinary shares on the ASX
5 All customers with an active relationship (excludes channel only and
as at 30 September 2018.
potential relationships) as at 30 September 2018.
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 2018, we continued to deliver
outcomes and 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 transform customer
experiences and drive operational efficiency. At the same
time, we believe 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 continued on
conduct and culture, with work focused on continuing to
strengthen our conduct management across the Group. In
the context of the Royal Commission, much of the effort this
year has been focused on improving customer outcomes
and on our product reviews, as well as working to ensure we
meet customer and community expectations. We are
continuing to make adjustments and improvements to our
business. In addition, work continues on ensuring that we
are responding to the changing regulatory and industry
landscape.
Sustainability is part of our strategy of seeking to anticipate
and shape the most pressing emerging social issues where
we have the skills and experience to make a meaningful
difference and drive business value. Our approach makes
sustainability part of the way we do business, embedded in
our strategy, values, culture and processes.
Supporting our customer-focused strategy is a strong set of
company-wide values, which are embedded in our culture.
These are:
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;
acquire new customers by making it simpler, easier and
better for customers to choose us; and
resolve legacy customer issues and ensure that our
service creates good customer outcomes.
b)
Digital transformation
create a 21st century, digitised bank with multi-brand
capabilities;
Information on Westpac
simplify products and processes by digitising end-to-
end; and
drive efficiency opportunities from digitisation and
consolidation of systems.
1
Performance discipline
to be the region’s best performing bank;
c)
manage the business in a balanced way across
strength, growth, return and productivity;
focus on reducing structural costs;
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.
Growth highways
d)
focus on stronger growth in:
– specific business segments, in particular, small to
medium enterprises; and
– supporting our customers’ insurance and investment
needs.
e)
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.
14
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
15
Information on Westpac
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 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 Business Bank, BTFG and WIB in the sales and
service of select financial services and products, including in
wealth and foreign exchange. The revenue from these
products is mostly retained by the product originators.
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 and property
finance. 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, referral 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 wealth, 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 a third party to
manufacture certain general insurance products. In
managing risk across all insurance classes, the division
reinsures certain risks using external providers. In addition to
the BT brand, BTFG operates a range of financial services
brands along with 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 financing, transactional banking,
financial and debt capital markets. 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
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, human resources and customer and corporate
relations.
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 earnings on capital not
allocated to divisions, 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.
Information on Westpac
Competition
The Group operates in a highly competitive environment.
We serve the banking, wealth and risk management needs
of customer segments from consumers and small
Outlook1
The Australian economy has continued to grow solidly in
2018. GDP increased by 3.4% for the year to June 2018,
comfortably above our estimate of potential growth of 2.75%.
businesses through to large corporate and institutional
Recent GDP growth has been supported by strong
clients. The Group competes with other financial services
population growth, home construction levels remaining
providers in every segment and every product or service.
higher for longer, solid business investment and healthy
Our competitors include financial services and advisory
companies such as banks (both domestic and global),
investment banks, credit unions, building societies,
export levels. Government spending has been particularly
robust, highlighted by health and infrastructure. Improved
global growth and solid commodity prices have also
mortgage originators, credit card issuers, brokerage firms,
supported growth.
fund and asset management companies, insurance
companies, online financial services providers, and
technology companies large and small.
Other measures of economic health remain solid with
unemployment recently falling to 5% (down from around
5.5% a year earlier), and inflation remaining well under
Like other financial services providers, our competitive
control at 1.9%.
position across customer segments, products and
geographies is determined by a variety of factors. These
include:
the quality, range, innovation and pricing of products
about consumer spending, the Reserve Bank has kept the
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. We compete on our
ability to offer new products and services that align to
evolving customer preferences. 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,
competition for both deposits and lending continues to be
fierce, both from established banks as well as new entrants,
including technology firms. Slowing growth in some sectors
such as housing has heightened competitive intensity as
financial institutions work to win new customers and retain
existing ones.
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 and seek to
retain existing ones. Competition for deposits and lending
remains intense.
Despite this solid activity, wage growth has remained
subdued with nominal earnings up by only 1.8% over the
year. With inflation well below target and ongoing questions
cash rate steady since August 2016. In particular household
budgets have been impacted by low income growth; falling
house prices; high debt levels and high energy prices.
In New Zealand, the economy has also been sound with
solid growth in agriculture, retail and recreational services.
New Zealand GDP growth has held at around 2.7%, with
unemployment around 4.5% and inflation near 1.5%.
Within Australia, the 2019 outlook is for real GDP growth to
ease back potentially to 2.7% before lifting to around 3% in
2020. This softening in growth is based on the expectation
that commodity prices will ease, the housing construction
cycle continues its slowdown and consumer spending
moderates. These conditions are also likely to weigh on
business investment that is likely to remain below trend.
The housing market is likely to remain soft in the year ahead
as demand in Sydney and Melbourne markets adjust to
affordability and investors respond to falling prices and
uncertainty around tax policy. Supply may also ease as
more conservative lending policies continue to flow through
the system.
A sharp rebalancing of interest rate differentials has seen
the Australian dollar fall by around 12% against the US
dollar. This will particularly support Australia’s services
exports and boost the profitability of the resources sector.
Public demand is also likely to remain solid as the pipeline of
infrastructure projects continues to roll out and the
Commonwealth government benefits from a rapidly
improving fiscal position. Employment growth is likely to slow
from its recent strength to around the level of population
growth. As a result, the unemployment rate is anticipated to
hold steady at around 5%.
That growth slowdown coupled with ongoing soft wage
conditions will see little progress in moving inflation towards
the Reserve Bank’s target of 2.5%. Global economic growth
is also expected to slow somewhat. Accordingly the Reserve
Bank is expected to keep the cash rate on hold at 1.5% in
2019.
1 All data and opinions under ‘Outlook’ are generated by our internal
economists and management.
16
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
17
Information on Westpac
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 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 Business Bank, BTFG and WIB in the sales and
service of select financial services and products, including in
wealth and foreign exchange. The revenue from these
products is mostly retained by the product originators.
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 and property
finance. 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, referral 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 wealth, 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 a third party to
manufacture certain general insurance products. In
managing risk across all insurance classes, the division
reinsures certain risks using external providers. In addition to
the BT brand, BTFG operates a range of financial services
brands along with 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 financing, transactional banking,
financial and debt capital markets. 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
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, human resources and customer and corporate
relations.
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 earnings on capital not
allocated to divisions, 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.
We serve the banking, wealth and risk management needs
of customer segments from consumers and small
businesses through to large corporate and institutional
clients. The Group competes with other financial services
providers in every segment and every product or service.
Our competitors include financial services and advisory
companies such as banks (both domestic and global),
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
technology companies large and small.
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. We compete on our
ability to offer new products and services that align to
evolving customer preferences. 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,
competition for both deposits and lending continues to be
fierce, both from established banks as well as new entrants,
including technology firms. Slowing growth in some sectors
such as housing has heightened competitive intensity as
financial institutions work to win new customers and retain
existing ones.
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 and seek to
retain existing ones. Competition for deposits and lending
remains intense.
Information on Westpac
Outlook1
The Australian economy has continued to grow solidly in
2018. GDP increased by 3.4% for the year to June 2018,
comfortably above our estimate of potential growth of 2.75%.
1
Recent GDP growth has been supported by strong
population growth, home construction levels remaining
higher for longer, solid business investment and healthy
export levels. Government spending has been particularly
robust, highlighted by health and infrastructure. Improved
global growth and solid commodity prices have also
supported growth.
Other measures of economic health remain solid with
unemployment recently falling to 5% (down from around
5.5% a year earlier), and inflation remaining well under
control at 1.9%.
Despite this solid activity, wage growth has remained
subdued with nominal earnings up by only 1.8% over the
year. With inflation well below target and ongoing questions
about consumer spending, the Reserve Bank has kept the
cash rate steady since August 2016. In particular household
budgets have been impacted by low income growth; falling
house prices; high debt levels and high energy prices.
In New Zealand, the economy has also been sound with
solid growth in agriculture, retail and recreational services.
New Zealand GDP growth has held at around 2.7%, with
unemployment around 4.5% and inflation near 1.5%.
Within Australia, the 2019 outlook is for real GDP growth to
ease back potentially to 2.7% before lifting to around 3% in
2020. This softening in growth is based on the expectation
that commodity prices will ease, the housing construction
cycle continues its slowdown and consumer spending
moderates. These conditions are also likely to weigh on
business investment that is likely to remain below trend.
The housing market is likely to remain soft in the year ahead
as demand in Sydney and Melbourne markets adjust to
affordability and investors respond to falling prices and
uncertainty around tax policy. Supply may also ease as
more conservative lending policies continue to flow through
the system.
A sharp rebalancing of interest rate differentials has seen
the Australian dollar fall by around 12% against the US
dollar. This will particularly support Australia’s services
exports and boost the profitability of the resources sector.
Public demand is also likely to remain solid as the pipeline of
infrastructure projects continues to roll out and the
Commonwealth government benefits from a rapidly
improving fiscal position. Employment growth is likely to slow
from its recent strength to around the level of population
growth. As a result, the unemployment rate is anticipated to
hold steady at around 5%.
That growth slowdown coupled with ongoing soft wage
conditions will see little progress in moving inflation towards
the Reserve Bank’s target of 2.5%. Global economic growth
is also expected to slow somewhat. Accordingly the Reserve
Bank is expected to keep the cash rate on hold at 1.5% in
2019.
1 All data and opinions under ‘Outlook’ are generated by our internal
economists and management.
16
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
17
Given the strength of our business, and our balance sheet,
in both absolute terms and relative to peers, we believe we
are well placed to respond to any additional regulatory
requirements.
Looking ahead, with our strong positioning, disciplined
growth, solid portfolio of businesses, and good progress on
our strategic priorities, Westpac believes it is well positioned
to continue delivering sustainable outcomes for shareholders
and customers.
Information on Westpac
Financial System credit grew by around 4.5% in the year to
September 2018 with system housing credit rising 5.4%, and
system business credit expanding by 3.8%. Other consumer
credit declined by 1.4% over the year - this continues a path
of declining consumer credit for a number of years.
Given the economic backdrop, and the potential for a further
tightening of credit standards, growth in financial system
credit in the year to September 2019 is expected to slow to
around 3.5%. Within this aggregate, housing growth is
forecast to ease to closer to 4.0%, business credit growth is
expected to slow to near 3.5% while personal credit growth
is likely to contract by 1%.
Westpac Group remains focused on executing our vision of
being one of the world’s great service companies with our
five strategic priorities assisting this transformation. These
include:
maintaining our performance discipline by continuing to
be prudent in the management of capital, funding and
liquidity; managing returns effectively seeking to
achieve a ROE between 13% and 14% and remaining
disciplined on asset growth;
continuing to build our customer base while also
increasing the depth of customer relationships;
utilising technology as part of our digital transformation
to materially improve efficiency and reduce the Group’s
cost to income ratio to below 40%;
wealth and small to medium business enterprises will
continue to be our areas of targeted growth and will
include focusing on growing funds on the Group’s
wealth management system, called Panorama, and
using new technologies to make business banking even
easier to access for customers; and
seeking to further build a stronger and more diverse
workforce where the best people want to work.
Over the last two years we have commenced a number of
initiatives to improve Westpac’s reputation. As part of these
initiatives Westpac has already provided for customer
payments and refunds where we may not have done the
right thing for customers, or have not been able to
sufficiently demonstrate that we have done the right thing for
customers. Our review of products, related systems and
processes will continue into 2019 and it may be that further
provisions are required in the future.
Following announcements from our regulator, APRA, we
have greater clarity on what sort of capital levels we need to
be considered ‘unquestionably strong’. APRA have indicated
a common equity Tier 1 capital ratio of 10.5% under the
current APRA framework would be considered consistent
with having an unquestionably strong balance sheet. At the
same time APRA is currently conducting a number of
reviews into the calculation of Australia’s capital ratios
including changes to risk weighted assets and how
Australia’s ratios should be presented against international
peers. Further clarity on these changes is expected in Full
Year 2019. APRA has indicated that they believe banks will
be able to meet any changes organically. Banks are
expected to be required to meet these new standards by 1
January 2020.
Significant developments
Corporate significant developments
Royal Commission into the banking, superannuation and
financial services industries
On 14 December 2017, the Australian Government
established a Royal Commission into potential misconduct in
Australia's banks and other financial services entities. The
terms of reference for the Royal Commission require it to
consider (amongst other things) the conduct of banks,
insurers, financial service providers, superannuation funds
(not including self-managed superannuation funds) and
intermediaries between borrowers and lenders, and the
effectiveness of Australian regulators in addressing
misconduct in financial institutions. The Royal Commission
is not required to inquire into matters such as the financial
stability of Australia's banks. A final report is to be provided
by the Commission to the Australian Government by 1
February 2019, and an interim report was released and
tabled in parliament on 28 September 2018.
The Royal Commission is inquiring into potential misconduct
and conduct, practices, behaviour or business activities by
financial services entities that may fall below community
standards and expectations. The Commission has sought
and received public submissions as to misconduct issues in
financial services and conducted a range of public hearings
which have considered case studies of alleged misconduct
issues.
Westpac has provided the Commission with documents and
witness statements and made submissions in all rounds of
the Royal Commission to date. The Interim Report of the
Commission released on 28 September 2018 outlined a
range of views the Commissioner has formed to date based
on the information and hearings so far and has requested
submissions on key areas of policy that might affect or
address misconduct in the financial services industry. Many
of those matters could have significant impacts on particular
entities (including Westpac) and the financial services
industry generally, as well as affecting the financial
performance of financial institutions, including banks.
Recommendations may include matters which could cause
structural change to the financial services industry and/or
business models used in the industry, changes to the
compensation and incentive structures within the financial
services industry, and changes involving the way financial
services are regulated. Westpac made submissions in
relation to the questions posed in the Interim Report on 26
October 2018.
The Commission will ultimately make findings and
recommendations having considered the submissions
Counsel Assisting, relevant financial institutions, other
relevant bodies including regulators and the general public
have made during the course of the proceedings of the
Commission. The Commission’s findings and
recommendations may include recommendations as to civil
or criminal prosecutions that should be conducted against
financial institutions and individuals, recommendations as to
legislative reform and in respect of matters which regulatory
or other policy bodies should consider.
In the event that the Federal Government supports
recommended regulatory changes, the Royal Commission
may result in changes to legislation and regulation. The
Information on Westpac
Royal Commission is also considering the regulation and
enforcement practices of our regulators. Any findings or
recommendations made by the Royal Commission are likely
to have and could continue to prompt regulators to
commence investigations into various financial services
entities including Westpac. Those steps could subsequently
result in administrative or enforcement action being taken.
The Commission may also prompt our regulators to alter
their existing policies and practices (including increasing
their expectations for entities that they regulate, including
Westpac) and increase the number of potential
contraventions they choose to publicly litigate rather than
otherwise resolve, which could harm our reputation and
increase our liabilities related to legal proceedings. There is
also a risk that matters considered during the Royal
Commission have resulted in or could encourage civil claims
against financial institutions including class actions.
Parliamentary inquiries 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
Banking Association (ABA) action plan. Westpac attended
public hearings of the Parliamentary Review on 6 October
2016, 8 March 2017, 11 October 2017 and 11 October 2018.
The third report of the Parliamentary Review was published
on 7 December 2017. In its third report, the Committee
made recommendations to ensure merchants have the
choice of how to process "tap and go" payments on dual
network cards, that the Australian Competition and
Consumer Commission (ACCC) as part of its inquiry into
residential mortgage products should assess the repricing of
interest-only mortgages that occurred in June 2017, that
legislation is introduced to mandate banks' participation in
Comprehensive Credit Reporting (discussed below) and that
the Attorney-General should review the threshold transaction
reporting obligations in light of the issues identified in a case
brought by the Australian Transaction Reports and Analysis
Centre against the Commonwealth Bank of Australia.
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 reporting date has been
revised to 15 November 2018 to allow for the interim report
of the Royal Commission to be handed down.
In addition to the reviews and inquiries mentioned above, the
ACCC is undertaking a specific inquiry into the pricing of
residential mortgages by those banks affected by the Bank
Levy (including Westpac), which include monitoring the
extent to which the Bank Levy is passed on to customers.
An interim report was published in March 2018 and a final
report is due in November 2018.
18
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
19
Information on Westpac
Financial System credit grew by around 4.5% in the year to
Given the strength of our business, and our balance sheet,
September 2018 with system housing credit rising 5.4%, and
in both absolute terms and relative to peers, we believe we
system business credit expanding by 3.8%. Other consumer
are well placed to respond to any additional regulatory
credit declined by 1.4% over the year - this continues a path
requirements.
of declining consumer credit for a number of years.
Given the economic backdrop, and the potential for a further
growth, solid portfolio of businesses, and good progress on
tightening of credit standards, growth in financial system
our strategic priorities, Westpac believes it is well positioned
credit in the year to September 2019 is expected to slow to
to continue delivering sustainable outcomes for shareholders
around 3.5%. Within this aggregate, housing growth is
and customers.
Looking ahead, with our strong positioning, disciplined
forecast to ease to closer to 4.0%, business credit growth is
expected to slow to near 3.5% while personal credit growth
is likely to contract by 1%.
Westpac Group remains focused on executing our vision of
being one of the world’s great service companies with our
five strategic priorities assisting this transformation. These
include:
maintaining our performance discipline by continuing to
be prudent in the management of capital, funding and
liquidity; managing returns effectively seeking to
achieve a ROE between 13% and 14% and remaining
disciplined on asset growth;
continuing to build our customer base while also
increasing the depth of customer relationships;
utilising technology as part of our digital transformation
to materially improve efficiency and reduce the Group’s
cost to income ratio to below 40%;
wealth and small to medium business enterprises will
continue to be our areas of targeted growth and will
include focusing on growing funds on the Group’s
wealth management system, called Panorama, and
using new technologies to make business banking even
easier to access for customers; and
seeking to further build a stronger and more diverse
workforce where the best people want to work.
Over the last two years we have commenced a number of
initiatives to improve Westpac’s reputation. As part of these
initiatives Westpac has already provided for customer
payments and refunds where we may not have done the
right thing for customers, or have not been able to
sufficiently demonstrate that we have done the right thing for
customers. Our review of products, related systems and
processes will continue into 2019 and it may be that further
provisions are required in the future.
Following announcements from our regulator, APRA, we
have greater clarity on what sort of capital levels we need to
be considered ‘unquestionably strong’. APRA have indicated
a common equity Tier 1 capital ratio of 10.5% under the
current APRA framework would be considered consistent
with having an unquestionably strong balance sheet. At the
same time APRA is currently conducting a number of
reviews into the calculation of Australia’s capital ratios
including changes to risk weighted assets and how
Australia’s ratios should be presented against international
peers. Further clarity on these changes is expected in Full
Year 2019. APRA has indicated that they believe banks will
be able to meet any changes organically. Banks are
expected to be required to meet these new standards by 1
January 2020.
Significant developments
Corporate significant developments
Royal Commission into the banking, superannuation and
financial services industries
On 14 December 2017, the Australian Government
established a Royal Commission into potential misconduct in
Australia's banks and other financial services entities. The
terms of reference for the Royal Commission require it to
consider (amongst other things) the conduct of banks,
insurers, financial service providers, superannuation funds
(not including self-managed superannuation funds) and
intermediaries between borrowers and lenders, and the
effectiveness of Australian regulators in addressing
misconduct in financial institutions. The Royal Commission
is not required to inquire into matters such as the financial
stability of Australia's banks. A final report is to be provided
by the Commission to the Australian Government by 1
February 2019, and an interim report was released and
tabled in parliament on 28 September 2018.
The Royal Commission is inquiring into potential misconduct
and conduct, practices, behaviour or business activities by
financial services entities that may fall below community
standards and expectations. The Commission has sought
and received public submissions as to misconduct issues in
financial services and conducted a range of public hearings
which have considered case studies of alleged misconduct
issues.
Westpac has provided the Commission with documents and
witness statements and made submissions in all rounds of
the Royal Commission to date. The Interim Report of the
Commission released on 28 September 2018 outlined a
range of views the Commissioner has formed to date based
on the information and hearings so far and has requested
submissions on key areas of policy that might affect or
address misconduct in the financial services industry. Many
of those matters could have significant impacts on particular
entities (including Westpac) and the financial services
industry generally, as well as affecting the financial
performance of financial institutions, including banks.
Recommendations may include matters which could cause
structural change to the financial services industry and/or
business models used in the industry, changes to the
compensation and incentive structures within the financial
services industry, and changes involving the way financial
services are regulated. Westpac made submissions in
relation to the questions posed in the Interim Report on 26
October 2018.
The Commission will ultimately make findings and
recommendations having considered the submissions
Counsel Assisting, relevant financial institutions, other
relevant bodies including regulators and the general public
have made during the course of the proceedings of the
Commission. The Commission’s findings and
recommendations may include recommendations as to civil
or criminal prosecutions that should be conducted against
financial institutions and individuals, recommendations as to
legislative reform and in respect of matters which regulatory
or other policy bodies should consider.
In the event that the Federal Government supports
recommended regulatory changes, the Royal Commission
may result in changes to legislation and regulation. The
1
Information on Westpac
Royal Commission is also considering the regulation and
enforcement practices of our regulators. Any findings or
recommendations made by the Royal Commission are likely
to have and could continue to prompt regulators to
commence investigations into various financial services
entities including Westpac. Those steps could subsequently
result in administrative or enforcement action being taken.
The Commission may also prompt our regulators to alter
their existing policies and practices (including increasing
their expectations for entities that they regulate, including
Westpac) and increase the number of potential
contraventions they choose to publicly litigate rather than
otherwise resolve, which could harm our reputation and
increase our liabilities related to legal proceedings. There is
also a risk that matters considered during the Royal
Commission have resulted in or could encourage civil claims
against financial institutions including class actions.
Parliamentary inquiries 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
Banking Association (ABA) action plan. Westpac attended
public hearings of the Parliamentary Review on 6 October
2016, 8 March 2017, 11 October 2017 and 11 October 2018.
The third report of the Parliamentary Review was published
on 7 December 2017. In its third report, the Committee
made recommendations to ensure merchants have the
choice of how to process "tap and go" payments on dual
network cards, that the Australian Competition and
Consumer Commission (ACCC) as part of its inquiry into
residential mortgage products should assess the repricing of
interest-only mortgages that occurred in June 2017, that
legislation is introduced to mandate banks' participation in
Comprehensive Credit Reporting (discussed below) and that
the Attorney-General should review the threshold transaction
reporting obligations in light of the issues identified in a case
brought by the Australian Transaction Reports and Analysis
Centre against the Commonwealth Bank of Australia.
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 reporting date has been
revised to 15 November 2018 to allow for the interim report
of the Royal Commission to be handed down.
In addition to the reviews and inquiries mentioned above, the
ACCC is undertaking a specific inquiry into the pricing of
residential mortgages by those banks affected by the Bank
Levy (including Westpac), which include monitoring the
extent to which the Bank Levy is passed on to customers.
An interim report was published in March 2018 and a final
report is due in November 2018.
18
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
19
Information on Westpac
The inquiry into the pricing of residential mortgages is the
first task of the Financial Services Unit (FSU), established by
the ACCC in 2017 to undertake regular inquiries into specific
financial services competition issues. The FSU has
commenced market studies work from July 2018. The
precise scope of that work has not yet been determined, and
could include a review of the impact of regulatory measures
which affect the ability of smaller banks to compete against
the major banks, barriers to entry in financial services
markets and consumer switching.
On 2 October 2018, the ACCC announced it was holding an
inquiry into the supply of foreign currency conversion
services in Australia. The inquiry is the second task of the
FSU, and will examine the pricing of foreign currency
conversion services and evaluate whether there are
impediments to effective price competition in the sector. A
report is due to be provided by the ACCC to the Treasurer
by 31 May 2019.
As these reviews and inquiries progress, they may lead to
further regulation and reform.
APRA self-assessment
On 1 May 2018, in the context of the publication of the final
report in relation to the prudential inquiry into the
Commonwealth Bank of Australia, APRA indicated that all
regulated financial institutions would benefit from conducting
a self-assessment into their frameworks and practices in
relation to governance, culture and accountability. For large
financial institutions such as Westpac, APRA noted it will
also be seeking written assessments in relation to these
matters that have been reviewed and endorsed by their
Board. Westpac’s self-assessment is currently underway
and the report is due to APRA on 30 November 2018.
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 (FSI). The terms of reference were
broad and required the Productivity Commission to review
competition in Australia's financial system with a view to
improving consumer outcomes, 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 Productivity Commission released its final report on 3
August 2018 in which it found that financial system
regulation since the Global Financial Crisis had favoured
stability over competition. A number of the Productivity
Commission's recommendations were aimed at addressing
this perceived regulatory imbalance, including that:
the Australian Government should implement an open
banking system (discussed below);
the ACCC should receive a mandate to 'champion'
competition in the financial system;
trail commissions, volume-based commissions,
campaign-based commissions and volume-based
payments should be banned in mortgage broking and
20
clawback of commissions from brokers restricted to a
maximum 2 year period;
all brokers, aggregators, lenders and their employees
who provide home loans to customers should have a
clear legally-backed best interest obligation to their
clients;
all banks should appoint a Principal Integrity Officer
(PIO) obliged by law to report directly to their board on
the alignment of any payments made by the institution
with the new customer best interest duty. The PIO
would also have an obligation to report independently to
ASIC in instances in which a board is not responsive to
their advice;
the ACCC should undertake five-yearly market studies
on the effect of vertical and horizontal integration on
competition in the financial system. The first of these
studies should commence in 2019 and include
establishing a robust evidence base of integration
activity in the financial system;
ASIC should require all lenders to provide those
borrowers that are levied with lenders mortgage
insurance (LMI) with the option of such insurance being
levied once at the commencement of their home loan
(whether paid as a lump sum or as deferred payments)
or it being levied annually over the first 6 years of their
loan, including requiring them to also provide borrowers
with transparency in relation to the comparison of these
options;
where LMI is levied at the commencement of the home
loan, all lenders should be required to set a schedule of
refunds on the cost of LMI when borrowers choose to
refinance or pay out their loan within 6 years of the loan
being originated. The refund schedule should be made
available to the borrower before any fee or charge is
levied; and
the Payments System Board should introduce a ban on
card payment interchange fees by mid-2019.
ASIC action on compliance breaches with fees disclosure
and renewal notices
On 12 October 2018, ASIC announced a review of
compliance with requirements for Fee Disclosure
Statements (FDS) and Renewal Notices. ASIC advised that
it has received a number of breach reports from licensees
which indicate they may have failed to comply with the FDS
and Renewal Notice requirements that were implemented as
part of the FoFA reforms. These reports are currently being
investigated by ASIC, and ASIC may take enforcement
action where breaches are substantiated. In addition to
investigating these particular instances, ASIC announced
that it will test compliance with FDS and Renewal Notice
requirements across the financial advice sector.
ASIC will report its findings in 2019.
Residential mortgage lending - reviews by and engagement
regulating digital currency exchange providers.
with regulators
In recent years, regulators have focused on aspects of
residential mortgage lending standards across the industry.
APRA has been looking at, and speaking publicly about, the
broader issue of bank serviceability standards pertaining to
residential mortgage lending.
During the year, Westpac further strengthened its controls
on mortgage serviceability requirements. This work has
been guided by the findings identified through the 2016/17
targeted review of data used in residential mortgage
serviceability assessments, which was undertaken by
Westpac (and other large ADIs) at APRA’s request. The
focus of the review was on the adequacy of controls used to
ensure borrower information in serviceability assessments
was complete and accurate. Westpac engaged
PricewaterhouseCoopers (PwC) to undertake the targeted
review which was completed in May 2017. Based on the
results of their evaluation of the design and operating
effectiveness of the controls in place, PwC issued a qualified
opinion on the basis of 8 of the 10 control objectives
stipulated by APRA. While PwC found that Westpac had
implemented a wide range of controls related to verifying
certain categories of borrower information (particularly in
relation to income), they noted that Westpac should give
further consideration to strengthening controls in certain
areas, such as declared expenses and other debts.
Westpac is continuing to engage with APRA in relation to its
progress in strengthening these controls together with its risk
management framework for residential mortgage lending,
including in relation to oversight, operating systems and
controls, and assurance.
Additionally, in line with APRA’s letter to ADIs dated 26 April
2018 (Embedding Sound Residential Mortgage Lending
Practices), Westpac has been engaging with APRA in
relation to its residential mortgage lending policies and
practices.
In the mortgage area, ASIC continues to focus on interest
only mortgage origination and high risk customer groups
(such as customers with reverse mortgages). ASIC has also
reviewed public statements by some banks (including
Westpac) about interest rate changes, following the
introduction of APRA's macro-prudential limits for ADIs in
respect of interest only lending flows. Westpac is working
with ASIC on their reviews in these areas.
Anti-Money laundering and counter-terrorism financing
reforms and initiatives
On 13 December 2017, the Anti-Money Laundering and
Counter-Terrorism Financing Amendment Act 2017 (Cth)
(Amendment Act) became effective and introduced a
number of reforms to the Anti-Money Laundering and
Counter Terrorism Financing Act 2006 (Cth) (AML/CTF Act),
Information on Westpac
Many of the changes introduced by the Amendment Act
arise from a recent review of Australia's AML/CTF
framework (Statutory Review), the findings of which were set
out in the Report on the Statutory Review of the AML/CTF
Act and Associated Rules and Regulations, which was
tabled in Parliament on 29 April 2016. The Statutory Review
took into account the relevant findings of the Financial Action
Task Force's mutual evaluation of Australia's AML/CTF
regime. The Government has published a 'Project Plan' for
implementing the reforms recommended by the Statutory
Review, and it is likely further reforms will be legislated in the
near future.
In addition to the potential for ongoing legislative change,
over the past few years AUSTRAC has increasingly
emphasised its role in collecting, analysing and
disseminating financial intelligence data to its law
enforcement partners. One way AUSTRAC has sought to do
this is through greater collaboration with the financial
services industry. In 2016, AUSTRAC created the Fintel
Alliance, an initiative which involves AUSTRAC, various
financial services entities (including Westpac) and public
sector bodies collaborating with the aim of developing and
sharing actionable intelligence and insights that address key
AML/CTF risks.
In this environment of ongoing legislative reform, regulatory
change and increased industry focus, Westpac continues to
engage with AUSTRAC and has been undertaking a review
of its AML/CTF control environment that is designed to
consider and assess our AML/CTF policies, the
completeness of data feeding into our AML/CTF systems
and our anti-money laundering and counter-terrorism
financing processes and controls. Westpac has been
regularly updating AUSTRAC on the progress of this review
and has commenced implementing a number of
improvements to its AML/CTF policies, systems and controls
together with related remediation work in respect of certain
reporting practices. These efforts have related to matters
such as customer on-boarding and ongoing customer due
diligence.
The Group has recently self-reported to AUSTRAC a failure
to report a large number of International Funds Transfer
Instructions (IFTIs) (as required under Australia’s AML/CTF
Act) in relation to one WIB product. These IFTIs relate to
batch instructions received from 2009 until recently from a
small number of correspondent banks for payments made
predominantly to beneficiaries in Australia in Australian
dollars. Through the product, Westpac facilitates payments
on behalf of clients of certain of its correspondent banks.
The majority of the payments are low value and made by
Government pension funds and corporates. The Group is
investigating and working with AUSTRAC to remediate the
failure to report IFTIs. Further details regarding the
consequences of the failure to comply with financial crime
obligations are set out in the Risk Factors section of this
including:
expanding the Australian Transaction Reports and
report.
Analysis Centre's (AUSTRAC) power to issue
infringement notices and remedial directions;
refining the 'tipping-off' provisions so that reporting
entities can share information with certain related
bodies corporate; and
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
21
Information on Westpac
The inquiry into the pricing of residential mortgages is the
first task of the Financial Services Unit (FSU), established by
the ACCC in 2017 to undertake regular inquiries into specific
financial services competition issues. The FSU has
commenced market studies work from July 2018. The
precise scope of that work has not yet been determined, and
could include a review of the impact of regulatory measures
which affect the ability of smaller banks to compete against
the major banks, barriers to entry in financial services
markets and consumer switching.
On 2 October 2018, the ACCC announced it was holding an
inquiry into the supply of foreign currency conversion
services in Australia. The inquiry is the second task of the
FSU, and will examine the pricing of foreign currency
conversion services and evaluate whether there are
impediments to effective price competition in the sector. A
report is due to be provided by the ACCC to the Treasurer
by 31 May 2019.
As these reviews and inquiries progress, they may lead to
further regulation and reform.
APRA self-assessment
On 1 May 2018, in the context of the publication of the final
report in relation to the prudential inquiry into the
Commonwealth Bank of Australia, APRA indicated that all
regulated financial institutions would benefit from conducting
a self-assessment into their frameworks and practices in
relation to governance, culture and accountability. For large
financial institutions such as Westpac, APRA noted it will
also be seeking written assessments in relation to these
matters that have been reviewed and endorsed by their
Board. Westpac’s self-assessment is currently underway
and the report is due to APRA on 30 November 2018.
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 (FSI). The terms of reference were
broad and required the Productivity Commission to review
competition in Australia's financial system with a view to
improving consumer outcomes, 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 Productivity Commission released its final report on 3
August 2018 in which it found that financial system
regulation since the Global Financial Crisis had favoured
stability over competition. A number of the Productivity
Commission's recommendations were aimed at addressing
this perceived regulatory imbalance, including that:
the Australian Government should implement an open
banking system (discussed below);
the ACCC should receive a mandate to 'champion'
competition in the financial system;
trail commissions, volume-based commissions,
campaign-based commissions and volume-based
payments should be banned in mortgage broking and
20
clawback of commissions from brokers restricted to a
maximum 2 year period;
all brokers, aggregators, lenders and their employees
who provide home loans to customers should have a
clear legally-backed best interest obligation to their
clients;
all banks should appoint a Principal Integrity Officer
(PIO) obliged by law to report directly to their board on
the alignment of any payments made by the institution
with the new customer best interest duty. The PIO
would also have an obligation to report independently to
ASIC in instances in which a board is not responsive to
their advice;
the ACCC should undertake five-yearly market studies
on the effect of vertical and horizontal integration on
competition in the financial system. The first of these
studies should commence in 2019 and include
establishing a robust evidence base of integration
activity in the financial system;
ASIC should require all lenders to provide those
borrowers that are levied with lenders mortgage
insurance (LMI) with the option of such insurance being
levied once at the commencement of their home loan
(whether paid as a lump sum or as deferred payments)
or it being levied annually over the first 6 years of their
loan, including requiring them to also provide borrowers
with transparency in relation to the comparison of these
options;
where LMI is levied at the commencement of the home
loan, all lenders should be required to set a schedule of
refunds on the cost of LMI when borrowers choose to
refinance or pay out their loan within 6 years of the loan
being originated. The refund schedule should be made
available to the borrower before any fee or charge is
levied; and
the Payments System Board should introduce a ban on
card payment interchange fees by mid-2019.
ASIC action on compliance breaches with fees disclosure
and renewal notices
On 12 October 2018, ASIC announced a review of
compliance with requirements for Fee Disclosure
Statements (FDS) and Renewal Notices. ASIC advised that
it has received a number of breach reports from licensees
which indicate they may have failed to comply with the FDS
and Renewal Notice requirements that were implemented as
part of the FoFA reforms. These reports are currently being
investigated by ASIC, and ASIC may take enforcement
action where breaches are substantiated. In addition to
investigating these particular instances, ASIC announced
that it will test compliance with FDS and Renewal Notice
requirements across the financial advice sector.
ASIC will report its findings in 2019.
Residential mortgage lending - reviews by and engagement
with regulators
In recent years, regulators have focused on aspects of
residential mortgage lending standards across the industry.
APRA has been looking at, and speaking publicly about, the
broader issue of bank serviceability standards pertaining to
residential mortgage lending.
During the year, Westpac further strengthened its controls
on mortgage serviceability requirements. This work has
been guided by the findings identified through the 2016/17
targeted review of data used in residential mortgage
serviceability assessments, which was undertaken by
Westpac (and other large ADIs) at APRA’s request. The
focus of the review was on the adequacy of controls used to
ensure borrower information in serviceability assessments
was complete and accurate. Westpac engaged
PricewaterhouseCoopers (PwC) to undertake the targeted
review which was completed in May 2017. Based on the
results of their evaluation of the design and operating
effectiveness of the controls in place, PwC issued a qualified
opinion on the basis of 8 of the 10 control objectives
stipulated by APRA. While PwC found that Westpac had
implemented a wide range of controls related to verifying
certain categories of borrower information (particularly in
relation to income), they noted that Westpac should give
further consideration to strengthening controls in certain
areas, such as declared expenses and other debts.
Westpac is continuing to engage with APRA in relation to its
progress in strengthening these controls together with its risk
management framework for residential mortgage lending,
including in relation to oversight, operating systems and
controls, and assurance.
Additionally, in line with APRA’s letter to ADIs dated 26 April
2018 (Embedding Sound Residential Mortgage Lending
Practices), Westpac has been engaging with APRA in
relation to its residential mortgage lending policies and
practices.
In the mortgage area, ASIC continues to focus on interest
only mortgage origination and high risk customer groups
(such as customers with reverse mortgages). ASIC has also
reviewed public statements by some banks (including
Westpac) about interest rate changes, following the
introduction of APRA's macro-prudential limits for ADIs in
respect of interest only lending flows. Westpac is working
with ASIC on their reviews in these areas.
Anti-Money laundering and counter-terrorism financing
reforms and initiatives
On 13 December 2017, the Anti-Money Laundering and
Counter-Terrorism Financing Amendment Act 2017 (Cth)
(Amendment Act) became effective and introduced a
number of reforms to the Anti-Money Laundering and
Counter Terrorism Financing Act 2006 (Cth) (AML/CTF Act),
including:
expanding the Australian Transaction Reports and
Analysis Centre's (AUSTRAC) power to issue
infringement notices and remedial directions;
refining the 'tipping-off' provisions so that reporting
entities can share information with certain related
bodies corporate; and
1
Information on Westpac
regulating digital currency exchange providers.
Many of the changes introduced by the Amendment Act
arise from a recent review of Australia's AML/CTF
framework (Statutory Review), the findings of which were set
out in the Report on the Statutory Review of the AML/CTF
Act and Associated Rules and Regulations, which was
tabled in Parliament on 29 April 2016. The Statutory Review
took into account the relevant findings of the Financial Action
Task Force's mutual evaluation of Australia's AML/CTF
regime. The Government has published a 'Project Plan' for
implementing the reforms recommended by the Statutory
Review, and it is likely further reforms will be legislated in the
near future.
In addition to the potential for ongoing legislative change,
over the past few years AUSTRAC has increasingly
emphasised its role in collecting, analysing and
disseminating financial intelligence data to its law
enforcement partners. One way AUSTRAC has sought to do
this is through greater collaboration with the financial
services industry. In 2016, AUSTRAC created the Fintel
Alliance, an initiative which involves AUSTRAC, various
financial services entities (including Westpac) and public
sector bodies collaborating with the aim of developing and
sharing actionable intelligence and insights that address key
AML/CTF risks.
In this environment of ongoing legislative reform, regulatory
change and increased industry focus, Westpac continues to
engage with AUSTRAC and has been undertaking a review
of its AML/CTF control environment that is designed to
consider and assess our AML/CTF policies, the
completeness of data feeding into our AML/CTF systems
and our anti-money laundering and counter-terrorism
financing processes and controls. Westpac has been
regularly updating AUSTRAC on the progress of this review
and has commenced implementing a number of
improvements to its AML/CTF policies, systems and controls
together with related remediation work in respect of certain
reporting practices. These efforts have related to matters
such as customer on-boarding and ongoing customer due
diligence.
The Group has recently self-reported to AUSTRAC a failure
to report a large number of International Funds Transfer
Instructions (IFTIs) (as required under Australia’s AML/CTF
Act) in relation to one WIB product. These IFTIs relate to
batch instructions received from 2009 until recently from a
small number of correspondent banks for payments made
predominantly to beneficiaries in Australia in Australian
dollars. Through the product, Westpac facilitates payments
on behalf of clients of certain of its correspondent banks.
The majority of the payments are low value and made by
Government pension funds and corporates. The Group is
investigating and working with AUSTRAC to remediate the
failure to report IFTIs. Further details regarding the
consequences of the failure to comply with financial crime
obligations are set out in the Risk Factors section of this
report.
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
21
Information on Westpac
Banking Executive Accountability Regime
On 1 July 2018 the Banking Executive Accountability
Regime (BEAR), which applies to large ADIs such as
Westpac, came into effect. The Government's stated
intention of BEAR 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).
BEAR involves 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, to give
APRA accountability statements for each accountable
person detailing that individual's roles and
responsibilities and to report any breaches by the ADI or
an accountable person of their respective accountability
obligations to APRA; 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'.
Westpac implemented BEAR, including filing all required
documents with APRA, by the required date of 1 July 2018.
Australian Securities and Investments Commission (ASIC)
Enforcement Review Taskforce
On 19 October 2016, the Australian Government announced
that the ASIC Enforcement Review Taskforce (Taskforce)
would conduct a review into the suitability of ASIC's existing
regulatory tools (including the penalties available) and
whether they need to be strengthened.
The Taskforce completed its report in December 2017 and
made 50 recommendations to the Australian Government.
On 20 April 2018, the Australian Government announced
that it has agreed, or agreed in principle, to all 50
recommendations and will prioritise the implementation of 30
of those recommendations. The remaining 20
recommendations will be considered with the final report of
the Royal Commission.
The Taskforce made recommendations on, among other
things:
reforms to the mandatory breach reporting framework
including 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;
strengthening ASIC's licensing powers, which would
enable ASIC to take action to refuse to grant, or to
22
suspend or cancel, a licence where the applicant or
licensee is not considered to be a fit and proper person;
expanding ASIC's powers to ban individuals working in
financial services businesses where they are found to
be unfit, improper or incompetent;
increasing fines and strengthening penalties for
corporate and financial sector misconduct;
providing ASIC with the power to issue directions to
financial services licensees and credit licensees in
relation to the conduct of their business; and
enhancing ASIC’s search warrant powers to provide
them with greater flexibility to use seized materials and
granting ASIC access to telecommunications intercept
material.
Progress has been made in implementing these
recommendations, including:
ASIC releasing a report on 25 September 2018 on the
breach reporting processes of 12 financial services
groups, including Westpac;
the Australian Government publicly endorsing the
proposal by the ASIC Enforcement Review Taskforce to
expand ASIC’s powers in respect of corporate and
financial services misconduct, including the criminal and
civil penalties which apply, and introducing the Treasury
Laws Amendment (Strengthening Corporate and
Financial Sector Penalties) Bill 2018 (Cth) (discussed
below); and
the Australian Government announcing an increase in
ASIC’s funding in order to introduce a close and
continuous monitoring program, in which ASIC embeds
staff within the institutions which it supervises.
Enhanced penalties for corporate and financial sector
misconduct
On 24 October 2018, the Australian Government introduced
into Parliament the Treasury Laws Amendment
(Strengthening Corporate & Financial Sector Penalties) Bill
2018 (Cth), which proposes to strengthen penalties for
corporate and financial sector misconduct consistent with
the ASIC Enforcement Review Taskforce recommendations.
If passed in its current form, the Bill will:
update the penalties for certain criminal offences in
legislation administered by ASIC, including increasing
the maximum imprisonment penalties for certain
criminal offences, introducing a formula to calculate
financial penalties for criminal offences, and removing
imprisonment as a penalty but increasing the financial
penalties for all strict and absolute liability offences;
introduce ordinary criminal offences that sit alongside
strict and absolute liability offences;
introduce the ability for courts to make relinquishment
orders for civil penalty provision contraventions;
modernise and expand the civil penalty regime by
making a wider range of offences subject to civil
penalties;
harmonise and expand the infringement notice regime;
Information on Westpac
introduce a new test that applies to all dishonesty
On 31 July 2018, ASIC approved the Banking Code of
offences under the Corporations Act 2001 (Cth); and
Practice with an implementation date of 1 July 2019. The
ensure the courts prioritise compensating victims over
ordering the payment of financial penalties.
Product design and distribution obligations and product
intervention power
new code replaces the previous version, the Code of
Banking Practice 2013.
Westpac has fully implemented the recommendations from
the Retail Banking Remuneration review chaired by Mr
Stephen Sedgwick on 1 October 2018 for our employees,
On 21 December 2017, the Australian Treasury released
draft legislation that would amend the Corporations Act 2001
(Cth) and the National Consumer Credit Protection Act 2009
two years ahead of schedule.
Changes to wealth business
(Cth) in order to grant ASIC a product intervention power
On 20 June 2018, BT Financial Advice announced that its
and introduce a new 'principles-based' product design and
customers operating through the Westpac, St.George, Bank
distribution obligation on issuers and distributors. A further
of Melbourne and BankSA networks will benefit from the
exposure draft was released for consultation in July 2018.
removal of grandfathered payments attributable to their BT
Westpac lodged a submission with the Australian Treasury
on 12 February 2018 and on 16 August 2018 in response to
the draft legislation and its revision respectively.
On 20 September 2018, the Treasury Laws Amendment
(Design and Distribution Obligations and Product
Intervention Powers) Bill 2018 (Cth) was introduced into
Parliament. The Bill is currently before the House of
products. The change to remove the majority of
grandfathered payments occurred on 1 October 2018 with
the removal of certain more complex grandfathered
payments to follow shortly. The introduction of the Future of
Financial Advice (FoFA) reforms in 2013 included a
prospective ban on conflicted remuneration. Generally,
arrangements in place prior to the commencement of FoFA
were grandfathered, permitting the continuation of
grandfathered payments, such as commissions, under those
Representatives. Exposure draft regulations in relation to the
Bill were released for consultation on 23 October 2018.
arrangements.
Australian Banking Association Banking Reform Program
On 23 July 2018, BT Financial Group announced three new
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;
schemes;
supporting the broadening of external dispute resolution
evaluating the establishment of an industry-wide,
mandatory, last resort compensation scheme;
strengthening protections available to whistleblowers;
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
Banking Code of Practice; and
supporting ASIC as a strong regulator.
On 17 April 2018, the independent governance expert
overseeing the ABA action plan, Mr Ian McPhee, released
his eighth and final report titled, Australian banking industry:
Package of initiatives, which noted that banks have made
good progress in delivering the initiatives, with most
initiatives now implemented. Reporting by the banks to Ian
McPhee about their implementation of key industry initiatives
has now concluded. The ABA has committed to member
banks providing further bi-annual external reporting on their
implementation progress.
initiatives:
significant pricing changes to its flagship platform, BT
Panorama, so that the pricing structure is significantly
lower, simpler and no longer based on scale;
the launch of a ‘compact’ BT Panorama offer for simpler
investment; and
an online adviser services hub, BT Open Services.
Open banking regime
On 9 February 2018, the final report of the Review into Open
Banking in Australia was released. The report makes 50
recommendations in total, including recommendations on:
the regulatory framework to support open banking;
what data should be shared and with whom;
what safeguards are needed to inspire confidence in
data sharing;
how data should be transferred; and
how open banking should be rolled out.
On 9 May 2018 the Government announced that it agreed
with the recommendations of the report, and that it would
phase in open banking in stages with all major banks
(including Westpac) required to make data available on
credit and debit cards, together with deposit and transaction
accounts by 1 July 2019 and on mortgages by 1 February
2020. Data on all products recommended by the report will
be required to be made available by 1 July 2020. All
remaining banks will be required to implement open banking
with a 12-month delay on the timelines set for the major
banks. The ACCC will be empowered to adjust timeframes if
necessary.
On 15 August 2018, the Australian Treasury released draft
legislation that would amend the Competition and Consumer
Act 2010 (Cth), the Privacy Act 1988 (Cth) and the
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
23
Information on Westpac
Banking Executive Accountability Regime
On 1 July 2018 the Banking Executive Accountability
Regime (BEAR), which applies to large ADIs such as
Westpac, came into effect. The Government's stated
intention of BEAR 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).
BEAR involves 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, to give
APRA accountability statements for each accountable
person detailing that individual's roles and
responsibilities and to report any breaches by the ADI or
an accountable person of their respective accountability
obligations to APRA; 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'.
Westpac implemented BEAR, including filing all required
documents with APRA, by the required date of 1 July 2018.
Australian Securities and Investments Commission (ASIC)
Enforcement Review Taskforce
On 19 October 2016, the Australian Government announced
that the ASIC Enforcement Review Taskforce (Taskforce)
would conduct a review into the suitability of ASIC's existing
regulatory tools (including the penalties available) and
whether they need to be strengthened.
The Taskforce completed its report in December 2017 and
made 50 recommendations to the Australian Government.
On 20 April 2018, the Australian Government announced
that it has agreed, or agreed in principle, to all 50
recommendations and will prioritise the implementation of 30
of those recommendations. The remaining 20
recommendations will be considered with the final report of
the Royal Commission.
The Taskforce made recommendations on, among other
things:
including 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;
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;
expanding ASIC's powers to ban individuals working in
financial services businesses where they are found to
be unfit, improper or incompetent;
increasing fines and strengthening penalties for
corporate and financial sector misconduct;
providing ASIC with the power to issue directions to
financial services licensees and credit licensees in
relation to the conduct of their business; and
enhancing ASIC’s search warrant powers to provide
them with greater flexibility to use seized materials and
granting ASIC access to telecommunications intercept
material.
Progress has been made in implementing these
recommendations, including:
ASIC releasing a report on 25 September 2018 on the
breach reporting processes of 12 financial services
groups, including Westpac;
the Australian Government publicly endorsing the
proposal by the ASIC Enforcement Review Taskforce to
expand ASIC’s powers in respect of corporate and
financial services misconduct, including the criminal and
civil penalties which apply, and introducing the Treasury
Laws Amendment (Strengthening Corporate and
Financial Sector Penalties) Bill 2018 (Cth) (discussed
below); and
the Australian Government announcing an increase in
ASIC’s funding in order to introduce a close and
continuous monitoring program, in which ASIC embeds
staff within the institutions which it supervises.
Enhanced penalties for corporate and financial sector
misconduct
On 24 October 2018, the Australian Government introduced
into Parliament the Treasury Laws Amendment
(Strengthening Corporate & Financial Sector Penalties) Bill
2018 (Cth), which proposes to strengthen penalties for
corporate and financial sector misconduct consistent with
the ASIC Enforcement Review Taskforce recommendations.
If passed in its current form, the Bill will:
update the penalties for certain criminal offences in
legislation administered by ASIC, including increasing
the maximum imprisonment penalties for certain
criminal offences, introducing a formula to calculate
financial penalties for criminal offences, and removing
imprisonment as a penalty but increasing the financial
penalties for all strict and absolute liability offences;
introduce ordinary criminal offences that sit alongside
introduce the ability for courts to make relinquishment
orders for civil penalty provision contraventions;
modernise and expand the civil penalty regime by
making a wider range of offences subject to civil
penalties;
harmonise and expand the infringement notice regime;
reforms to the mandatory breach reporting framework
strict and absolute liability offences;
introduce a new test that applies to all dishonesty
offences under the Corporations Act 2001 (Cth); and
ensure the courts prioritise compensating victims over
ordering the payment of financial penalties.
Product design and distribution obligations and product
intervention power
On 21 December 2017, the Australian Treasury released
draft legislation that would amend the Corporations Act 2001
(Cth) and the National Consumer Credit Protection Act 2009
(Cth) in order to grant ASIC a product intervention power
and introduce a new 'principles-based' product design and
distribution obligation on issuers and distributors. A further
exposure draft was released for consultation in July 2018.
Westpac lodged a submission with the Australian Treasury
on 12 February 2018 and on 16 August 2018 in response to
the draft legislation and its revision respectively.
On 20 September 2018, the Treasury Laws Amendment
(Design and Distribution Obligations and Product
Intervention Powers) Bill 2018 (Cth) was introduced into
Parliament. The Bill is currently before the House of
Representatives. Exposure draft regulations in relation to the
Bill were released for consultation on 23 October 2018.
Australian Banking 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;
Information on Westpac
On 31 July 2018, ASIC approved the Banking Code of
Practice with an implementation date of 1 July 2019. The
new code replaces the previous version, the Code of
Banking Practice 2013.
Westpac has fully implemented the recommendations from
the Retail Banking Remuneration review chaired by Mr
Stephen Sedgwick on 1 October 2018 for our employees,
two years ahead of schedule.
1
Changes to wealth business
On 20 June 2018, BT Financial Advice announced that its
customers operating through the Westpac, St.George, Bank
of Melbourne and BankSA networks will benefit from the
removal of grandfathered payments attributable to their BT
products. The change to remove the majority of
grandfathered payments occurred on 1 October 2018 with
the removal of certain more complex grandfathered
payments to follow shortly. The introduction of the Future of
Financial Advice (FoFA) reforms in 2013 included a
prospective ban on conflicted remuneration. Generally,
arrangements in place prior to the commencement of FoFA
were grandfathered, permitting the continuation of
grandfathered payments, such as commissions, under those
arrangements.
On 23 July 2018, BT Financial Group announced three new
initiatives:
significant pricing changes to its flagship platform, BT
Panorama, so that the pricing structure is significantly
lower, simpler and no longer based on scale;
the launch of a ‘compact’ BT Panorama offer for simpler
investment; and
an online adviser services hub, BT Open Services.
Open banking regime
On 9 February 2018, the final report of the Review into Open
Banking in Australia was released. The report makes 50
recommendations in total, including recommendations on:
the regulatory framework to support open banking;
what data should be shared and with whom;
what safeguards are needed to inspire confidence in
data sharing;
the implementation of a new information sharing
protocol to help stop individuals with a history of poor
conduct moving around the industry;
how data should be transferred; and
how open banking should be rolled out.
strengthening the commitment to customers in the
Banking Code of Practice; and
supporting ASIC as a strong regulator.
On 17 April 2018, the independent governance expert
overseeing the ABA action plan, Mr Ian McPhee, released
his eighth and final report titled, Australian banking industry:
Package of initiatives, which noted that banks have made
good progress in delivering the initiatives, with most
initiatives now implemented. Reporting by the banks to Ian
McPhee about their implementation of key industry initiatives
has now concluded. The ABA has committed to member
banks providing further bi-annual external reporting on their
implementation progress.
On 9 May 2018 the Government announced that it agreed
with the recommendations of the report, and that it would
phase in open banking in stages with all major banks
(including Westpac) required to make data available on
credit and debit cards, together with deposit and transaction
accounts by 1 July 2019 and on mortgages by 1 February
2020. Data on all products recommended by the report will
be required to be made available by 1 July 2020. All
remaining banks will be required to implement open banking
with a 12-month delay on the timelines set for the major
banks. The ACCC will be empowered to adjust timeframes if
necessary.
On 15 August 2018, the Australian Treasury released draft
legislation that would amend the Competition and Consumer
Act 2010 (Cth), the Privacy Act 1988 (Cth) and the
22
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
23
Information on Westpac
Australian Information Commissioner Act 2010 (Cth) to
introduce a consumer data right which will apply to particular
sectors designated by the Treasurer, in response to which
Westpac lodged a submission. A further draft of the
legislation (including a draft designation) was released by
the Australian Treasury on 24 September 2018. The banking
sector is the first sector to which the right will apply. A
Consumer Data Right Rules Framework was also released
by the ACCC in September 2018 and Westpac lodged a
submission on the Framework on 12 October 2018.
Harper Competition Reforms
In November 2017, the Competition and Consumer
Amendment (Competition Policy Review) Act 2017 (Cth) and
the inter-related Competition and Consumer Amendment
(Misuse of Market Power) Act 2017 (Cth) came into effect,
making significant changes to the Competition and
Consumer Act 2010 (Cth) following recommendations by the
Competition Policy Review which was chaired by Professor
Ian Harper.
These reforms included:
broadening the scope of the existing prohibition on
misuse of market power. Corporations with substantial
market power are prohibited from engaging in any
conduct with the purpose or likely effect of substantially
lessening competition in a market in which the
corporation (or its related bodies corporate) supplies or
acquires goods or services;
a new prohibition on engaging in a 'concerted practice'
that has the purpose, effect or likely effect of
substantially lessening competition;
in light of the new concerted practices prohibition, the
repeal of the bank-specific prohibition on price
signalling;
providing the ACCC with a 'class exemption' power
which enables it to determine that various provisions in
the Competition and Consumer Act 2010 (Cth) do not
apply to certain types of conduct;
removing the per se prohibition on third line forcing or
‘third party bundling’ of goods and services unless the
conduct is notified to the ACCC. Instead this practice
will be subject to a test of whether the bundling is likely
to have the purpose, effect or likely effect of
substantially lessening competition; and
streamlining the existing procedure to review proposed
mergers.
Comprehensive Credit Reporting (CCR)
On 28 March 2018, the National Consumer Credit Protection
Amendment (Mandatory Comprehensive Credit Reporting)
Bill 2018 (Cth) was introduced into Parliament. Whilst the bill
remains in the Senate, if passed in its current form, the bill
will mandate the provision of CCR data to credit reporting
bodies. Westpac is committed to the use of CCR to support
our principles of responsible lending, and as such we
voluntarily supplied 55% of our consumer credit accounts on
17 September 2018.
Westpac will supply the residual 45% of consumer credit
accounts by 17 September 2019. To support our
implementation, Westpac is now a signatory of the Principles
of Reciprocity and Data Exchange, which provides
governance and most importantly key consumer data
protection protocols within the CCR data sharing
environment.
Financial benchmarks reform
The Treasury Laws Amendment (2017 Measures No.5) Act
2018 (Cth) commenced on 12 April 2018 which strengthens
the regulation of financial benchmarks. The measures
include:
ASIC being 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 being required
to hold a new 'benchmark administrator' 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) being made a
specific criminal offence and subject to civil penalties.
Issue of Westpac Capital Notes 5
On 13 March 2018, Westpac issued $1.69 billion of
securities known as Westpac Capital Notes 5, which qualify
as Additional Tier 1 capital under APRA's capital adequacy
framework.
Transfer and conversion of Westpac convertible preference
shares (CPS)
On 13 March 2018, $623 million of CPS were transferred to
the Westpac CPS nominated party for $100 each pursuant
to the Westpac Capital Notes 5 reinvestment offer. Those
CPS were subsequently bought back and cancelled by
Westpac.
On 3 April 2018, the remaining $566 million of CPS were
transferred to the Westpac CPS nominated party for $100
each. Following the transfer, those remaining CPS were
converted into 19,189,765 ordinary shares.
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
as part of broader processes. On 4 September 2018
Westpac and ASIC agreed to settle the proceedings on the
basis of a proposed $35 million penalty and declarations that
Westpac contravened the National Consumer Credit
Protection Act 2009 (Cth) (NCCPA). The proposed
settlement is subject to Court approval, and involves
Westpac accepting that during the relevant period
(December 2011 – March 2015), the way that Westpac used
the Household Expenditure Measure (HEM) benchmark to
assess home loans and the way that Westpac assessed
certain interest only loans breached the NCCPA. This meant
that during the relevant period, approximately 10,500 home
loans should have been referred to manual assessment by a
credit officer. A hearing on the proposed settlement was held
on 24 October 2018 and judgment has been reserved.
Outbound scaled advice division proceedings
On 22 December 2016, ASIC commenced Federal Court
proceedings against BT Funds Management Limited (BTFM)
and Westpac Securities Administration Limited 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. The proceedings were heard in
February 2018. Judgment is pending.
ASIC’s proceedings against Westpac for poor financial
advice by a financial planner
On 14 June 2018, ASIC commenced proceedings in the
Federal Court against Westpac in relation to alleged poor
financial advice provided by a former financial planner, Mr
Sudhir Sinha. Mr Sinha was dismissed by Westpac in
November 2014 and subsequently banned by ASIC.
Westpac has proactively initiated remediation to identify and
compensate affected customers and has completed
remediation activities. ASIC’s proceedings relate to advice
provided by Mr Sinha in respect of four specific customer
files. Westpac has filed a response to ASIC’s allegations.
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, obtained insurance issued by Westpac Life
Insurance Services Limited (WLIS) on the recommendation
of financial advisers employed within the Westpac Group.
The plaintiffs have alleged that aspects of the financial
advice provided by those advisers breached fiduciary and
statutory duties owed to the advisers' clients, including the
duty to act in the best interests of the client, and that WLIS
and WLIS are defending the proceedings. These
proceedings are currently stayed by order of the Court,
pending the outcome of an appeal concerning a procedural
issue unrelated to the substantive claims made in the class
action.
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 was the subject of the proceedings was
alleged to have occurred between 6 April 2010 and 6 June
2012. ASIC sought declarations from the court 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.
The proceedings were heard in late 2017. On 24 May 2018,
Justice Beach found that Westpac had not engaged in
market manipulation or misleading or deceptive conduct
under the Corporations Act 2001 (Cth). His Honour also
found that there was no ‘trading practice’ of manipulating the
Information on Westpac
BBSW rate. However, the Court found that Westpac
engaged in unconscionable conduct on 4 occasions and that
Westpac breached its supervisory duty. Costs and penalties
will be determined in the coming months.
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.
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.
In the first 12 months following the introduction of the Bank
Levy, Westpac paid $376 million to the Australian
Government.
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 affect the taxation
arrangements for certain 'hybrid' regulatory capital
instruments issued by Westpac. The Australian provisions
were enacted on 24 August 2018 and provide for limited
grandfathering of certain previously issued Additional Tier 1
capital securities. The New Zealand provisions were enacted
on 27 June 2018 and similarly provide for limited
grandfathering of certain previously issued Tier 2 capital
securities.
The final report of the FSI in 2014 recommended that APRA
set capital standards such that the capital ratios of Australian
ADIs are "unquestionably strong".
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 has
announced that it expects to consult on draft prudential
standards giving effect to the new framework in 2018,
leading to the determination of final prudential standards in
2019. The new framework is anticipated to take effect in
early 2021.
During 2018, APRA commenced consultation and issued the
following discussion papers:
'Revision to the Capital Framework for Authorised
Deposit-Taking Institutions'. The paper included
proposed revisions to the capital framework which
incorporates the finalisation of the Basel Committee on
Banking Supervision (BCBS) Basel III reforms in
December 2017, as well as other changes to better
align the framework to risks, including in relation to
was knowingly involved in those alleged breaches. Westpac
APRA's proposed changes to capital standards
24
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
25
Information on Westpac
Australian Information Commissioner Act 2010 (Cth) to
of Reciprocity and Data Exchange, which provides
introduce a consumer data right which will apply to particular
governance and most importantly key consumer data
sectors designated by the Treasurer, in response to which
protection protocols within the CCR data sharing
Westpac lodged a submission. A further draft of the
environment.
legislation (including a draft designation) was released by
the Australian Treasury on 24 September 2018. The banking
sector is the first sector to which the right will apply. A
Consumer Data Right Rules Framework was also released
by the ACCC in September 2018 and Westpac lodged a
submission on the Framework on 12 October 2018.
Harper Competition Reforms
In November 2017, the Competition and Consumer
Amendment (Competition Policy Review) Act 2017 (Cth) and
the inter-related Competition and Consumer Amendment
(Misuse of Market Power) Act 2017 (Cth) came into effect,
making significant changes to the Competition and
Consumer Act 2010 (Cth) following recommendations by the
Competition Policy Review which was chaired by Professor
Ian Harper.
These reforms included:
broadening the scope of the existing prohibition on
misuse of market power. Corporations with substantial
market power are prohibited from engaging in any
conduct with the purpose or likely effect of substantially
lessening competition in a market in which the
corporation (or its related bodies corporate) supplies or
acquires goods or services;
a new prohibition on engaging in a 'concerted practice'
that has the purpose, effect or likely effect of
substantially lessening competition;
in light of the new concerted practices prohibition, the
repeal of the bank-specific prohibition on price
signalling;
providing the ACCC with a 'class exemption' power
which enables it to determine that various provisions in
the Competition and Consumer Act 2010 (Cth) do not
apply to certain types of conduct;
removing the per se prohibition on third line forcing or
‘third party bundling’ of goods and services unless the
conduct is notified to the ACCC. Instead this practice
will be subject to a test of whether the bundling is likely
to have the purpose, effect or likely effect of
substantially lessening competition; and
streamlining the existing procedure to review proposed
mergers.
Comprehensive Credit Reporting (CCR)
On 28 March 2018, the National Consumer Credit Protection
Amendment (Mandatory Comprehensive Credit Reporting)
Bill 2018 (Cth) was introduced into Parliament. Whilst the bill
remains in the Senate, if passed in its current form, the bill
will mandate the provision of CCR data to credit reporting
bodies. Westpac is committed to the use of CCR to support
our principles of responsible lending, and as such we
voluntarily supplied 55% of our consumer credit accounts on
17 September 2018.
accounts by 17 September 2019. To support our
implementation, Westpac is now a signatory of the Principles
Financial benchmarks reform
The Treasury Laws Amendment (2017 Measures No.5) Act
2018 (Cth) commenced on 12 April 2018 which strengthens
the regulation of financial benchmarks. The measures
include:
ASIC being 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 being required
to hold a new 'benchmark administrator' 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) being made a
specific criminal offence and subject to civil penalties.
Issue of Westpac Capital Notes 5
On 13 March 2018, Westpac issued $1.69 billion of
securities known as Westpac Capital Notes 5, which qualify
as Additional Tier 1 capital under APRA's capital adequacy
framework.
shares (CPS)
Transfer and conversion of Westpac convertible preference
On 13 March 2018, $623 million of CPS were transferred to
the Westpac CPS nominated party for $100 each pursuant
to the Westpac Capital Notes 5 reinvestment offer. Those
CPS were subsequently bought back and cancelled by
Westpac.
On 3 April 2018, the remaining $566 million of CPS were
transferred to the Westpac CPS nominated party for $100
each. Following the transfer, those remaining CPS were
converted into 19,189,765 ordinary shares.
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
as part of broader processes. On 4 September 2018
Westpac and ASIC agreed to settle the proceedings on the
basis of a proposed $35 million penalty and declarations that
Westpac contravened the National Consumer Credit
Protection Act 2009 (Cth) (NCCPA). The proposed
settlement is subject to Court approval, and involves
Westpac accepting that during the relevant period
(December 2011 – March 2015), the way that Westpac used
the Household Expenditure Measure (HEM) benchmark to
assess home loans and the way that Westpac assessed
certain interest only loans breached the NCCPA. This meant
that during the relevant period, approximately 10,500 home
loans should have been referred to manual assessment by a
credit officer. A hearing on the proposed settlement was held
Westpac will supply the residual 45% of consumer credit
on 24 October 2018 and judgment has been reserved.
Outbound scaled advice division proceedings
On 22 December 2016, ASIC commenced Federal Court
proceedings against BT Funds Management Limited (BTFM)
and Westpac Securities Administration Limited 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. The proceedings were heard in
February 2018. Judgment is pending.
ASIC’s proceedings against Westpac for poor financial
advice by a financial planner
On 14 June 2018, ASIC commenced proceedings in the
Federal Court against Westpac in relation to alleged poor
financial advice provided by a former financial planner, Mr
Sudhir Sinha. Mr Sinha was dismissed by Westpac in
November 2014 and subsequently banned by ASIC.
Westpac has proactively initiated remediation to identify and
compensate affected customers and has completed
remediation activities. ASIC’s proceedings relate to advice
provided by Mr Sinha in respect of four specific customer
files. Westpac has filed a response to ASIC’s allegations.
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, obtained insurance issued by Westpac Life
Insurance Services Limited (WLIS) on the recommendation
of financial advisers employed within the Westpac Group.
The plaintiffs have alleged that aspects of the financial
advice provided by those advisers breached fiduciary and
statutory duties owed to the advisers' clients, including the
duty to act in the best interests of the client, and that WLIS
was knowingly involved in those alleged breaches. Westpac
and WLIS are defending the proceedings. These
proceedings are currently stayed by order of the Court,
pending the outcome of an appeal concerning a procedural
issue unrelated to the substantive claims made in the class
action.
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 was the subject of the proceedings was
alleged to have occurred between 6 April 2010 and 6 June
2012. ASIC sought declarations from the court 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.
The proceedings were heard in late 2017. On 24 May 2018,
Justice Beach found that Westpac had not engaged in
market manipulation or misleading or deceptive conduct
under the Corporations Act 2001 (Cth). His Honour also
found that there was no ‘trading practice’ of manipulating the
Information on Westpac
BBSW rate. However, the Court found that Westpac
engaged in unconscionable conduct on 4 occasions and that
Westpac breached its supervisory duty. Costs and penalties
will be determined in the coming months.
1
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.
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.
In the first 12 months following the introduction of the Bank
Levy, Westpac paid $376 million to the Australian
Government.
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 affect the taxation
arrangements for certain 'hybrid' regulatory capital
instruments issued by Westpac. The Australian provisions
were enacted on 24 August 2018 and provide for limited
grandfathering of certain previously issued Additional Tier 1
capital securities. The New Zealand provisions were enacted
on 27 June 2018 and similarly provide for limited
grandfathering of certain previously issued Tier 2 capital
securities.
APRA's proposed changes to capital standards
The final report of the FSI in 2014 recommended that APRA
set capital standards such that the capital ratios of Australian
ADIs are "unquestionably strong".
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 has
announced that it expects to consult on draft prudential
standards giving effect to the new framework in 2018,
leading to the determination of final prudential standards in
2019. The new framework is anticipated to take effect in
early 2021.
During 2018, APRA commenced consultation and issued the
following discussion papers:
'Revision to the Capital Framework for Authorised
Deposit-Taking Institutions'. The paper included
proposed revisions to the capital framework which
incorporates the finalisation of the Basel Committee on
Banking Supervision (BCBS) Basel III reforms in
December 2017, as well as other changes to better
align the framework to risks, including in relation to
24
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
25
Information on Westpac
home lending. In relation to proposed traded market risk
reforms published by the BCBS (also referred to as
“Fundamental Review of the Trading Book”), APRA
have advised that it will defer its decision on the scope
and timing of any domestic implementation of the
market risk framework until after it has been finalised by
the BCBS.
'Leverage Ratio Requirements for Authorised Deposit-
Taking Institutions'. This discussion paper proposes to
impose a minimum leverage ratio requirement of 4% for
ADIs that use the internal ratings-based approach to
determine capital adequacy from 1 July 2019. Australian
banks are currently required to report leverage ratios
under the existing requirements as part of Pillar 3
disclosures.
‘Improving the transparency, comparability and flexibility
of the ADI capital framework’. The discussion paper
outlines options APRA is considering for the
presentation of capital ratios, minimum capital
requirements and capital instrument triggers. This could
result in changes to capital ratios and minimum capital
requirements and the Capital Trigger Event level of
5.125% could stay the same or increase. The dollar
amount of CET1 surplus above the Capital Trigger
Event level of 5.125% will depend on the final option
implemented by APRA. As the proposals are at an early
consultation stage it is too soon to determine final
impacts.
APRA has announced that its revisions to the capital
framework are not intended to necessitate further capital
increases for the industry above the 10.5% benchmark.
However, given the proposals include higher risk weights for
certain mortgage products, such as interest only loans and
loans for investment purposes, the impact on individual
banks may vary. Given that the proposals are at the early
consultation stage and final details remain unclear, it is too
soon to determine the impact on Westpac.
Further details of Westpac’s other regulatory disclosures
required in accordance with prudential standard APS 330
can be accessed at https://www.westpac.com.au/about-
westpac/investor-centre/financial-information/regulatory-
disclosures/.
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 and to establish a framework for minimum
loss-absorbing and recapitalisation capacity.
On 5 March 2018, legislation came into effect which
strengthens APRA's crisis management powers. 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
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.
APRA expects to commence consultation on a framework
for minimum loss-absorbing and recapitalisation capacity
later in 2018. The intention of this would be to facilitate the
orderly resolution of banks and minimise taxpayer support.
Macro-prudential regulation
From December 2014, APRA began using macro-prudential
measures targeting mortgage lending. This included limiting
investment property lending growth to below 10%, imposing
additional levels of conservatism in serviceability
assessments, and restricting 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
(LVR) 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 22.6% of new
mortgage lending for the quarter ended 30 September 2018
(currently 34.7% of Westpac's overall Australian residential
mortgage portfolio as at 30 September 2018).
On 26 April 2018, APRA announced its intention to remove
the existing 10% limit on investment property lending growth
and replace it with more permanent measures to strengthen
lending standards. In order to no longer be subject to this
limit from 1 July 2018, ADIs will be required to demonstrate
to APRA that they have been operating below the 10% limit
for at least the past 6 months. In addition, an ADI’s Board
will be required to provide an assurance to APRA in relation
to its lending policies and practices. Westpac is currently
subject to the 10% limit.
Net Stable Funding Ratio
In December 2016, APRA released an updated prudential
standard on liquidity (APS 210) which took effect from 1
January 2018. The revised APS 210 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.
Westpac's NSFR as at 30 September 2018 was 114%,
above the NSFR requirement of 100%.
Committed Liquidity Facility - annual application
The Reserve Bank of Australia makes available to ADIs a
Committed Liquidity Facility (CLF) that, subject to qualifying
conditions, can be accessed to meet LCR requirements
under APS210: Liquidity. Westpac's CLF allocation has
been decreased from $57.0 billion in 2018 to $54.0 billion for
2019.
Transition to AASB 9
AASB 9: Financial Instruments (AASB 9) will replace AASB
139 Financial Instruments: Recognition and Measurement
from 1 October 2018. AASB 9 includes a forward looking
'expected credit loss' impairment model, revised
classification and measurement model and modifies the
approach to hedge accounting.
The adoption of AASB 9 is expected to reduce retained
earnings at 1 October 2018 by approximately $709 million
(net of tax) primarily due to the increase in impairment
provisions under the new standard. The Group continues to
assess and refine certain aspects of our impairment
provisioning process. There is no significant impact to our
regulatory capital.
Further details of the changes under the new standard are
included in Note 1 to the financial statements.
Transition to AASB 15
Information on Westpac
notify APRA of material information security incidents.
APRA announced that it intends to finalise the proposed
prudential standard towards the end of 2018, with a view to
implementing from 1 July 2019. Westpac continues to
enhance its systems and processes to further mitigate
cybersecurity risks.
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
AASB 15: Revenue from Contracts with Customers (AASB
intention to withdraw from the European Union (EU),
15) will replace AASB 118 Revenue and related
triggering a two year period for the negotiation of the UK's
Interpretations from 1 October 2018. AASB 15 provides a
withdrawal from the EU.
systematic approach to revenue recognition by introducing a
five-step model governing revenue measurement and
recognition. The application of AASB 15 will not have a
material impact on the Group’s net profit or retained
earnings.
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
material to Westpac. However, it remains difficult to predict
the impact that Brexit may have on financial markets, the
Further details of the changes under the new standard are
global economy and the global financial services industry.
included in Note 1 to the financial statements.
APRA Prudential Standard APS 222: Associations with
Related Entities
Westpac has contingency planning in place and is
continuing to monitor the implications of Brexit.
London Interbank Offered Rate
On 2 July 2018, APRA released a Discussion Paper and
In July 2017, the Financial Conduct Authority, which
consultation draft in relation to prudential standard APS 222:
regulates the London Interbank Offered Rate (LIBOR),
Associations with Related Entities. The Discussion Paper
announced that it would not require panel banks to continue
proposes changes to the requirements for ADIs in managing
to submit rates for the calculation of the LIBOR benchmark
their risks from associations with related parties. The
proposals include changes to the definition and
after 2021. Accordingly, the continuation of LIBOR in its
current form will not be guaranteed after 2021, and it is likely
measurement of exposures to related entities, prudential
that LIBOR will be discontinued or modified by 2021. It is
limits and broadening the definition of related entities to
currently uncertain what developments or future changes will
include substantial shareholders, individual board directors
occur in the administration of LIBOR or any other
and other related individuals. The proposals are at
benchmarks. Any such developments or changes could
consultation stage and final details remain unclear. It is
impact the return on, value of and market for, securities and
expected that once finalised, the framework will be
implemented from 1 January 2020.
other instruments whose returns are linked to any such
benchmarks, including those securities or other instruments
APRA Prudential Standard CPS 234: Information Security
issued by the Group.
Management
European Union General Data Protection Regulation
On 7 March 2018, APRA released a consultation draft of a
The European Union (EU) General Data Protection
new cross-industry prudential standard CPS 234:
Regulation (GDPR) contains new data protection
Information Security Management. APRA announced that
requirements that came into effect from 25 May 2018. The
the proposed standard is aimed at improving the ability of
GDPR is intended to 'strengthen and unify' data protection
APRA-regulated entities to detect cyber adversaries and
respond swiftly and effectively in the event of a breach.
The proposed prudential standard would require APRA-
regulated entities to (amongst other things):
define the information security related roles and
responsibilities of the board, senior management and
governing bodies;
maintain an information security capability that is
commensurate with the size and extent of threats the
entity faces;
implement information security controls to protect
information assets;
undertake regular testing and assurance on the
effectiveness of those information security controls;
have mechanisms to detect and respond to information
security incidents in a timely manner; and
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
implemented a number of changes and updates to policies
and systems prior to the commencement of the GDPR, and
those changes to policies and systems are continuing.
OTC derivatives reform
International regulatory reforms relating to over-the-counter
(OTC) derivatives continue to be implemented across the
globe, with a current focus on initial margin and risk
mitigation practices for non-centrally cleared derivatives.
Australian standards for risk mitigation practices relating to
trading relationship documentation, trade confirmations,
portfolio reconciliation and compression and valuation and
dispute resolution processes came into force in March 2018
and have now been implemented.
26
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
27
home lending. In relation to proposed traded market risk
later in 2018. The intention of this would be to facilitate the
Information on Westpac
reforms published by the BCBS (also referred to as
“Fundamental Review of the Trading Book”), APRA
have advised that it will defer its decision on the scope
and timing of any domestic implementation of the
market risk framework until after it has been finalised by
the BCBS.
'Leverage Ratio Requirements for Authorised Deposit-
Taking Institutions'. This discussion paper proposes to
impose a minimum leverage ratio requirement of 4% for
ADIs that use the internal ratings-based approach to
determine capital adequacy from 1 July 2019. Australian
banks are currently required to report leverage ratios
under the existing requirements as part of Pillar 3
disclosures.
‘Improving the transparency, comparability and flexibility
of the ADI capital framework’. The discussion paper
outlines options APRA is considering for the
presentation of capital ratios, minimum capital
requirements and capital instrument triggers. This could
result in changes to capital ratios and minimum capital
requirements and the Capital Trigger Event level of
5.125% could stay the same or increase. The dollar
amount of CET1 surplus above the Capital Trigger
Event level of 5.125% will depend on the final option
implemented by APRA. As the proposals are at an early
consultation stage it is too soon to determine final
impacts.
APRA has announced that its revisions to the capital
framework are not intended to necessitate further capital
increases for the industry above the 10.5% benchmark.
However, given the proposals include higher risk weights for
certain mortgage products, such as interest only loans and
loans for investment purposes, the impact on individual
banks may vary. Given that the proposals are at the early
consultation stage and final details remain unclear, it is too
soon to determine the impact on Westpac.
Further details of Westpac’s other regulatory disclosures
required in accordance with prudential standard APS 330
can be accessed at https://www.westpac.com.au/about-
westpac/investor-centre/financial-information/regulatory-
disclosures/.
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 and to establish a framework for minimum
loss-absorbing and recapitalisation capacity.
On 5 March 2018, legislation came into effect which
strengthens APRA's crisis management powers. 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
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.
APRA expects to commence consultation on a framework
for minimum loss-absorbing and recapitalisation capacity
orderly resolution of banks and minimise taxpayer support.
Macro-prudential regulation
From December 2014, APRA began using macro-prudential
measures targeting mortgage lending. This included limiting
investment property lending growth to below 10%, imposing
additional levels of conservatism in serviceability
assessments, and restricting 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
(LVR) 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 22.6% of new
mortgage lending for the quarter ended 30 September 2018
(currently 34.7% of Westpac's overall Australian residential
mortgage portfolio as at 30 September 2018).
On 26 April 2018, APRA announced its intention to remove
the existing 10% limit on investment property lending growth
and replace it with more permanent measures to strengthen
lending standards. In order to no longer be subject to this
limit from 1 July 2018, ADIs will be required to demonstrate
to APRA that they have been operating below the 10% limit
for at least the past 6 months. In addition, an ADI’s Board
will be required to provide an assurance to APRA in relation
to its lending policies and practices. Westpac is currently
subject to the 10% limit.
Net Stable Funding Ratio
In December 2016, APRA released an updated prudential
standard on liquidity (APS 210) which took effect from 1
January 2018. The revised APS 210 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.
Westpac's NSFR as at 30 September 2018 was 114%,
above the NSFR requirement of 100%.
Committed Liquidity Facility - annual application
The Reserve Bank of Australia makes available to ADIs a
Committed Liquidity Facility (CLF) that, subject to qualifying
conditions, can be accessed to meet LCR requirements
under APS210: Liquidity. Westpac's CLF allocation has
been decreased from $57.0 billion in 2018 to $54.0 billion for
2019.
Transition to AASB 9
AASB 9: Financial Instruments (AASB 9) will replace AASB
139 Financial Instruments: Recognition and Measurement
from 1 October 2018. AASB 9 includes a forward looking
'expected credit loss' impairment model, revised
classification and measurement model and modifies the
approach to hedge accounting.
The adoption of AASB 9 is expected to reduce retained
earnings at 1 October 2018 by approximately $709 million
(net of tax) primarily due to the increase in impairment
provisions under the new standard. The Group continues to
assess and refine certain aspects of our impairment
provisioning process. There is no significant impact to our
regulatory capital.
Further details of the changes under the new standard are
included in Note 1 to the financial statements.
Transition to AASB 15
AASB 15: Revenue from Contracts with Customers (AASB
15) will replace AASB 118 Revenue and related
Interpretations from 1 October 2018. AASB 15 provides a
systematic approach to revenue recognition by introducing a
five-step model governing revenue measurement and
recognition. The application of AASB 15 will not have a
material impact on the Group’s net profit or retained
earnings.
Further details of the changes under the new standard are
included in Note 1 to the financial statements.
APRA Prudential Standard APS 222: Associations with
Related Entities
On 2 July 2018, APRA released a Discussion Paper and
consultation draft in relation to prudential standard APS 222:
Associations with Related Entities. The Discussion Paper
proposes changes to the requirements for ADIs in managing
their risks from associations with related parties. The
proposals include changes to the definition and
measurement of exposures to related entities, prudential
limits and broadening the definition of related entities to
include substantial shareholders, individual board directors
and other related individuals. The proposals are at
consultation stage and final details remain unclear. It is
expected that once finalised, the framework will be
implemented from 1 January 2020.
APRA Prudential Standard CPS 234: Information Security
Management
On 7 March 2018, APRA released a consultation draft of a
new cross-industry prudential standard CPS 234:
Information Security Management. APRA announced that
the proposed standard is aimed at improving the ability of
APRA-regulated entities to detect cyber adversaries and
respond swiftly and effectively in the event of a breach.
The proposed prudential standard would require APRA-
regulated entities to (amongst other things):
define the information security related roles and
responsibilities of the board, senior management and
governing bodies;
maintain an information security capability that is
commensurate with the size and extent of threats the
entity faces;
implement information security controls to protect
information assets;
undertake regular testing and assurance on the
effectiveness of those information security controls;
have mechanisms to detect and respond to information
security incidents in a timely manner; and
Information on Westpac
notify APRA of material information security incidents.
APRA announced that it intends to finalise the proposed
prudential standard towards the end of 2018, with a view to
implementing from 1 July 2019. Westpac continues to
enhance its systems and processes to further mitigate
cybersecurity risks.
1
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
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.
Westpac has contingency planning in place and is
continuing to monitor the implications of Brexit.
London Interbank Offered Rate
In July 2017, the Financial Conduct Authority, which
regulates the London Interbank Offered Rate (LIBOR),
announced that it would not require panel banks to continue
to submit rates for the calculation of the LIBOR benchmark
after 2021. Accordingly, the continuation of LIBOR in its
current form will not be guaranteed after 2021, and it is likely
that LIBOR will be discontinued or modified by 2021. It is
currently uncertain what developments or future changes will
occur in the administration of LIBOR or any other
benchmarks. Any such developments or changes could
impact the return on, value of and market for, securities and
other instruments whose returns are linked to any such
benchmarks, including those securities or other instruments
issued by the Group.
European Union General Data Protection Regulation
The European Union (EU) General Data Protection
Regulation (GDPR) contains new data protection
requirements that came into effect 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
implemented a number of changes and updates to policies
and systems prior to the commencement of the GDPR, and
those changes to policies and systems are continuing.
OTC derivatives reform
International regulatory reforms relating to over-the-counter
(OTC) derivatives continue to be implemented across the
globe, with a current focus on initial margin and risk
mitigation practices for non-centrally cleared derivatives.
Australian standards for risk mitigation practices relating to
trading relationship documentation, trade confirmations,
portfolio reconciliation and compression and valuation and
dispute resolution processes came into force in March 2018
and have now been implemented.
26
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
27
Information on Westpac
Global initial margin requirements commenced on 1
September 2016. These requirements are being introduced
in phases until 1 September 2020 and work is underway
within Westpac to comply with these regulations.
New Zealand
Regulatory reforms and significant developments in New
Zealand include:
RBNZ - Revised Outsourcing Policy
On 19 September 2017, the RBNZ advised Westpac New
Zealand Limited (WNZL) of changes to its conditions of
registration that will give effect to the RBNZ's revised
Outsourcing Policy (BS11) (Revised Outsourcing Policy).
Both the changes to the conditions of registration and the
Revised Outsourcing Policy came into effect on 1 October
2017. The Revised Outsourcing Policy sets out
requirements that banks need to meet when outsourcing
particular functions and services, especially if the service
provider is a related party of the bank. WNZL will have two
years before it must fully comply with the requirement to
maintain a compendium of outsourcing arrangements and
five years to fully comply with other aspects of the Revised
Outsourcing Policy.
RBNZ Capital Review
The RBNZ is undertaking a Bank Capital Adequacy
Framework review on the makeup of bank capital. The
RBNZ has now made “in principle” decisions on the risk
weighted assets framework, including the introduction of
dual reporting, a standardised methodology for operational
risk, and capital floors to internal rating models. These
changes will be reflected in the revised framework which is
scheduled to be released in Q4 2019. The RBNZ will
progress the in principle decisions over 2018 and 2019,
informed by a quantitative impact study and feedback on the
minimum capital settings during Q4 2018.
Reform of the regulation of financial advice
In July 2016, the New Zealand Government announced
plans for changes to the regime regulating financial advice.
The new regime is set out in the Financial Services
Legislation Amendment Bill (FSLAB), which had its second
reading in Parliament in September 2018. Under FSLAB,
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. Firms will be responsible for ensuring that their
advisers and representatives comply with these duties. The
reforms will also remove legislative barriers to the provision
of robo-advice.
A two stage transition is proposed. At this stage, the Code of
Conduct is expected to be approved in Q2 2019. There will
be a 9-month period from the Code’s approval to initial
implementation of the new regime, after which a 2-year safe
harbour for competency requirements will apply.
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). WNZL has disclosed non-
compliance with BS2B (compliance with which is a condition
of registration for WNZL) in its quarterly disclosure
statements. On 15 November 2017, the RBNZ advised
WNZL of changes to its conditions of registration resulting
from the review. The changes to WNZL's conditions of
registration came into effect on 31 December 2017 and
increase the minimum Total Capital ratio, Tier 1 Capital ratio
and Common Equity Tier 1 Capital ratio of WNZL and its
controlled entities by 2%. WNZL has also undertaken to the
RBNZ to maintain the Total Capital ratio of WNZL and its
controlled entities above 15.1%. WNZL and its controlled
entities retain an appropriate amount of capital to comply
with the increased minimum ratios. The RBNZ requires
WNZL to sufficiently address non-compliance issues by 30
June 2019. A remediation plan has been provided to the
RBNZ. WNZL is providing regular updates on the scope of
its remediation activity to the RBNZ to ensure compliance by
30 June 2019.
Review of the Reserve Bank of New Zealand Act
In November 2017, the New Zealand Government
announced it will undertake a review of the Reserve Bank of
New Zealand Act 1989 (Act) (RBNZ Review). The RBNZ
Review aims to ensure the RBNZ's monetary and financial
policy framework still provides the most efficient and
effective model for New Zealand. The RBNZ Review will
consist of two phases. Phase 1 focuses on whether the
RBNZ's decision-making process for monetary policy is
robust, and draft legislation for the proposed Phase 1 related
changes to the Act has been published. The terms of
reference for Phase 2 were released in June 2018 and will
consider broader issues, including the macro-prudential
framework, the current prudential supervision model and
trans-Tasman coordination. The first consultation on Phase
2 was issued on 1 November 2018.
Residential Mortgage Bond Collateral Standard Review
When the RBNZ lends to banks and other counterparties it
does so against 'eligible collateral' (mortgage bonds). In New
Zealand, mortgage bonds are not generally traded. On 17
December 2017, the RBNZ published an issues paper
proposing an enhanced mortgage bond standard aimed at
supporting confidence and liquidity in the financial system,
and a more standardised and transparent framework for
mortgage bonds, which would improve their quality and
make them more marketable and a new format for mortgage
bonds. The RBNZ is engaging with industry to develop this
new mortgage bond standard.
RBNZ/FMA – Financial Services Conduct & Culture Review
In May 2018, the RBNZ and FMA commenced a review in
respect of New Zealand’s 10 major banks & 15 life insurers,
including WNZL and Westpac Life-NZ-Limited, to explain
why conduct issues highlighted by the Australian Royal
Commission are not present in New Zealand. WNZL and
Westpac Life have provided the regulators with information
in relation to this review. An industry thematic review report
for the banks is expected to be released in November 2018
and for the life insurers in December 2018.
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 has recently received new and
strengthened powers under the 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
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 has
resulted 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
Information on Westpac
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 (Cth). 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
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.
28
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
29
Information on Westpac
Global initial margin requirements commenced on 1
Based Approach)’ (BS2B). WNZL has disclosed non-
September 2016. These requirements are being introduced
compliance with BS2B (compliance with which is a condition
in phases until 1 September 2020 and work is underway
of registration for WNZL) in its quarterly disclosure
within Westpac to comply with these regulations.
New Zealand
Zealand include:
Regulatory reforms and significant developments in New
RBNZ - Revised Outsourcing Policy
On 19 September 2017, the RBNZ advised Westpac New
Zealand Limited (WNZL) of changes to its conditions of
registration that will give effect to the RBNZ's revised
Outsourcing Policy (BS11) (Revised Outsourcing Policy).
Both the changes to the conditions of registration and the
Revised Outsourcing Policy came into effect on 1 October
2017. The Revised Outsourcing Policy sets out
requirements that banks need to meet when outsourcing
particular functions and services, especially if the service
provider is a related party of the bank. WNZL will have two
years before it must fully comply with the requirement to
maintain a compendium of outsourcing arrangements and
five years to fully comply with other aspects of the Revised
Outsourcing Policy.
RBNZ Capital Review
The RBNZ is undertaking a Bank Capital Adequacy
Framework review on the makeup of bank capital. The
RBNZ has now made “in principle” decisions on the risk
weighted assets framework, including the introduction of
dual reporting, a standardised methodology for operational
risk, and capital floors to internal rating models. These
changes will be reflected in the revised framework which is
scheduled to be released in Q4 2019. The RBNZ will
progress the in principle decisions over 2018 and 2019,
informed by a quantitative impact study and feedback on the
minimum capital settings during Q4 2018.
Reform of the regulation of financial advice
In July 2016, the New Zealand Government announced
plans for changes to the regime regulating financial advice.
The new regime is set out in the Financial Services
Legislation Amendment Bill (FSLAB), which had its second
reading in Parliament in September 2018. Under FSLAB,
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. Firms will be responsible for ensuring that their
advisers and representatives comply with these duties. The
reforms will also remove legislative barriers to the provision
of robo-advice.
A two stage transition is proposed. At this stage, the Code of
Conduct is expected to be approved in Q2 2019. There will
be a 9-month period from the Code’s approval to initial
implementation of the new regime, after which a 2-year safe
harbour for competency requirements will apply.
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
statements. On 15 November 2017, the RBNZ advised
WNZL of changes to its conditions of registration resulting
from the review. The changes to WNZL's conditions of
registration came into effect on 31 December 2017 and
increase the minimum Total Capital ratio, Tier 1 Capital ratio
and Common Equity Tier 1 Capital ratio of WNZL and its
controlled entities by 2%. WNZL has also undertaken to the
RBNZ to maintain the Total Capital ratio of WNZL and its
controlled entities above 15.1%. WNZL and its controlled
entities retain an appropriate amount of capital to comply
with the increased minimum ratios. The RBNZ requires
WNZL to sufficiently address non-compliance issues by 30
June 2019. A remediation plan has been provided to the
RBNZ. WNZL is providing regular updates on the scope of
its remediation activity to the RBNZ to ensure compliance by
30 June 2019.
Review of the Reserve Bank of New Zealand Act
In November 2017, the New Zealand Government
announced it will undertake a review of the Reserve Bank of
New Zealand Act 1989 (Act) (RBNZ Review). The RBNZ
Review aims to ensure the RBNZ's monetary and financial
policy framework still provides the most efficient and
effective model for New Zealand. The RBNZ Review will
consist of two phases. Phase 1 focuses on whether the
RBNZ's decision-making process for monetary policy is
robust, and draft legislation for the proposed Phase 1 related
changes to the Act has been published. The terms of
reference for Phase 2 were released in June 2018 and will
consider broader issues, including the macro-prudential
framework, the current prudential supervision model and
trans-Tasman coordination. The first consultation on Phase
2 was issued on 1 November 2018.
Residential Mortgage Bond Collateral Standard Review
When the RBNZ lends to banks and other counterparties it
does so against 'eligible collateral' (mortgage bonds). In New
Zealand, mortgage bonds are not generally traded. On 17
December 2017, the RBNZ published an issues paper
proposing an enhanced mortgage bond standard aimed at
supporting confidence and liquidity in the financial system,
and a more standardised and transparent framework for
mortgage bonds, which would improve their quality and
make them more marketable and a new format for mortgage
bonds. The RBNZ is engaging with industry to develop this
new mortgage bond standard.
RBNZ/FMA – Financial Services Conduct & Culture Review
In May 2018, the RBNZ and FMA commenced a review in
respect of New Zealand’s 10 major banks & 15 life insurers,
including WNZL and Westpac Life-NZ-Limited, to explain
why conduct issues highlighted by the Australian Royal
Commission are not present in New Zealand. WNZL and
Westpac Life have provided the regulators with information
in relation to this review. An industry thematic review report
for the banks is expected to be released in November 2018
and for the life insurers in December 2018.
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 has recently received new and
strengthened powers under the 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
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 has
resulted 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
1
Information on Westpac
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 (Cth). 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
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.
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2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
29
Corporate governance
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 2018 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
2018 Westpac Group Annual Report, the 2018 Westpac
Group Annual Review and Sustainability Report, the 2018
Westpac Group Sustainability Performance Report and
investor discussion packs and presentations can be
accessed at www.westpac.com.au/investorcentre.
Information on Westpac
New Zealand
The Reserve Bank of New Zealand (RBNZ) is responsible
for supervising New Zealand registered banks and protects
the financial stability of New Zealand through the application
of minimum prudential obligations. The New Zealand
prudential supervision regime requires that registered banks
publish 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 Financial Markets Authority (FMA) and the New Zealand
Commerce Commission (NZCC) are the two primary
conduct and enforcement regulators. The FMA and NZCC
are responsible for ensuring that markets are fair and
transparent and are supported by confident and informed
investors and consumers. Regulation of markets and their
participants is undertaken through a combination of market
supervision, corporate governance and licensing approvals.
In New Zealand, other relevant regulator mandates include
those relating to taxation, privacy and foreign affairs and
trade.
Banks in New Zealand are also subject to a number of self-
regulatory regimes. Examples include NZ Payments, the
New Zealand Bankers’ Association and the Financial
Services Council (FSC). Examples of industry agreed codes
include the New Zealand Bankers’ Association’s Code of
Banking Practice and FSC’s Code of Conduct.
United States
Our New York branch is a US federally licensed branch and
therefore is subject to supervision, examination and
regulation by the US Office of the Comptroller of the
Currency and the Board of Governors of the Federal
Reserve System (the US Federal Reserve) under the US
International Banking Act of 1978 (IBA) and related
regulations.
A US federal branch must maintain, with a US Federal
Reserve member bank, a capital equivalency deposit as
prescribed by the US Comptroller of the Currency, which is
at least equal to 5% of its total liabilities (including
acceptances, but excluding accrued expenses, and amounts
due and other liabilities to other branches, agencies and
subsidiaries of the foreign bank).
In addition, a US federal branch is subject to periodic onsite
examination by the US Comptroller of the Currency. Such
examination may address risk management, operations,
asset quality, compliance with the record-keeping and
reporting, and any additional requirements prescribed by the
US Comptroller of the Currency from time to time.
A US federal branch of a foreign bank is, by virtue of the
IBA, subject to the receivership powers exercisable by the
US Comptroller of the Currency.
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, the US Commodity Futures Trading
Commission and the National Futures Association.
Anti-money laundering regulation and
related requirements
Australia
Westpac has a Group-wide program to manage its
obligations under the Anti-Money Laundering and Counter-
Terrorism Financing Act 2006 (Cth). We continue to actively
engage with the regulator, AUSTRAC, on our activities.
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
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.
30
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31
Corporate governance
1
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 2018 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
2018 Westpac Group Annual Report, the 2018 Westpac
Group Annual Review and Sustainability Report, the 2018
Westpac Group Sustainability Performance Report and
investor discussion packs and presentations can be
accessed at www.westpac.com.au/investorcentre.
Information on Westpac
New Zealand
The Reserve Bank of New Zealand (RBNZ) is responsible
for supervising New Zealand registered banks and protects
the financial stability of New Zealand through the application
of minimum prudential obligations. The New Zealand
prudential supervision regime requires that registered banks
publish 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 Financial Markets Authority (FMA) and the New Zealand
Commerce Commission (NZCC) are the two primary
conduct and enforcement regulators. The FMA and NZCC
are responsible for ensuring that markets are fair and
transparent and are supported by confident and informed
investors and consumers. Regulation of markets and their
participants is undertaken through a combination of market
supervision, corporate governance and licensing approvals.
In New Zealand, other relevant regulator mandates include
those relating to taxation, privacy and foreign affairs and
trade.
Banks in New Zealand are also subject to a number of self-
regulatory regimes. Examples include NZ Payments, the
New Zealand Bankers’ Association and the Financial
Services Council (FSC). Examples of industry agreed codes
include the New Zealand Bankers’ Association’s Code of
Banking Practice and FSC’s Code of Conduct.
United States
Our New York branch is a US federally licensed branch and
therefore is subject to supervision, examination and
regulation by the US Office of the Comptroller of the
Currency and the Board of Governors of the Federal
Reserve System (the US Federal Reserve) under the US
International Banking Act of 1978 (IBA) and related
regulations.
A US federal branch must maintain, with a US Federal
Reserve member bank, a capital equivalency deposit as
prescribed by the US Comptroller of the Currency, which is
at least equal to 5% of its total liabilities (including
acceptances, but excluding accrued expenses, and amounts
due and other liabilities to other branches, agencies and
subsidiaries of the foreign bank).
In addition, a US federal branch is subject to periodic onsite
examination by the US Comptroller of the Currency. Such
examination may address risk management, operations,
asset quality, compliance with the record-keeping and
reporting, and any additional requirements prescribed by the
US Comptroller of the Currency from time to time.
A US federal branch of a foreign bank is, by virtue of the
IBA, subject to the receivership powers exercisable by the
US Comptroller of the Currency.
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, the US Commodity Futures Trading
Commission and the National Futures Association.
Anti-money laundering regulation and
related requirements
Australia
Westpac has a Group-wide program to manage its
obligations under the Anti-Money Laundering and Counter-
Terrorism Financing Act 2006 (Cth). We continue to actively
engage with the regulator, AUSTRAC, on our activities.
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
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.
30
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31
Directors’ report
Our Directors present their report together with the financial statements of the Group for the financial year ended
30 September 2018.
1. Directors
The names of the persons who have been Directors, or appointed as Directors, during the period since 1 October 2017 and up
to the date of this report are: Lindsay Philip Maxsted, Brian Charles Hartzer, Nerida Frances Caesar, Ewen Graham Wolseley
Crouch, Catriona Alison Deans (Alison Deans), Craig William Dunn, Robert George Elstone (retired as a Director on
8 December 2017), Yuen Mei Anita Fung (Anita Fung) (Director from 1 October 2018), Peter John Oswin Hawkins, Peter Ralph
Marriott and Peter Stanley Nash (Director from 7 March 2018).
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 2018 and the period for which each directorship has been held, are set out below.
Name: Lindsay Maxsted,
DipBus (Gordon), FCA, FAICD
Age: 64
Term of office: Director since
March 2008 and Chairman since
December 2011.
Date of next scheduled
re-election: December 2020.
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).
Name: Brian Hartzer,
BA, CFA
Age: 51
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 Banking
Association Incorporated.
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
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.
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.
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.
Name: Nerida Caesar,
BCom, MBA, GAICD
Age: 54
Term of office: Director since
September 2017.
Date of next scheduled
re-election: December 2020.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Skills, experience and
expertise: Nerida has 32 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. She is also a
former director of Genome.One
Pty Ltd and Stone and Chalk
Other principal directorships:
Limited.
Prior to joining Veda, Nerida was
Other interests: Member of the
Advisory Board of IXUP Limited
formerly Group Managing
Director, Telstra Enterprise and
and the Federal Government’s
Government. She also worked
FinTech Advisory Group.
as Group Managing Director,
Advisor to Equifax Australia and
Telstra Wholesale, and prior to
New Zealand.
Other Westpac related entities
directorships and dates of
Sales.
office: Nil.
that held the position of
Executive Director National
Nil.
Nil.
Directors’ report
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
Committee of the Law Council of
Mission Australia from 1995 and
Australia and ASIC’s Director
as Chairman from 2009, before
Age: 62
Term of office: Director since
February 2013.
Date of next scheduled
Advisory Panel.
Other Westpac related entities
directorships and dates of
office: Nil.
re-election: December 2019.
Skills, experience and
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, Corporations
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
Consultant to Allens. Ewen
served as a director of
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
years and dates of office: Nil.
Managing Partner. He is now a
entities over the past three
32
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
33
Our Directors present their report together with the financial statements of the Group for the financial year ended
Directors’ report
30 September 2018.
1. Directors
The names of the persons who have been Directors, or appointed as Directors, during the period since 1 October 2017 and up
to the date of this report are: Lindsay Philip Maxsted, Brian Charles Hartzer, Nerida Frances Caesar, Ewen Graham Wolseley
Crouch, Catriona Alison Deans (Alison Deans), Craig William Dunn, Robert George Elstone (retired as a Director on
8 December 2017), Yuen Mei Anita Fung (Anita Fung) (Director from 1 October 2018), Peter John Oswin Hawkins, Peter Ralph
Marriott and Peter Stanley Nash (Director from 7 March 2018).
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 2018 and the period for which each directorship has been held, are set out below.
Name: Lindsay Maxsted,
Other principal directorships:
Linter Textiles (companies
DipBus (Gordon), FCA, FAICD
Managing Director of Align Capital
associated with Abraham
Age: 64
Term of office: Director since
March 2008 and Chairman since
December 2011.
Pty Ltd and Director of Baker
Heart and Diabetes Institute.
Other interests: Nil.
Other Westpac related entities
directorships and dates of
Goldberg), Bell Publishing Group,
Bond Brewing, McEwans
Hardware and Brashs. He is also
a former Director and Chairman
of the Victorian Public Transport
Corporation.
Date of next scheduled
re-election: December 2020.
office: Nil.
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).
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
Name: Brian Hartzer,
Other interests: Nil.
BA, CFA
Age: 51
Term of office: Managing
Director & Chief Executive
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
Officer since February 2015.
expertise: Brian was appointed
Date of next scheduled
re-election: Not applicable.
Independent: No.
Managing Director & Chief
Executive Officer in
February 2015. Brian joined
Westpac as Chief Executive,
Current directorships of listed
Australian Financial Services in
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 Banking
Association Incorporated.
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.
Westpac Board Committee
membership: Chairman of the
Board Nominations Committee.
Member of each of the Board
Audit and Board Risk &
Compliance Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Prior to that, he spent ten years
with Australia and New Zealand
Banking Group Limited (ANZ) in
Australia in a variety of roles,
including his final role as CEO,
Australia and Global Segment
Lead for Retail and Wealth.
Before joining ANZ, Brian spent
ten years as a financial services
consultant in New York, San
Francisco and Melbourne.
Westpac Board Committee
membership: Member of the
Board Technology Committee.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Name: Nerida Caesar,
BCom, MBA, GAICD
Age: 54
Term of office: Director since
September 2017.
Date of next scheduled
re-election: December 2020.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Nil.
Other principal directorships:
Nil.
Other interests: Member of the
Advisory Board of IXUP Limited
and the Federal Government’s
FinTech Advisory Group.
Advisor to Equifax Australia and
New Zealand.
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Nerida has 32 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. She is also a
former director of Genome.One
Pty Ltd and Stone and Chalk
Limited.
Prior to joining Veda, Nerida was
formerly Group Managing
Director, Telstra Enterprise and
Government. She also worked
as Group Managing Director,
Telstra Wholesale, and prior to
that held the position of
Executive Director National
Sales.
1
Directors’ report
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: 62
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, Corporations
Committee of the Law Council of
Australia and ASIC’s Director
Advisory Panel.
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.
32
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
33
Directors’ report
Name: Alison Deans,
BA, MBA, GAICD
Age: 50
Term of office: Director since
April 2014.
Date of next scheduled
re-election: December 2020.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Cochlear Limited (since
January 2015).
Other principal directorships:
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, CEO of netus Pty Ltd
and CEO of eBay, Australia and
New Zealand.
Alison was an Independent
Director of Social Ventures
Australia from September 2007
to April 2013 and a director of
kikki.K Holdings Pty Ltd from
October 2014 to June 2018.
Westpac Board Committee
membership: Chairman of the
Board Technology Committee.
Member of each of the Board
Nominations, Board
Remuneration and Board Risk
& Compliance 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: 55
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:
Chairman of The Australian
Ballet and Chairman of Stone
and Chalk Limited (retires
27 November 2018).
Other interests: Chairman of
the International Standards
Technical Committee on
Blockchain and Distributed
Ledger Technologies (ISO/TC
307) and Co-Chair of the
Australian Government’s Fintech
Advisory Group.
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 director
of Financial Literacy Australia
Limited, a Board member of
each 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.
Directors’ report
Name: Anita Fung,
BSocSc, MAppFin
Age: 57
Term of office: Director since
October 2018.
Date of next scheduled
re-election: December 2018.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Hong Kong Exchanges and
Clearing Limited (since April
2015, Hong Kong listed), China
Construction Bank Corporation
(since October 2016, Hong Kong
Listed) and Hang Lung
Properties Limited (since May
2015, Hong Kong listed).
Other principal directorships:
During her time at HSBC, Anita
Board member of the Airport
held a number of senior
Authority Hong Kong.
Other interests: Member of the
Hong Kong Museum Advisory
Committee.
Other Westpac related entities
directorships and dates of
office: Member of Westpac’s
Asia Advisory Board since
October 2018.
Skills, experience and
expertise: Anita’s career in the
banking industry spans over 30
years, including 19 years at
HSBC.
management roles including
Group General Manager, HSBC
Group and most recently as Chief
Executive Officer, Hong Kong
from 2011 to 2015.
Prior to joining HSBC, Anita held
various positions at Standard
Chartered Bank in its Treasury
and Capital markets business.
Westpac Board Committee
membership: Member of the
Board Risk & Compliance
Committee.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Name: Peter Hawkins,
Other Westpac related entities
He was also previously a Director
BCA (Hons.), SF Fin, ACA (NZ),
directorships and dates of
of BHP (NZ) Steel Limited,
office: Member of the Bank of
ING Australia Limited, Esanda
Melbourne Advisory Board since
Finance Corporation, Visa Inc
November 2010.
and Clayton Utz.
Skills, experience and
Westpac Board Committee
expertise: Peter’s career in the
membership: Member of each of
banking and financial services
the Board Audit, Board Risk &
industry spans over 40 years in
Compliance and Board
Australia and overseas at both
Technology Committees.
the highest levels of
management and directorship of
held various senior management
and directorship positions with
Australia and New Zealand
Banking Group Limited from
1971 to 2005.
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).
Current directorships of listed
major organisations. Peter has
FAICD
Age: 64
Term of office: Director since
December 2008.
Date of next scheduled
re-election: Not applicable.
Peter Hawkins will retire
following the 2018 AGM.
Independent: Yes.
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: 61
Term of office: Director since
June 2013.
Date of next scheduled
re-election: December 2019.
Independent: Yes.
Other interests: Member of the
Prior to his career at ANZ, Peter
Review Panel & Policy Council
was a banking and finance, audit
of the Banking & Finance Oath.
and consulting partner at KPMG
Other Westpac related entities
directorships and dates of
office: Nil.
Skills, experience and
expertise: Peter has over
30 years’ experience in senior
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.
Current directorships of listed
management roles in the finance
entities and dates of office:
industry encompassing
ASX Limited (since July 2009).
international banking, finance
Other principal directorships:
ASX Clearing Corporation
Limited, ASX Settlement
Corporation Limited and
Austraclear Limited.
and auditing. Peter joined
Australia and New Zealand
Banking Group Limited (ANZ) in
Directorships of other listed
1993 and held the role of Chief
entities over the past three
Financial Officer from July 1997
years and dates of office: Nil.
to May 2012.
34
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35
Directors’ report
Name: Alison Deans,
BA, MBA, GAICD
Age: 50
April 2014.
Term of office: Director since
Date of next scheduled
re-election: December 2020.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Cochlear Limited (since
January 2015).
Other principal directorships:
SCEGGS Darlinghurst Limited.
Other interests: Senior Advisor,
McKinsey & Company and
Investment Committee member
Alison was an Independent
of the CSIRO Innovation Fund
Director of Social Ventures
(Main Sequence Ventures).
Australia from September 2007
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, CEO of netus Pty Ltd
and CEO of eBay, Australia and
New Zealand.
to April 2013 and a director of
kikki.K Holdings Pty Ltd from
October 2014 to June 2018.
Westpac Board Committee
membership: Chairman of the
Board Technology Committee.
Member of each of the Board
Nominations, Board
Remuneration and Board Risk
& Compliance 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: 55
Term of office: Director since
June 2015.
Date of next scheduled
Member of the ASIC External
former Chairman of the
Advisory Panel, and the New
Investment and Financial
South Wales Government’s
Quantum Computing Fund
Services Association (now the
Financial Services Council). He
Advisory Panel. Board member
was also a member of the
of Jobs for New South Wales
Financial Services Advisory
and Consultant to King & Wood
Committee, the Australian
re-election: December 2018.
Mallesons.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Telstra Corporation Limited
(since April 2016).
Other principal directorships:
Chairman of The Australian
Ballet and Chairman of Stone
and Chalk Limited (retires
27 November 2018).
Other interests: Chairman of
the International Standards
Technical Committee on
Blockchain and Distributed
Ledger Technologies (ISO/TC
307) and Co-Chair of the
Australian Government’s Fintech
Advisory Group.
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 director
of Financial Literacy Australia
Limited, a Board member of
each of the Australian Japanese
Business Cooperation
Committee and the New South
Wales Government’s Financial
Services Knowledge Hub, and
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.
Name: Anita Fung,
BSocSc, MAppFin
Age: 57
Term of office: Director since
October 2018.
Date of next scheduled
re-election: December 2018.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Hong Kong Exchanges and
Clearing Limited (since April
2015, Hong Kong listed), China
Construction Bank Corporation
(since October 2016, Hong Kong
Listed) and Hang Lung
Properties Limited (since May
2015, Hong Kong listed).
Name: Peter Hawkins,
BCA (Hons.), SF Fin, ACA (NZ),
FAICD
Age: 64
Term of office: Director since
December 2008.
Date of next scheduled
re-election: Not applicable.
Peter Hawkins will retire
following the 2018 AGM.
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: 61
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 principal directorships:
Board member of the Airport
Authority Hong Kong.
Other interests: Member of the
Hong Kong Museum Advisory
Committee.
Other Westpac related entities
directorships and dates of
office: Member of Westpac’s
Asia Advisory Board since
October 2018.
Skills, experience and
expertise: Anita’s career in the
banking industry spans over 30
years, including 19 years at
HSBC.
1
Directors’ report
During her time at HSBC, Anita
held a number of senior
management roles including
Group General Manager, HSBC
Group and most recently as Chief
Executive Officer, Hong Kong
from 2011 to 2015.
Prior to joining HSBC, Anita held
various positions at Standard
Chartered Bank in its Treasury
and Capital markets business.
Westpac Board Committee
membership: Member of the
Board Risk & Compliance
Committee.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
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.
Westpac Board Committee
membership: Member of each of
the Board Audit, Board Risk &
Compliance and Board
Technology 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).
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 at ANZ, Peter
was a banking and finance, audit
and consulting partner at KPMG
Peat Marwick. Peter was formerly
a Director of ANZ National Bank
Limited in New Zealand and
various ANZ subsidiaries.
Westpac Board Committee
membership: Chairman of the
Board Audit Committee. Member
of each of the Board
Nominations, Board Risk &
Compliance and Board
Technology Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
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35
Directors’ report
Other Westpac related entities
directorships and dates of
office: Nil
Skills, experience and
expertise: Peter was formerly a
Senior Partner with KPMG until
September 2017, having been
admitted to the partnership of
KPMG Australia in 1993. He
most recently served as the
National Chairman of KPMG
Australia from 2011 until August
2017, where he was responsible
for the overall governance and
strategic positioning of KPMG in
Australia. In this role, Peter also
served as a member of KPMG’s
Global and Regional Boards.
Peter has experience providing
advice on a range of topics
including business strategy, risk
management, internal controls,
business processes and
regulatory change. He has also
provided both financial and
commercial advice to many
Government businesses at both
a Federal and State level. Peter
is a former member of the
Business Council of Australia and
its Economic and Regulatory
Committee.
Westpac Board Committee
membership: 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: Peter Nash
BCom, FCA, F Fin
Age: 56
Term of office: Director since
March 2018.
Date of next scheduled
re-election: December 2018.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Johns Lyng Group Limited
(Chairman since October 2017).
Johns Lyng Group Limited
became a listed entity in
October 2017.
Other principal directorships:
Reconciliation Australia Limited
and Golf Victoria Limited.
Other interests: Board member
of the Koorie Heritage Trust and
Migration Council Australia.
Member of the University of
Melbourne Centre for
Contemporary Chinese Studies
Advisory Board.
Directors’ report
Company Secretary
Our Company Secretaries as at 30 September 2018 were Rebecca Lim and Tim Hartin.
Rebecca Lim (B Econ, LLB (Hons.)) was appointed Group Executive, Compliance, Legal & Secretariat1 and Company
Secretary in October 2016. 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 before returning to Australia and joining Westpac. 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 2018 our Executive Team was:
Name
Position
Brian Hartzer
Managing Director & Chief Executive Officer
Chief Executive, Westpac Institutional Bank
Chief Executive Officer, BT Financial Group
Chief Information Officer
George Frazis
Chief Executive, Consumer Bank
Acting Chief Risk Officer3,4
Acting Chief Financial Officer
Lyn Cobley
Brad Cooper
Dave Curran
Peter King2
David Lees5
Rebecca Lim
Group Executive, Compliance, Legal & Secretariat
David Lindberg
Chief Executive, Business Bank
Carolyn McCann
Group Executive, Customer & Corporate Relations
David McLean
Chief Executive Officer, Westpac New Zealand Limited
Christine Parker
Group Executive, Human Resources
Gary Thursby
Group Executive, Strategy & Enterprise Services
Year Joined
Year Appointed
Group
to Position
2012
2015
2007
2014
2009
1994
1997
2002
2012
2013
1999
2007
2008
2015
2015
2010
2014
2015
2014
2018
2016
2015
2018
2015
2011
2016
There are no family relationships between or among any of our Directors or Executive Team members.
36
2018 Westpac Group Annual Report
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37
1 From 1 October 2018, Rebecca Lim’s role and title is Group Executive, Legal & Secretariat.
2 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed Acting Chief Risk Officer. From 1 October 2018, Peter returned
to the role of Chief Financial Officer.
3 Alexandra Holcomb was Chief Risk Officer until her retirement from the role effective from 25 June 2018.
4 David Stephen commenced as Chief Risk Officer effective from 1 October 2018, with responsibility for risk and compliance.
5 David Lees was appointed Acting Chief Financial Officer effective from 25 June 2018. From 1 October 2018, David ceased to be a member of the
Executive Team and returned to the role of Deputy Chief Financial Officer.
Directors’ report
Other Westpac related entities
Peter has experience providing
directorships and dates of
advice on a range of topics
office: Nil
Skills, experience and
expertise: Peter was formerly a
Senior Partner with KPMG until
September 2017, having been
admitted to the partnership of
KPMG Australia in 1993. He
most recently served as the
National Chairman of KPMG
Australia from 2011 until August
2017, where he was responsible
for the overall governance and
including business strategy, risk
management, internal controls,
business processes and
regulatory change. He has also
provided both financial and
commercial advice to many
Government businesses at both
a Federal and State level. Peter
is a former member of the
Business Council of Australia and
its Economic and Regulatory
Committee.
strategic positioning of KPMG in
Westpac Board Committee
Australia. In this role, Peter also
membership: Member of each of
served as a member of KPMG’s
the Board Audit and Board Risk
Global and Regional Boards.
& Compliance Committees.
Directorships of other listed
entities over the past three
years and dates of office: Nil.
Name: Peter Nash
BCom, FCA, F Fin
Age: 56
Term of office: Director since
March 2018.
Date of next scheduled
re-election: December 2018.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Johns Lyng Group Limited
(Chairman since October 2017).
Johns Lyng Group Limited
became a listed entity in
October 2017.
Other principal directorships:
Reconciliation Australia Limited
and Golf Victoria Limited.
Other interests: Board member
of the Koorie Heritage Trust and
Migration Council Australia.
Member of the University of
Melbourne Centre for
Contemporary Chinese Studies
Advisory Board.
Directors’ report
Company Secretary
Our Company Secretaries as at 30 September 2018 were Rebecca Lim and Tim Hartin.
Rebecca Lim (B Econ, LLB (Hons.)) was appointed Group Executive, Compliance, Legal & Secretariat1 and Company
Secretary in October 2016. 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 before returning to Australia and joining Westpac. 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.
1
Tim Hartin (LLB (Hons.)) was appointed Group Company Secretary in November 2011. Before that appointment, Tim was
Head of Legal - Risk Management & Workouts, Counsel & Secretariat and prior to that, he was Counsel, Corporate Core.
Before joining Westpac in 2006, Tim was a Consultant with Gilbert + Tobin, where he provided corporate advisory services to
ASX listed companies. Tim was previously a lawyer at Henderson Boyd Jackson W.S. in Scotland and in London in Herbert
Smith’s corporate and corporate finance division.
2. Executive Team
As at 30 September 2018 our Executive Team was:
Name
Position
Brian Hartzer
Lyn Cobley
Brad Cooper
Dave Curran
George Frazis
Peter King2
David Lees5
Rebecca Lim
David Lindberg
Carolyn McCann
David McLean
Christine Parker
Gary Thursby
Managing Director & Chief Executive Officer
Chief Executive, Westpac Institutional Bank
Chief Executive Officer, BT Financial Group
Chief Information Officer
Chief Executive, Consumer Bank
Acting Chief Risk Officer3,4
Acting Chief Financial Officer
Group Executive, Compliance, Legal & Secretariat
Chief Executive, Business Bank
Group Executive, Customer & Corporate Relations
Chief Executive Officer, Westpac New Zealand Limited
Group Executive, Human Resources
Group Executive, Strategy & Enterprise Services
Year Joined
Group
Year Appointed
to Position
2012
2015
2007
2014
2009
1994
1997
2002
2012
2013
1999
2007
2008
2015
2015
2010
2014
2015
2014
2018
2016
2015
2018
2015
2011
2016
There are no family relationships between or among any of our Directors or Executive Team members.
36
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
37
1 From 1 October 2018, Rebecca Lim’s role and title is Group Executive, Legal & Secretariat.
2 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed Acting Chief Risk Officer. From 1 October 2018, Peter returned
to the role of Chief Financial Officer.
3 Alexandra Holcomb was Chief Risk Officer until her retirement from the role effective from 25 June 2018.
4 David Stephen commenced as Chief Risk Officer effective from 1 October 2018, with responsibility for risk and compliance.
5 David Lees was appointed Acting Chief Financial Officer effective from 25 June 2018. From 1 October 2018, David ceased to be a member of the
Executive Team and returned to the role of Deputy Chief Financial Officer.
Directors’ report
Brian Hartzer BA, CFA. Age 51
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 Banking 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 55
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 is responsible for 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
also held senior roles at Barclays Capital in Australia and Citibank in Australia and Asia Pacific, 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 56
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 53
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.
Directors’ report
George Frazis B Eng (Hons.), MBA (AGSM/Wharton). Age 54
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
George is a Governor of the St.George Foundation and is Chair of the Prime Minister’s Industry Advisory
Royal Australian Air Force.
Committee on Veterans’ Employment.
Peter King BEc, FCA. Age 48
Acting Chief Risk Officer
Peter acted as the Chief Risk Officer from June 2018 to September 2018. Westpac’s Chief Risk Officer is
responsible for key risk management activities across the enterprise. Prior to this appointment, Peter
was Chief Financial Officer from April 2014 to June 2018. He has returned to this role in October 2018.
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.
David Lees BCom, LLB. Age 48
Acting Chief Financial Officer
David acted as the Chief Financial Officer from June 2018 to September 2018. Westpac’s Chief
Financial Officer is responsible for Westpac’s Finance, Group Audit, Tax, Treasury and Investor
Relations functions. Prior to this appointment, David was Deputy Chief Financial Officer from
January 2016 to June 2018. He has returned to this role in October 2018.
Since joining Westpac in 1997, David has held other senior roles across the Westpac Group, including
General Manager, BT Solutions, where he was responsible for BT Financial Group’s insurance and asset
management businesses.
David holds a Bachelor of Commerce and Bachelor of Laws from Durban University.
Rebecca Lim B Econ, LLB (Hons). Age 46
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.
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39
Directors’ report
Brian Hartzer BA, CFA. Age 51
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 Banking 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 55
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 is responsible for 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
also held senior roles at Barclays Capital in Australia and Citibank in Australia and Asia Pacific, 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 56
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 53
Chief Information Officer
projects.
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
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.
Directors’ report
George Frazis B Eng (Hons.), MBA (AGSM/Wharton). Age 54
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.
1
Peter King BEc, FCA. Age 48
Acting Chief Risk Officer
Peter acted as the Chief Risk Officer from June 2018 to September 2018. Westpac’s Chief Risk Officer is
responsible for key risk management activities across the enterprise. Prior to this appointment, Peter
was Chief Financial Officer from April 2014 to June 2018. He has returned to this role in October 2018.
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.
David Lees BCom, LLB. Age 48
Acting Chief Financial Officer
David acted as the Chief Financial Officer from June 2018 to September 2018. Westpac’s Chief
Financial Officer is responsible for Westpac’s Finance, Group Audit, Tax, Treasury and Investor
Relations functions. Prior to this appointment, David was Deputy Chief Financial Officer from
January 2016 to June 2018. He has returned to this role in October 2018.
Since joining Westpac in 1997, David has held other senior roles across the Westpac Group, including
General Manager, BT Solutions, where he was responsible for BT Financial Group’s insurance and asset
management businesses.
David holds a Bachelor of Commerce and Bachelor of Laws from Durban University.
Rebecca Lim B Econ, LLB (Hons). Age 46
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.
38
2018 Westpac Group Annual Report
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39
Directors’ report
David Lindberg HBA (Hons. Economics). Age 43
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.
Carolyn McCann BBus (Com), BA, GradDipAppFin, GAICD. Age 46
Group Executive, Customer & Corporate Relations
Carolyn was appointed as Westpac’s Group Executive responsible for customer and corporate relations
in June 2018. Carolyn is responsible for the management of the Group’s customer resolution and
reporting, in addition to the corporate affairs, communications, government relations and sustainability
functions, recognising the importance of setting high service standards and quickly resolving customer
issues in managing the Group’s relationship with its customers.
Carolyn joined the Westpac Group in 2013, as General Manager, Corporate Affairs & Sustainability,
during which time she played an instrumental role in leading the Group’s bicentenary program, including
the launch of the $100 million Westpac Bicentennial Foundation.
Prior to joining Westpac, Carolyn spent 13 years at Insurance Australia Group in various positions,
including Group General Manager, Corporate Affairs & Investor Relations. Carolyn began her career in
consulting and has extensive experience in financial services.
David McLean LLB (Hons.). Age 60
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.
Directors’ report
Gary Thursby BEc, DipAcc, FCA. Age 56
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 support 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, data and analytics, group
strategy and enterprise investments. In addition, Gary oversees the Group’s corporate 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.
Before joining Westpac, David was Director, Capital Markets at Deutsche Morgan Grenfell from 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.
house counsel for NatWest NZ from
‐
Christine Parker BGDipBus (HRM). Age 58
Group Executive, Human Resources
Christine was appointed to Westpac Group’s Executive Team in October 2011. As Group Executive,
Human Resources, Christine leads the HR function and is responsible for key HR activities across the
Group, including attracting and retaining staff, training and development, reward and recognition and
health, safety and wellbeing. Christine also oversees the Group’s Customer Advocate function and
supports the CEO and Board on culture and conduct. Prior to June 2018, Christine also had
responsibility for Corporate Affairs and Sustainability.
Since joining Westpac in 2007, Christine has held a variety of senior leadership roles including Group
General Manager, Human Resources and General Manager, Human Resources for Westpac New
Zealand Limited. Before joining Westpac, Christine held senior HR roles in a number of high profile
organisations and across a range of industries, including Carter Holt Harvey and Restaurant Brands New
Zealand.
Christine was previously a Director of Women’s Community Shelters and is a current member of the
Chief Executive Women, Governor of the St.George Foundation and member of the Veterans’
Employment Industry Advisory Committee.
40
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Directors’ report
Gary Thursby BEc, DipAcc, FCA. Age 56
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 support 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, data and analytics, group
strategy and enterprise investments. In addition, Gary oversees the Group’s corporate 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.
1
Directors’ report
David Lindberg HBA (Hons. Economics). Age 43
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.
Carolyn McCann BBus (Com), BA, GradDipAppFin, GAICD. Age 46
Group Executive, Customer & Corporate Relations
Carolyn was appointed as Westpac’s Group Executive responsible for customer and corporate relations
in June 2018. Carolyn is responsible for the management of the Group’s customer resolution and
reporting, in addition to the corporate affairs, communications, government relations and sustainability
functions, recognising the importance of setting high service standards and quickly resolving customer
issues in managing the Group’s relationship with its customers.
Carolyn joined the Westpac Group in 2013, as General Manager, Corporate Affairs & Sustainability,
during which time she played an instrumental role in leading the Group’s bicentenary program, including
the launch of the $100 million Westpac Bicentennial Foundation.
Prior to joining Westpac, Carolyn spent 13 years at Insurance Australia Group in various positions,
including Group General Manager, Corporate Affairs & Investor Relations. Carolyn began her career in
consulting and has extensive experience in financial services.
David McLean LLB (Hons.). Age 60
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.
1985.
Before joining Westpac, David was Director, Capital Markets at Deutsche Morgan Grenfell from 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
house counsel for NatWest NZ from
Christine Parker BGDipBus (HRM). Age 58
Group Executive, Human Resources
‐
Christine was appointed to Westpac Group’s Executive Team in October 2011. As Group Executive,
Human Resources, Christine leads the HR function and is responsible for key HR activities across the
Group, including attracting and retaining staff, training and development, reward and recognition and
health, safety and wellbeing. Christine also oversees the Group’s Customer Advocate function and
supports the CEO and Board on culture and conduct. Prior to June 2018, Christine also had
responsibility for Corporate Affairs and Sustainability.
Since joining Westpac in 2007, Christine has held a variety of senior leadership roles including Group
General Manager, Human Resources and General Manager, Human Resources for Westpac New
Zealand Limited. Before joining Westpac, Christine held senior HR roles in a number of high profile
organisations and across a range of industries, including Carter Holt Harvey and Restaurant Brands New
Zealand.
Christine was previously a Director of Women’s Community Shelters and is a current member of the
Chief Executive Women, Governor of the St.George Foundation and member of the Veterans’
Employment Industry Advisory Committee.
40
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
41
Directors’ report
ongoing regulatory changes and developments, which have included changes relating to competition, capital, financial
services (including the provision of additional powers to regulators), taxation, accounting standards, 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.
e)
Business strategies, developments and expected results
Our business strategies, prospects and likely major developments in the Group’s operations in future financial years and the
expected results of those operations are discussed in Section 1 of the Annual Report under ‘Information on Westpac’, including
under ‘Outlook’ and ‘Significant developments’.
Further information on our business strategies and prospects for future financial years and likely developments in our
operations and the expected results of operations have not been included in this report because the Directors believe it would
be likely to result in unreasonable prejudice to us.
4. Directors’ interests
a)
Directors’ interests in securities
The following particulars for each Director are set out in the Remuneration Report in Section 10 of the Directors’ report for the
year ended 30 September 2018 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
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.
any contracts:
–
–
Directors’ report
3. Report on the business
Principal activities
a)
The principal activities of the Group during the financial year ended 30 September 2018 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 2018.
Operating and financial review
b)
The net profit attributable to owners of Westpac Banking Corporation for the year ended 30 September 2018 was $8,095
million, an increase of $105 million or 1% compared to 2017. Key features of this result were:
a 2% increase in net operating income before operating expenses and impairment charges with:
–
–
net interest income of $16,505 million, an increase of $989 million or 6% compared to 2017, with total loan growth of
4% and a 7 basis point increase in net interest margin to 2.13%; and
non-interest income of $5,628 million, a decrease of $658 million or 10% compared to 2017, primarily due to a
decrease in trading income of $257 million, the non-repeat of a large gain of $279 million on disposal of an associate
in 2017 (BTIM), an impairment loss of $104 million on the Pendal (formerly BTIM) investment in 2018, and additional
provisions for estimated customer refunds and payments recorded as negative income. These items were partly offset
by income related to the exit of the Hastings business ($135 million);
operating expenses were $9,692 million, an increase of $258 million or 3% compared to 2017. The rise in operating
expenses included annual salary increases and higher technology expenses related to the Group’s investment program,
an increase in regulatory and compliance costs and costs associated with the exit of the Hastings business. These
increases were partly offset by productivity benefits and lower amortisation of intangibles; and
impairment charges were $710 million, a decrease of $143 million or 17% compared to 2017. Asset quality remained
sound, with stressed exposures as a percentage of total committed exposures at 1.08%, up 3 basis points over the year.
The decrease in impairment charges was primarily due to reduced individual provisions on larger facilities.
A review of the operations of the Group and its divisions and their results for the financial year ended 30 September 2018 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 2018, Westpac has announced a final ordinary dividend of 94 cents per Westpac ordinary share, totalling
approximately $3,229 million for the year ended 30 September 2018 (2017 final ordinary dividend of 94 cents per Westpac
ordinary share, totalling $3,191 million). The dividend will be fully franked and will be paid on 20 December 2018.
An interim ordinary dividend for the current financial year of 94 cents per Westpac ordinary share for the half year ended
31 March 2018, totalling $3,218 million, was paid as a fully franked dividend on 4 July 2018 (2017 interim ordinary dividend of
94 cents per Westpac ordinary share, totalling $3,156 million). The payment comprised direct cash disbursements of
$2,897 million with $321 million being reinvested by participants through the DRP.
Further, in respect of the year ended 30 September 2017, a fully franked final dividend of 94 cents per ordinary share totalling
$3,191 million was paid on 22 December 2017. The payment comprised direct cash disbursements of $2,881 million with
$310 million being reinvested by participants through the DRP.
New shares were issued to satisfy the DRP for each of the 2017 final ordinary dividend and the 2018 interim ordinary dividend.
Significant changes in state of affairs and events during and since the end of the 2018 financial year
d)
Significant changes in the state of affairs of the Group were:
42
increased public scrutiny of financial institutions (including Westpac) and regulators from the Royal Commission into
Misconduct in the Banking, Superannuation and Financial Services Industry, with Westpac participating in the Royal
Commission to date, and in the course of that participation, providing the Royal Commission with documents, witness
statements and submissions;
the issuance of A$1.69 billion AT1 securities, known as Westpac Capital Notes 5, which qualify as Additional Tier 1 capital
under APRA’s capital adequacy framework;
the buy back and cancellation of $623 million of Westpac convertible preference shares and the conversion of $566 million
of Westpac convertible preference shares into ordinary Westpac shares; and
2018 Westpac Group Annual Report
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43
Directors’ report
3. Report on the business
a)
Principal activities
services.
b)
Operating and financial review
The principal activities of the Group during the financial year ended 30 September 2018 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
There have been no significant changes in the nature of the principal activities of the Group during 2018.
The net profit attributable to owners of Westpac Banking Corporation for the year ended 30 September 2018 was $8,095
million, an increase of $105 million or 1% compared to 2017. Key features of this result were:
a 2% increase in net operating income before operating expenses and impairment charges with:
–
–
net interest income of $16,505 million, an increase of $989 million or 6% compared to 2017, with total loan growth of
4% and a 7 basis point increase in net interest margin to 2.13%; and
non-interest income of $5,628 million, a decrease of $658 million or 10% compared to 2017, primarily due to a
decrease in trading income of $257 million, the non-repeat of a large gain of $279 million on disposal of an associate
in 2017 (BTIM), an impairment loss of $104 million on the Pendal (formerly BTIM) investment in 2018, and additional
provisions for estimated customer refunds and payments recorded as negative income. These items were partly offset
by income related to the exit of the Hastings business ($135 million);
operating expenses were $9,692 million, an increase of $258 million or 3% compared to 2017. The rise in operating
expenses included annual salary increases and higher technology expenses related to the Group’s investment program,
an increase in regulatory and compliance costs and costs associated with the exit of the Hastings business. These
increases were partly offset by productivity benefits and lower amortisation of intangibles; and
impairment charges were $710 million, a decrease of $143 million or 17% compared to 2017. Asset quality remained
sound, with stressed exposures as a percentage of total committed exposures at 1.08%, up 3 basis points over the year.
The decrease in impairment charges was primarily due to reduced individual provisions on larger facilities.
Annual Report, which form part of this report.
c)
Dividends
Since 30 September 2018, Westpac has announced a final ordinary dividend of 94 cents per Westpac ordinary share, totalling
approximately $3,229 million for the year ended 30 September 2018 (2017 final ordinary dividend of 94 cents per Westpac
ordinary share, totalling $3,191 million). The dividend will be fully franked and will be paid on 20 December 2018.
An interim ordinary dividend for the current financial year of 94 cents per Westpac ordinary share for the half year ended
31 March 2018, totalling $3,218 million, was paid as a fully franked dividend on 4 July 2018 (2017 interim ordinary dividend of
94 cents per Westpac ordinary share, totalling $3,156 million). The payment comprised direct cash disbursements of
$2,897 million with $321 million being reinvested by participants through the DRP.
Further, in respect of the year ended 30 September 2017, a fully franked final dividend of 94 cents per ordinary share totalling
$3,191 million was paid on 22 December 2017. The payment comprised direct cash disbursements of $2,881 million with
$310 million being reinvested by participants through the DRP.
New shares were issued to satisfy the DRP for each of the 2017 final ordinary dividend and the 2018 interim ordinary dividend.
d)
Significant changes in state of affairs and events during and since the end of the 2018 financial year
Significant changes in the state of affairs of the Group were:
increased public scrutiny of financial institutions (including Westpac) and regulators from the Royal Commission into
Misconduct in the Banking, Superannuation and Financial Services Industry, with Westpac participating in the Royal
Commission to date, and in the course of that participation, providing the Royal Commission with documents, witness
statements and submissions;
the issuance of A$1.69 billion AT1 securities, known as Westpac Capital Notes 5, which qualify as Additional Tier 1 capital
under APRA’s capital adequacy framework;
the buy back and cancellation of $623 million of Westpac convertible preference shares and the conversion of $566 million
of Westpac convertible preference shares into ordinary Westpac shares; and
42
Directors’ report
ongoing regulatory changes and developments, which have included changes relating to competition, capital, financial
services (including the provision of additional powers to regulators), taxation, accounting standards, executive
accountability and other regulatory requirements.
For a discussion of these matters, please refer to ‘Significant developments’ in Section 1 under ‘Information on Westpac’.
1
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 2018 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:
A review of the operations of the Group and its divisions and their results for the financial year ended 30 September 2018 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
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.
2018 Westpac Group Annual Report
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43
Directors’ report
Directors’ report
Directors’ interests in Westpac and related bodies corporate as at 5 November 2018
b)
Indemnities and insurance
Number of Relevant Interests in Westpac
Ordinary Shares
Number of Westpac
Share Rights
Westpac Banking Corporation
Current Directors
Lindsay Maxsted
Brian Hartzer
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Anita Fung
Peter Hawkins
Peter Marriott
Peter Nash
Former Directors
Robert Elstone
22,017
109,611 1
9,985
78,450 3
14,392
8,869
-
15,880 4
20,870
8,020
12,096 5
-
613,341 2
-
-
-
-
-
-
-
-
-
1 Brian Hartzer’s interest in Westpac ordinary shares includes 23,692 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, 882 Westpac Capital Notes 4 and 1,370
Westpac Capital Notes 5.
Figure displayed is as at Robert Elstone’s retirement date of 8 December 2017.
5
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).
this indemnity.
Constitution.
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
Consistent with shareholder approval at the 2000 Annual General Meeting, Westpac has entered into a Deed of Access and
Indemnity with each of the Directors, which includes indemnification in identical terms to that provided in the Westpac
Westpac also executed a deed poll in September 2009 providing indemnification equivalent to that provided under the Westpac
Constitution to individuals acting as:
statutory officers (other than as a director) of Westpac;
directors and other statutory officers of wholly-owned subsidiaries of Westpac; and
directors and statutory officers of other nominated companies as approved by Westpac in accordance with the terms of the
deed poll and Westpac’s Contractual Indemnity Policy.
Some employees of Westpac’s related bodies corporate and responsible managers of Westpac and its related bodies
corporate are also currently covered by a deed poll that was executed in November 2004, which is in similar terms to the
September 2009 deed poll.
The Westpac Constitution also permits us, to the extent permitted by law, to pay or agree to pay premiums for contracts
insuring any person who is or has been a Director or Company Secretary of Westpac or any of its related bodies corporate
against liability incurred by that person in that capacity, including a liability for legal costs, unless:
we are forbidden by statute to pay or agree to pay the premium; or
the contract would, if we paid the premium, be made void by statute.
Under the September 2009 deed poll, Westpac also agrees to provide directors’ and officers’ insurance to Directors of Westpac
and Directors of Westpac’s wholly-owned subsidiaries.
For the year ended 30 September 2018, 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.
c)
Share rights outstanding
As at the date of this report there are 4,632,271 share rights outstanding in relation to Westpac ordinary shares. The latest
dates for exercise of the share rights range between 1 October 2019 and 1 October 2033.
Holders of outstanding share rights in relation to Westpac ordinary shares do not have any rights under the share rights to
participate in any share issue or interest of Westpac or any other body corporate.
d)
Proceedings on behalf of Westpac
section 237 of the Corporations Act.
No application has been made and no proceedings have been brought or intervened in, on behalf of Westpac under
44
2018 Westpac Group Annual Report
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45
Directors’ report
Directors’ interests in Westpac and related bodies corporate as at 5 November 2018
Number of Relevant Interests in Westpac
Ordinary Shares
Number of Westpac
Share Rights
Westpac Banking Corporation
Current Directors
Lindsay Maxsted
Brian Hartzer
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Anita Fung
Peter Hawkins
Peter Marriott
Peter Nash
Former Directors
Robert Elstone
22,017
109,611 1
9,985
78,450 3
14,392
8,869
-
15,880 4
20,870
8,020
12,096 5
613,341 2
-
-
-
-
-
-
-
-
-
-
1 Brian Hartzer’s interest in Westpac ordinary shares includes 23,692 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, 882 Westpac Capital Notes 4 and 1,370
Westpac Capital Notes 5.
5
Figure displayed is as at Robert Elstone’s retirement date of 8 December 2017.
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).
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.
1
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 2018, 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.
Share rights outstanding
c)
As at the date of this report there are 4,632,271 share rights outstanding in relation to Westpac ordinary shares. The latest
dates for exercise of the share rights range between 1 October 2019 and 1 October 2033.
Holders of outstanding share rights in relation to Westpac ordinary shares do not have any rights under the 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.
44
2018 Westpac Group Annual Report
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45
Directors’ report
Directors’ report
5. Environmental disclosure
6. Human rights supply chain disclosure
9. Directors’ meetings
As part of our 2018 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.
Each Director attended the following meetings of the Board and Committees of the Board during the financial year ended
Notes
Board
Audit Committee
Committee
Risk & Compliance
Nominations
Committee
Remuneration
Committee
Technology
Committee
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 2018.
In Australia, political expenditure for the financial year ended
30 September 2018 was $189,195. 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 2018 was NZD$19,150.
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 (#17 in global
banking group), 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.
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.
30 September 2018:
Number of meetings
held during the year
Director
Lindsay Maxsted
Brian Hartzer
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
Peter Marriott
1
2
3
4
5
6
7
8
9
Peter Nash
10
A
10
10
10
10
10
10
2
10
10
7
B
10
10
10
911
10
10
2
10
10
7
A
4
-
-
-
-
-
1
4
4
3
B
4
-
-
-
-
-
1
4
4
3
A
4
-
4
4
4
4
1
4
4
3
B
4
-
4
4
4
4
1
4
4
3
A
4
-
-
4
3
4
-
1
4
-
B
4
-
-
4
3
4
-
1
4
-
A
B
-
-
-
5
4
5
1
-
-
-
-
-
-
5
4
5
1
-
-
-
A
-
4
4
-
4
-
-
4
4
-
B
-
4
4
-
4
-
-
3
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 2017.
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 Member of the Board Risk & Compliance Committee and Board Technology Committee.
4 Chairman of the Board Risk & Compliance Committee. Member of the Board Nominations Committee and the Board Remuneration Committee.
5 Chairman of the Board Technology Committee from 8 December 2017. Member of the Board Technology Committee until 8 December 2017.
Member of the Board Risk & Compliance Committee, and from 8 December 2017, a member of each of Board Nominations Committee and Board
Remuneration Committee.
6 Chairman of the Board Remuneration Committee. Member of the Board Risk & Compliance Committee and the Board Nominations Committee.
7 Robert Elstone retired from the Board and its Committees on 8 December 2017.
8 Chairman of the Board Technology Committee and a member of the Board Nominations Committee until 8 December 2017. Member of the Board
Audit Committee, the Board Risk & Compliance Committee, and from 8 December 2017, a member of the Board Technology Committee.
9 Chairman of the Board Audit Committee. Member of the Board Risk & Compliance Committee, the Board Technology Committee and the Board
Nominations Committee.
10 Peter Nash was appointed as a Director and member of the Board Audit Committee and Board Risk & Compliance Committee on 7 March 2018.
In addition to 8 scheduled Board meetings, there were 2 additional special purpose Board meetings convened during the year. Mr Crouch was
unable to attend one of these special purpose Board meetings and the meeting material was reviewed and discussed with the Chairman, and his
11
views were subsequently conveyed by the Chairman to the other Directors at the meeting.
1 Formerly known as the Carbon Disclosure Project.
46
2018 Westpac Group Annual Report
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47
Directors’ report
Directors’ report
5. Environmental disclosure
6. Human rights supply chain disclosure
9. Directors’ meetings
As part of our 2018 Sustainability Strategy, we have set
Westpac’s overall approach to human rights is set out in our
targets for our environmental performance. The Westpac
Westpac Group Human Rights Position Statement, and this
Group’s environmental framework starts with ‘Our Principles
references our Responsible Sourcing Code of Conduct as
for Doing Business’, which outline our broad environmental
the primary framework for managing human rights in our
principles. This framework includes:
supply chain.
our Westpac Group Environment Policy, which has
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 2018.
In Australia, political expenditure for the financial year ended
30 September 2018 was $189,195. 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 2018 was NZD$19,150.
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 (#17 in global
banking group), 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.
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.
Each Director attended the following meetings of the Board and Committees of the Board during the financial year ended
30 September 2018:
1
Notes
Board
Audit Committee
Risk & Compliance
Committee
Nominations
Committee
Remuneration
Committee
Technology
Committee
Number of meetings
held during the year
Director
Lindsay Maxsted
Brian Hartzer
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Robert Elstone
Peter Hawkins
Peter Marriott
1
2
3
4
5
6
7
8
9
Peter Nash
10
A
10
10
10
10
10
10
2
10
10
7
B
10
10
10
911
10
10
2
10
10
7
A
4
-
-
-
-
-
1
4
4
3
B
4
-
-
-
-
-
1
4
4
3
A
4
-
4
4
4
4
1
4
4
3
B
4
-
4
4
4
4
1
4
4
3
A
4
-
-
4
3
4
-
1
4
-
B
4
-
-
4
3
4
-
1
4
-
A
B
-
-
-
5
4
5
1
-
-
-
-
-
-
5
4
5
1
-
-
-
A
-
4
4
-
4
-
-
4
4
-
B
-
4
4
-
4
-
-
3
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 2017.
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 Member of the Board Risk & Compliance Committee and Board Technology Committee.
4 Chairman of the Board Risk & Compliance Committee. Member of the Board Nominations Committee and the Board Remuneration Committee.
5 Chairman of the Board Technology Committee from 8 December 2017. Member of the Board Technology Committee until 8 December 2017.
Member of the Board Risk & Compliance Committee, and from 8 December 2017, a member of each of Board Nominations Committee and Board
Remuneration Committee.
6 Chairman of the Board Remuneration Committee. Member of the Board Risk & Compliance Committee and the Board Nominations Committee.
7 Robert Elstone retired from the Board and its Committees on 8 December 2017.
8 Chairman of the Board Technology Committee and a member of the Board Nominations Committee until 8 December 2017. Member of the Board
Audit Committee, the Board Risk & Compliance Committee, and from 8 December 2017, a member of the Board Technology Committee.
9 Chairman of the Board Audit Committee. Member of the Board Risk & Compliance Committee, the Board Technology Committee and the Board
Nominations Committee.
10 Peter Nash was appointed as a Director and member of the Board Audit Committee and Board Risk & Compliance Committee on 7 March 2018.
11
In addition to 8 scheduled Board meetings, there were 2 additional special purpose Board meetings convened during the year. Mr Crouch was
unable to attend one of these special purpose Board meetings and the meeting material was reviewed and discussed with the Chairman, and his
views were subsequently conveyed by the Chairman to the other Directors at the meeting.
1 Formerly known as the Carbon Disclosure Project.
46
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
47
Directors’ report
10. Remuneration Report
Introduction from the Chairman of the Board Remuneration Committee
Dear shareholders
On behalf of the Board I am pleased to present Westpac’s 2018 remuneration report.
I outline below the context behind the key remuneration decisions made by the Board and the Board Remuneration Committee this
year. In addition, I summarise the key enhancements we have made to strengthen our remuneration policy and practices to support
appropriate outcomes for our shareholders, customers, employees and the communities we serve.
Overview of performance outcomes
2018 has been a challenging year for Westpac from a financial performance perspective. In addition, the Royal Commission into
Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) has highlighted that financial services
organisations, including Westpac, need to do more to meet the needs of customers and the community.
Key financial outcomes for 2018 can be summarised as follows:
Cash earnings were flat due to slower loan and deposit growth, the full period impact of the bank levy and an increase in
provisions for customer refunds and payments;
The Group’s balance sheet was further strengthened. In particular, our capital ratios exceeded the Australian Prudential
Regulation Authority’s (APRA’s) ‘unquestionably strong’ benchmark, liquidity ratios are higher and the funding mix has continued
to improve;
Return on equity (ROE) declined to 13% due to higher capital levels combined with flat cash earnings. This is at the lower end of
the range the Group is seeking to achieve; and
Earnings per share (EPS) of 232.6 cents was down 1% on the prior year.
Strategically, we have made good progress in modernising our platforms and digitising the company resulting in productivity gains and
improvements to the customer experience. Customer satisfaction, as measured by net promoter scores, showed relative improvement
though the year. In addition, a range of initiatives were deployed to strengthen our culture and enhance the agility and capability of our
workforce.
In terms of the Royal Commission, the misconduct issues that have been examined are confronting for Westpac and the industry, and
have raised a number of important considerations for the industry, regulators and policy makers. The Chairman and CEO both discuss
the Royal Commission in their respective letters in this Annual Report.
The Board recognises that Westpac needs to continue to improve the way it prevents, detects and addresses misconduct. The Royal
Commission has highlighted examples of areas where our actions have given rise to poor outcomes for some of our customers. This
has contributed to a loss of trust and reputational damage to Westpac and the industry. The Board also recognises that the value of
your shares has declined over the year as a result of a range of factors.
Variable reward adjustments and outcomes
Variable reward outcomes reflect appropriate executive accountability for both performance and the matters discussed above.
2015 Long Term Variable Reward (LTVR): The performance hurdles for both the CEO and Group Executive 2015 LTVR plans were
not met and, as a result, the awards were forfeited in full for the third consecutive year.
2018 Short Term Variable Reward (STVR): 2018 STVR outcomes for the CEO and Group Executives in Australia were on average
25% lower than 2017 with the largest individual year on year reduction being 50%. These outcomes include the application of
discretion as follows:
The assessment of performance against the 2018 scorecard for the CEO and Group Executives in Australia included discretionary
downward adjustments for customer and service related areas of the scorecard of up to 25%.
Targeted downwards adjustments were applied to three Group Executives to reflect a range of matters relevant to the business
for which they are responsible, including risk and remediation issues and, where relevant, business performance not otherwise
reflected in the scorecard. These adjustments ranged from 10% to 30% of the target opportunity for these individuals.
No changes were made to Non-executive Director fees for 2018.
Changes to the remuneration report
In addition, to reflect appropriate executive accountability for Group-wide risk and reputation matters, the Board applied a
scorecard modifier to reduce further the STVR outcomes as follows:
–
–
15% of the outcome for the CEO (which equates to 13.5% of the target opportunity); and
10% of the target opportunity for each Group Executive excluding David McLean (CEO, Westpac New Zealand Limited) and
David Lees (Acting Chief Financial Officer for three months only).
These reductions result in a 2018 STVR outcome for the CEO of 77.5% of the target opportunity, which is 52% of the maximum
opportunity. The 2018 STVR outcomes for Group Executives ranged from 50% to 110% of the target opportunity and 34% to 73% of
the maximum opportunity.
Craig Dunn, Chairman
Board Remuneration Committee
48
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
49
Directors’ report
Total Target Reward adjustments
The Board reviewed Total Target Reward (TTR) for the CEO and Group Executives for 2018. No changes were made to TTR for the
CEO. Increases in TTR for Group Executives of between 4% and 12.3% were made in circumstances where TTR was below market
benchmarks and to recognise individual capability and demonstrated capacity to deliver business outcomes since initial appointment to
their roles.
Key enhancements and future developments
expectations and better practice. This includes:
We are committed to ensuring that our remuneration arrangements meet regulatory requirements and align with emerging stakeholder
under the Australian Banking Association’s 6 Point Plan, implementing Stephen Sedgwick AO’s recommendations for our employees
two years earlier than required. This includes targeted changes to our STVR arrangements for customer-facing employees in the
Consumer Bank and Business Bank to support our service-based approach and reinforce a sound conduct and risk culture;
implementing changes to our remuneration and governance arrangements consistent with the findings from APRA’s review of
remuneration practices at large financial institutions. For example, we have strengthened the process and documentation around
the Board’s existing discretion to adjust overall outcomes for matters such as behaviour, risk and reputation, with the introduction
of a scorecard modifier;
updating our remuneration policy to align with the letter and spirit of the new Banking Executive Accountability Regime legislation; and
implementing a Group-wide consequence management framework building on existing policies and practices to provide greater
consistency in the management of employee conduct. In 2018, we managed 1,091 employee conduct matters in Australia, of
which 209 resulted in the employee exiting the business, 532 resulted in a formal disciplinary outcome, and a range of other
consequences were applied, including ineligibility for STVR, reductions to STVR and role changes.
During 2018, the Board Remuneration Committee reviewed the remuneration framework for the CEO and Group Executives with the
aim of ensuring it continues to remain fit for purpose and is simple, transparent and appropriately aligned with our strategic intent and
the expectations of our key stakeholders.
Given the ongoing review of remuneration practices across the industry and feedback from key stakeholders, we decided not to make
any changes to the design features of the 2019 STVR and LTVR plans for the CEO and Group Executives. We will continue to review
the executive remuneration framework in 2019 and, as always, engage with regulators, shareholders and shareholder representative
groups and value the insight these discussions provide.
Group Executive changes
Changes to Westpac’s leadership team during the year included:
Carolyn McCann was appointed to the new Group Executive, Customer & Corporate Relations role on 18 June 2018;
Alexandra Holcomb ceased in her role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018. David
Stephen commenced with Westpac on 1 October 2018;
Peter King was the Chief Financial Officer for most of the year and acted as the Chief Risk Officer from 25 June 2018 to 1 October
2018. During this time, David Lees acted as the Chief Financial Officer;
Christine Parker’s role and title changed from Group Executive, Human Resources, Corporate Affairs & Sustainability to Group
Rebecca Lim’s role and title changed from Group Executive, Compliance, Legal & Secretariat to Group Executive, Legal &
Executive, Human Resources on 18 June 2018;
Secretariat on 1 October 2018; and
Dave Curran will retire from the Chief Information Officer role on 29 January 2019. Craig Bright will commence with Westpac on 4
December 2018.
Non-executive Directors
The Board is pleased to have welcomed Peter Nash on 7 March 2018 and Anita Fung on 1 October 2018 as Non-executive Directors.
Finally, we have made further improvements to the transparency, simplicity and readability of our remuneration report. On behalf of the
Board, I invite you to read our remuneration report and welcome your feedback.
Directors’ report
10. Remuneration Report
Dear shareholders
Introduction from the Chairman of the Board Remuneration Committee
On behalf of the Board I am pleased to present Westpac’s 2018 remuneration report.
I outline below the context behind the key remuneration decisions made by the Board and the Board Remuneration Committee this
year. In addition, I summarise the key enhancements we have made to strengthen our remuneration policy and practices to support
appropriate outcomes for our shareholders, customers, employees and the communities we serve.
Overview of performance outcomes
2018 has been a challenging year for Westpac from a financial performance perspective. In addition, the Royal Commission into
Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) has highlighted that financial services
organisations, including Westpac, need to do more to meet the needs of customers and the community.
Key financial outcomes for 2018 can be summarised as follows:
Cash earnings were flat due to slower loan and deposit growth, the full period impact of the bank levy and an increase in
provisions for customer refunds and payments;
The Group’s balance sheet was further strengthened. In particular, our capital ratios exceeded the Australian Prudential
Regulation Authority’s (APRA’s) ‘unquestionably strong’ benchmark, liquidity ratios are higher and the funding mix has continued
to improve;
Return on equity (ROE) declined to 13% due to higher capital levels combined with flat cash earnings. This is at the lower end of
the range the Group is seeking to achieve; and
Earnings per share (EPS) of 232.6 cents was down 1% on the prior year.
Strategically, we have made good progress in modernising our platforms and digitising the company resulting in productivity gains and
improvements to the customer experience. Customer satisfaction, as measured by net promoter scores, showed relative improvement
though the year. In addition, a range of initiatives were deployed to strengthen our culture and enhance the agility and capability of our
workforce.
In terms of the Royal Commission, the misconduct issues that have been examined are confronting for Westpac and the industry, and
have raised a number of important considerations for the industry, regulators and policy makers. The Chairman and CEO both discuss
the Royal Commission in their respective letters in this Annual Report.
The Board recognises that Westpac needs to continue to improve the way it prevents, detects and addresses misconduct. The Royal
Commission has highlighted examples of areas where our actions have given rise to poor outcomes for some of our customers. This
has contributed to a loss of trust and reputational damage to Westpac and the industry. The Board also recognises that the value of
your shares has declined over the year as a result of a range of factors.
Variable reward adjustments and outcomes
Variable reward outcomes reflect appropriate executive accountability for both performance and the matters discussed above.
2015 Long Term Variable Reward (LTVR): The performance hurdles for both the CEO and Group Executive 2015 LTVR plans were
not met and, as a result, the awards were forfeited in full for the third consecutive year.
2018 Short Term Variable Reward (STVR): 2018 STVR outcomes for the CEO and Group Executives in Australia were on average
25% lower than 2017 with the largest individual year on year reduction being 50%. These outcomes include the application of
discretion as follows:
The assessment of performance against the 2018 scorecard for the CEO and Group Executives in Australia included discretionary
downward adjustments for customer and service related areas of the scorecard of up to 25%.
Targeted downwards adjustments were applied to three Group Executives to reflect a range of matters relevant to the business
for which they are responsible, including risk and remediation issues and, where relevant, business performance not otherwise
reflected in the scorecard. These adjustments ranged from 10% to 30% of the target opportunity for these individuals.
In addition, to reflect appropriate executive accountability for Group-wide risk and reputation matters, the Board applied a
scorecard modifier to reduce further the STVR outcomes as follows:
–
–
15% of the outcome for the CEO (which equates to 13.5% of the target opportunity); and
10% of the target opportunity for each Group Executive excluding David McLean (CEO, Westpac New Zealand Limited) and
David Lees (Acting Chief Financial Officer for three months only).
These reductions result in a 2018 STVR outcome for the CEO of 77.5% of the target opportunity, which is 52% of the maximum
opportunity. The 2018 STVR outcomes for Group Executives ranged from 50% to 110% of the target opportunity and 34% to 73% of
the maximum opportunity.
Total Target Reward adjustments
The Board reviewed Total Target Reward (TTR) for the CEO and Group Executives for 2018. No changes were made to TTR for the
CEO. Increases in TTR for Group Executives of between 4% and 12.3% were made in circumstances where TTR was below market
benchmarks and to recognise individual capability and demonstrated capacity to deliver business outcomes since initial appointment to
their roles.
1
Directors’ report
Key enhancements and future developments
We are committed to ensuring that our remuneration arrangements meet regulatory requirements and align with emerging stakeholder
expectations and better practice. This includes:
under the Australian Banking Association’s 6 Point Plan, implementing Stephen Sedgwick AO’s recommendations for our employees
two years earlier than required. This includes targeted changes to our STVR arrangements for customer-facing employees in the
Consumer Bank and Business Bank to support our service-based approach and reinforce a sound conduct and risk culture;
implementing changes to our remuneration and governance arrangements consistent with the findings from APRA’s review of
remuneration practices at large financial institutions. For example, we have strengthened the process and documentation around
the Board’s existing discretion to adjust overall outcomes for matters such as behaviour, risk and reputation, with the introduction
of a scorecard modifier;
updating our remuneration policy to align with the letter and spirit of the new Banking Executive Accountability Regime legislation; and
implementing a Group-wide consequence management framework building on existing policies and practices to provide greater
consistency in the management of employee conduct. In 2018, we managed 1,091 employee conduct matters in Australia, of
which 209 resulted in the employee exiting the business, 532 resulted in a formal disciplinary outcome, and a range of other
consequences were applied, including ineligibility for STVR, reductions to STVR and role changes.
During 2018, the Board Remuneration Committee reviewed the remuneration framework for the CEO and Group Executives with the
aim of ensuring it continues to remain fit for purpose and is simple, transparent and appropriately aligned with our strategic intent and
the expectations of our key stakeholders.
Given the ongoing review of remuneration practices across the industry and feedback from key stakeholders, we decided not to make
any changes to the design features of the 2019 STVR and LTVR plans for the CEO and Group Executives. We will continue to review
the executive remuneration framework in 2019 and, as always, engage with regulators, shareholders and shareholder representative
groups and value the insight these discussions provide.
Group Executive changes
Changes to Westpac’s leadership team during the year included:
Carolyn McCann was appointed to the new Group Executive, Customer & Corporate Relations role on 18 June 2018;
Alexandra Holcomb ceased in her role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018. David
Stephen commenced with Westpac on 1 October 2018;
Peter King was the Chief Financial Officer for most of the year and acted as the Chief Risk Officer from 25 June 2018 to 1 October
2018. During this time, David Lees acted as the Chief Financial Officer;
Christine Parker’s role and title changed from Group Executive, Human Resources, Corporate Affairs & Sustainability to Group
Executive, Human Resources on 18 June 2018;
Rebecca Lim’s role and title changed from Group Executive, Compliance, Legal & Secretariat to Group Executive, Legal &
Secretariat on 1 October 2018; and
Dave Curran will retire from the Chief Information Officer role on 29 January 2019. Craig Bright will commence with Westpac on 4
December 2018.
Non-executive Directors
The Board is pleased to have welcomed Peter Nash on 7 March 2018 and Anita Fung on 1 October 2018 as Non-executive Directors.
No changes were made to Non-executive Director fees for 2018.
Changes to the remuneration report
Finally, we have made further improvements to the transparency, simplicity and readability of our remuneration report. On behalf of the
Board, I invite you to read our remuneration report and welcome your feedback.
48
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
49
Craig Dunn, Chairman
Board Remuneration Committee
Directors’ report
Directors’ report
1. Summary of the 2018 Chief Executive Officer and Group Executive total reward framework
Performance and risk alignment
Westpac’s remuneration arrangements are designed and managed to support effective risk management, the generation of
appropriate risk-based returns and the risk profile associated with our businesses which incorporate products with varying
complexity and maturity profiles.
Westpac integrates risk management into remuneration by designing and managing arrangements in a manner that
encourages behaviour that supports our long term financial soundness and risk management framework.
Business activities are carried out in accordance with Westpac’s Risk Appetite Statement. The performance of Westpac and
each division is reviewed and measured with reference to how risk is managed against the Group’s Risk Appetite Statement,
and the results influence remuneration outcomes.
The Board has the discretion to adjust variable reward, upwards or downwards (including to nil), if it considers that performance
is not adequately reflected in performance outcomes.
In exercising its discretion, the Board takes into account a number of factors, including significant unforeseen circumstances,
relevant risk-based matters and whether an adjustment is appropriate to protect Westpac’s financial soundness. The Board
also has the ability to apply malus to unvested deferred awards under the STVR and LTVR plans if having regard to
circumstances or information which has come to light after the grant of the equity, all or part of the initial award was not
justified.
Timeline of potential 2018 remuneration
2018
2019
2020
2021
Fixed remuneration
Cash STVR award (50%)
Deferred STVR award (25%)
Deferred STVR award (25%)
LTVR award subject to relative TSR performance (50%) – measured over 4 years
LTVR award subject to ROE performance (50%) – measured over 3 years
+ 1 year holding lock
Date paid
Date granted
Date eligible for vesting
Westpac’s vision is to be one of the world’s great service companies, helping our customers, communities and people to
prosper and grow.
Westpac’s strategy seeks to deliver on our 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 sustainable returns for shareholders.
The delivery of our strategy and vision is supported by our remuneration strategy and principles.
Remuneration strategy and 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 shareholders, while adhering to sound risk management and
governance principles.
The remuneration strategy is underpinned by the following principles:
align remuneration with customer and shareholder interests;
support an appropriate risk culture and employee conduct;
differentiate pay for behaviour and performance in line with
our strategy and vision;
Total reward framework
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.
The CEO and Group Executives are rewarded based on a total reward framework. The framework is designed to reflect our
principles and comprises three components: fixed remuneration, Short Term Variable Reward (STVR) and Long Term Variable
Reward (LTVR) as set out in the table below.
Fixed remuneration
Short Term Variable Reward Long Term Variable Reward
Variable reward
Target pay
mix1
Purpose
Delivery
Assessment
34%
34%
32%
Attract and retain high
quality executives.
Reward financial and non-financial
performance in line with Westpac’s strategic
priorities.
The deferred component supports alignment
with shareholders over the medium term.
Align executive accountability and
remuneration with the long term
interests of shareholders by rewarding
the delivery of sustained Group
performance.
Fixed remuneration
comprises cash salary,
salary sacrificed items,
and superannuation
contributions.
Fixed remuneration is
set with reference to
market benchmarks in
the financial services
industry in Australia
and globally.
The Board also takes
into account the size,
responsibilities and
complexity of the role,
as well as the skills and
experience of the
executive.
STVR is awarded in cash (50%) and
restricted shares2 (50%) based on an
assessment of performance over the
preceding year. Restricted shares vest in
equal portions after one and two years
following grant subject to continued service
and malus provisions.
Performance is assessed with reference to a
balanced scorecard comprising:
focus areas linked to Westpac’s key
strategic priorities (economic
performance; risk management; balance
sheet management; customer outcomes;
customer service transformation; and
people and culture); and
a modifier to support the adjustment of
the outcome, upwards or downwards
(including to nil), for behaviour, risk and
reputation matters, people management
matters, and any other matters
determined by the Board.
LTVR is awarded in performance share
rights which vest after four years
subject to the achievement of
performance hurdles, continued service
and malus provisions.
Performance is assessed against:
Total shareholder return (TSR)
(50%) which is a comparative
measure of Westpac’s performance
relative to that of peers (measured
over four years); and
Return on equity (ROE)3 (50%)
which aims to reward the
achievement of returns above the
cost of capital while generating
shareholder value (measured over
a three year period with an
additional one year holding lock).
1 Based on a fair value methodology for LTVR awards. Excludes the Chief Risk Officer, the Group Executive, Compliance, Legal & Secretariat,
Group Executive, Customer and Corporate Relations and the Chief Financial Officer who have a target pay mix of 40% fixed remuneration, 30%
STVR and 30% LTVR.
2 Deferred STVR is awarded in unhurdled share rights to the Group Executive outside Australia.
3 ROE and earnings per share (EPS) are reported on a cash earnings basis throughout the remuneration report. Refer to Note 2 to the Financial
Statements for a description of the process used to determine cash earnings.
50
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
51
Directors’ report
Directors’ report
1. Summary of the 2018 Chief Executive Officer and Group Executive total reward framework
Performance and risk alignment
Westpac’s remuneration arrangements are designed and managed to support effective risk management, the generation of
appropriate risk-based returns and the risk profile associated with our businesses which incorporate products with varying
complexity and maturity profiles.
1
Westpac integrates risk management into remuneration by designing and managing arrangements in a manner that
encourages behaviour that supports our long term financial soundness and risk management framework.
Business activities are carried out in accordance with Westpac’s Risk Appetite Statement. The performance of Westpac and
each division is reviewed and measured with reference to how risk is managed against the Group’s Risk Appetite Statement,
and the results influence remuneration outcomes.
The Board has the discretion to adjust variable reward, upwards or downwards (including to nil), if it considers that performance
is not adequately reflected in performance outcomes.
In exercising its discretion, the Board takes into account a number of factors, including significant unforeseen circumstances,
relevant risk-based matters and whether an adjustment is appropriate to protect Westpac’s financial soundness. The Board
also has the ability to apply malus to unvested deferred awards under the STVR and LTVR plans if having regard to
circumstances or information which has come to light after the grant of the equity, all or part of the initial award was not
justified.
be simple, flexible and transparent.
Timeline of potential 2018 remuneration
2018
2019
2020
2021
Fixed remuneration
Cash STVR award (50%)
Deferred STVR award (25%)
Deferred STVR award (25%)
LTVR award subject to relative TSR performance (50%) – measured over 4 years
LTVR award subject to ROE performance (50%) – measured over 3 years
+ 1 year holding lock
Date paid
Date granted
Date eligible for vesting
Westpac’s vision is to be one of the world’s great service companies, helping our customers, communities and people to
prosper and grow.
Westpac’s strategy seeks to deliver on our 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 sustainable returns for shareholders.
The delivery of our strategy and vision is supported by our remuneration strategy and principles.
Remuneration strategy and 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 shareholders, while adhering to sound risk management and
governance principles.
The remuneration strategy is underpinned by the following principles:
align remuneration with customer and shareholder interests;
provide market competitive and fair remuneration;
support an appropriate risk culture and employee conduct;
enable recruitment and retention of talented employees;
differentiate pay for behaviour and performance in line with
provide the ability to risk-adjust remuneration; and
our strategy and vision;
Total reward framework
The CEO and Group Executives are rewarded based on a total reward framework. The framework is designed to reflect our
principles and comprises three components: fixed remuneration, Short Term Variable Reward (STVR) and Long Term Variable
Reward (LTVR) as set out in the table below.
Fixed remuneration
Short Term Variable Reward Long Term Variable Reward
Variable reward
Target pay
mix1
Purpose
34%
34%
32%
Attract and retain high
Reward financial and non-financial
Align executive accountability and
quality executives.
performance in line with Westpac’s strategic
remuneration with the long term
priorities.
The deferred component supports alignment
with shareholders over the medium term.
performance.
interests of shareholders by rewarding
the delivery of sustained Group
Delivery
Fixed remuneration
comprises cash salary,
STVR is awarded in cash (50%) and
restricted shares2 (50%) based on an
salary sacrificed items,
assessment of performance over the
LTVR is awarded in performance share
rights which vest after four years
subject to the achievement of
and superannuation
preceding year. Restricted shares vest in
performance hurdles, continued service
contributions.
equal portions after one and two years
and malus provisions.
following grant subject to continued service
and malus provisions.
Assessment
Fixed remuneration is
Performance is assessed with reference to a
Performance is assessed against:
set with reference to
market benchmarks in
the financial services
industry in Australia
and globally.
The Board also takes
into account the size,
responsibilities and
complexity of the role,
as well as the skills and
experience of the
executive.
balanced scorecard comprising:
focus areas linked to Westpac’s key
strategic priorities (economic
performance; risk management; balance
sheet management; customer outcomes;
customer service transformation; and
people and culture); and
a modifier to support the adjustment of
the outcome, upwards or downwards
(including to nil), for behaviour, risk and
reputation matters, people management
matters, and any other matters
determined by the Board.
Total shareholder return (TSR)
(50%) which is a comparative
measure of Westpac’s performance
relative to that of peers (measured
over four years); and
Return on equity (ROE)3 (50%)
which aims to reward the
achievement of returns above the
cost of capital while generating
shareholder value (measured over
a three year period with an
additional one year holding lock).
1 Based on a fair value methodology for LTVR awards. Excludes the Chief Risk Officer, the Group Executive, Compliance, Legal & Secretariat,
Group Executive, Customer and Corporate Relations and the Chief Financial Officer who have a target pay mix of 40% fixed remuneration, 30%
STVR and 30% LTVR.
2 Deferred STVR is awarded in unhurdled share rights to the Group Executive outside Australia.
3 ROE and earnings per share (EPS) are reported on a cash earnings basis throughout the remuneration report. Refer to Note 2 to the Financial
Statements for a description of the process used to determine cash earnings.
50
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
51
Directors’ report
2. Remuneration policy and governance
3. Key Management Personnel
Directors’ report
Westpac’s remuneration policy sets out the mandatory requirements reflected in the design and management of remuneration
arrangements across Westpac.
The remuneration of Key Management Personnel (KMP) for the Group is disclosed in the Report. In 2018, KMP comprised the
CEO, Group Executives and Non-executive Directors as set out in the table below.
The policy supports Westpac’s vision by requiring the design and management of remuneration to align with stakeholder
interests, support long term financial soundness and encourage prudent risk management.
The policy is supported by an established governance structure, plans and frameworks that are designed to support
remuneration decision making across the Group.
Name
Position
Managing Director & Chief Executive Officer
Term as KMP
Brian Hartzer
Managing Director & Chief Executive Officer
Full Year
Board
Current Group Executives
The role of the Board is to provide strategic guidance for the Group and have effective oversight of management. The
Board has overall accountability for remuneration.
Without limiting its role, the Board approves (following recommendation from the Board Remuneration Committee)
performance outcomes and remuneration for the CEO, Group Executives, other persons whose activities in the Board’s
opinion affect the financial soundness of the Group and any other person specified by APRA.
The Board has the discretion to defer, adjust or withdraw aggregate and individual variable reward.
The remuneration-related responsibilities of the Board are set out in the Board Charter which is available on Westpac’s
website.
Board Remuneration Committee
The Board 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 globally.
The Board Remuneration Committee’s purpose, responsibilities and duties are outlined in its Charter which is available
on Westpac’s website. The Charter was last reviewed and amended in August 2018.
In carrying out its duties, the Board Remuneration Committee accesses risk and financial control personnel and
engages external advisors who are independent of management. The Chairman of the Board Risk & Compliance
Committee is also a member of the Board Remuneration Committee, and members of the Board Remuneration
Committee are all members of the Board Risk & Compliance Committee.
Members of the Board Remuneration Committee are independent Non-executive Directors. The members in 2018
were:
Craig Dunn (Chairman);
Ewen Crouch;
Alison Deans (appointed on 8 December 2017); and
Robert Elstone (retired on 8 December 2017).
Remuneration oversight committees
Independent remuneration consultants
The Board and the Board Remuneration Committee
receive support from internal groups and committees
including the Group Remuneration Oversight Committee
and business-specific remuneration oversight
committees.
The governance structure below the Board
Remuneration Committee focuses on the
appropriateness and consistency of remuneration
arrangements across the Group.
In 2018, the Board retained Guerdon Associates as its
independent consultant to provide specialist information
on executive remuneration and other remuneration
matters. The services were provided directly to the
Board Remuneration Committee independent of
management. The Chairman of the Board Remuneration
Committee oversees the engagement and associated
costs.
Work undertaken by Guerdon Associates during 2018
included the provision of information relating to the
benchmarking of Non-executive Director, CEO and
Group Executive remuneration. In 2018, no
remuneration recommendations, as prescribed under
the Corporations Act, were made by Guerdon
Associates.
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Chief Executive, Westpac Institutional Bank
Chief Executive Officer, BT Financial Group
Chief Information Officer
George Frazis
Chief Executive, Consumer Bank
Acting Chief Risk Officer
Lyn Cobley
Brad Cooper
Dave Curran
Peter King1
David Lees2
Rebecca Lim3
Acting Chief Financial Officer
Commenced in KMP role on 25 June 2018
David Lindberg
Chief Executive, Business Bank
Full Year
Group Executive, Compliance, Legal & Secretariat
Full Year
Carolyn McCann4
Group Executive, Customer & Corporate Relations
Commenced in KMP role on 18 June 2018
David McLean
Chief Executive Officer, Westpac New Zealand Limited
Full Year
Christine Parker5
Group Executive, Human Resources
Gary Thursby
Group Executive, Strategy & Enterprise Services
Ceased in KMP role on 25 June 2018
Former Group Executive
Alexandra Holcomb6
Chief Risk Officer
Current Non-executive Directors
Lindsay Maxsted
Chairman
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Peter Hawkins
Peter Marriott
Peter Nash
Director
Director
Director
Director
Director
Director
Director
Former Non-executive Director
Robert Elstone
Director
Commenced on 7 March 2018
Retired on 8 December 2017
1 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer. Peter King returned to the
Chief Financial Officer role effective 1 October 2018.
2 David Lees was the Deputy Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Financial Officer. David Lees
returned to the Deputy Chief Financial Officer role effective 1 October 2018.
3 Rebecca Lim’s role and title changed to the Group Executive, Legal & Secretariat effective 1 October 2018.
4 Carolyn McCann was the General Manager, Corporate Affairs & Sustainability until 18 June 2018 when she was appointed as the Group Executive,
5 Christine Parker’s role and title changed from the Group Executive, Human Resources, Corporate Affairs & Sustainability to the Group Executive,
Customer & Corporate Relations.
Human Resources on 18 June 2018.
6 Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018. David Stephen
commenced as the Chief Risk Officer effective 1 October 2018.
52
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2018 Westpac Group Annual Report
53
Directors’ report
2. Remuneration policy and governance
arrangements across Westpac.
Westpac’s remuneration policy sets out the mandatory requirements reflected in the design and management of remuneration
The policy supports Westpac’s vision by requiring the design and management of remuneration to align with stakeholder
interests, support long term financial soundness and encourage prudent risk management.
The policy is supported by an established governance structure, plans and frameworks that are designed to support
remuneration decision making across the Group.
3. Key Management Personnel
The remuneration of Key Management Personnel (KMP) for the Group is disclosed in the Report. In 2018, KMP comprised the
CEO, Group Executives and Non-executive Directors as set out in the table below.
1
Name
Position
Managing Director & Chief Executive Officer
Term as KMP
Brian Hartzer
Managing Director & Chief Executive Officer
Full Year
Directors’ report
Board
Current Group Executives
The role of the Board is to provide strategic guidance for the Group and have effective oversight of management. The
Board has overall accountability for remuneration.
Without limiting its role, the Board approves (following recommendation from the Board Remuneration Committee)
performance outcomes and remuneration for the CEO, Group Executives, other persons whose activities in the Board’s
opinion affect the financial soundness of the Group and any other person specified by APRA.
The Board has the discretion to defer, adjust or withdraw aggregate and individual variable reward.
The remuneration-related responsibilities of the Board are set out in the Board Charter which is available on Westpac’s
website.
Board Remuneration Committee
The Board 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 globally.
The Board Remuneration Committee’s purpose, responsibilities and duties are outlined in its Charter which is available
on Westpac’s website. The Charter was last reviewed and amended in August 2018.
In carrying out its duties, the Board Remuneration Committee accesses risk and financial control personnel and
engages external advisors who are independent of management. The Chairman of the Board Risk & Compliance
Committee is also a member of the Board Remuneration Committee, and members of the Board Remuneration
Committee are all members of the Board Risk & Compliance Committee.
Members of the Board Remuneration Committee are independent Non-executive Directors. The members in 2018
were:
Craig Dunn (Chairman);
Ewen Crouch;
Alison Deans (appointed on 8 December 2017); and
Robert Elstone (retired on 8 December 2017).
Remuneration oversight committees
Independent remuneration consultants
The Board and the Board Remuneration Committee
receive support from internal groups and committees
including the Group Remuneration Oversight Committee
and business-specific remuneration oversight
committees.
The governance structure below the Board
Remuneration Committee focuses on the
appropriateness and consistency of remuneration
arrangements across the Group.
In 2018, the Board retained Guerdon Associates as its
independent consultant to provide specialist information
on executive remuneration and other remuneration
matters. The services were provided directly to the
Board Remuneration Committee independent of
management. The Chairman of the Board Remuneration
Committee oversees the engagement and associated
costs.
Work undertaken by Guerdon Associates during 2018
included the provision of information relating to the
benchmarking of Non-executive Director, CEO and
Group Executive remuneration. In 2018, no
remuneration recommendations, as prescribed under
the Corporations Act, were made by Guerdon
Associates.
Lyn Cobley
Brad Cooper
Dave Curran
George Frazis
Peter King1
David Lees2
Rebecca Lim3
David Lindberg
Carolyn McCann4
David McLean
Christine Parker5
Chief Executive, Westpac Institutional Bank
Chief Executive Officer, BT Financial Group
Chief Information Officer
Chief Executive, Consumer Bank
Acting Chief Risk Officer
Full Year
Full Year
Full Year
Full Year
Full Year
Acting Chief Financial Officer
Commenced in KMP role on 25 June 2018
Group Executive, Compliance, Legal & Secretariat
Full Year
Chief Executive, Business Bank
Full Year
Group Executive, Customer & Corporate Relations
Commenced in KMP role on 18 June 2018
Chief Executive Officer, Westpac New Zealand Limited
Full Year
Group Executive, Human Resources
Gary Thursby
Group Executive, Strategy & Enterprise Services
Former Group Executive
Alexandra Holcomb6
Chief Risk Officer
Current Non-executive Directors
Lindsay Maxsted
Chairman
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Peter Hawkins
Peter Marriott
Peter Nash
Director
Director
Director
Director
Director
Director
Director
Former Non-executive Director
Robert Elstone
Director
Full Year
Full Year
Ceased in KMP role on 25 June 2018
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Commenced on 7 March 2018
Retired on 8 December 2017
52
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
53
1 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer. Peter King returned to the
Chief Financial Officer role effective 1 October 2018.
2 David Lees was the Deputy Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Financial Officer. David Lees
returned to the Deputy Chief Financial Officer role effective 1 October 2018.
3 Rebecca Lim’s role and title changed to the Group Executive, Legal & Secretariat effective 1 October 2018.
4 Carolyn McCann was the General Manager, Corporate Affairs & Sustainability until 18 June 2018 when she was appointed as the Group Executive,
Customer & Corporate Relations.
5 Christine Parker’s role and title changed from the Group Executive, Human Resources, Corporate Affairs & Sustainability to the Group Executive,
Human Resources on 18 June 2018.
6 Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018. David Stephen
commenced as the Chief Risk Officer effective 1 October 2018.
Directors’ report
4. Total remuneration outcomes
Chief Executive Officer and Group Executive remuneration – realised remuneration
4.1.
The table below shows the actual remuneration paid and the equity vested1 to the CEO and Group Executives in 2018 and
2017 (unaudited). This includes:
fixed remuneration earned during the year;
cash STVR awarded in respect of 2018 and 2017;
deferred STVR awarded in prior years that vested in 2018 and 2017; and
LTVR awarded in prior years that vested in 2018 and 2017.
The value of deferred STVR and LTVR is based on the number of restricted shares or share rights multiplied by the five day
volume weighted average share price up to and including the date of vesting. The value of equity differs from the disclosure in
Section 7 which provides the annualised accounting value for unvested equity awards prepared in accordance with the
Australian Accounting Standards (AAS).
Name
Fixed
remuneration
$
Cash STVR
awarded
$
Vesting of prior
year deferred
STVR awards
$
Vesting of prior
year LTVR
awards
$
Total realised
remuneration
$
Prior year LTVR
forfeited
$
Fixed
remuneration
$
Cash STVR
awarded
year deferred
STVR awards
$
$
year LTVR
awards
$
Total realised
remuneration
Prior year LTVR
forfeited
$
$
Vesting of prior
Vesting of prior
Current Group Executives (cont.)
Christine Parker, Group Executive, Human Resources
Gary Thursby, Group Executive, Strategy & Enterprise Services
884,000
850,000
840,000
840,000
427,500
517,500
395,500
485,000
421,759
481,816
368,685
371,764
Former Group Executive
Alexandra Holcomb, Chief Risk Officer5
Name
2018
2017
2018
2017
2018
2017
-
-
-
-
-
-
736,449
1,003,000
411,000
532,500
446,660
498,536
1,594,109
2,034,036
1,761,322
772,487
1 Equity that vested on 1 October 2018 is included in the 2018 figures. Equity that vested on 1 October 2017 is included in the 2017 figures.
2 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer.
3 David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018.
4 Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018.
5 Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018.
Directors’ report
1,733,259
1,849,316
1,604,185
1,696,764
1,474,298
1,365,665
471,754
409,680
Managing Director & Chief Executive Officer
Brian Hartzer
2018
2017
2,686,000
2,686,000
1,040,825
1,490,730
1,217,694
1,280,114
494,049
244,864
665,608
779,625
444,719
510,291
735,319
876,225
505,612
536,202
Current Group Executives
Lyn Cobley, Chief Executive, Westpac Institutional Bank
2018
2017
1,122,000
1,122,000
465,500
640,000
Brad Cooper, Chief Executive Officer, BT Financial Group
2018
2017
1,102,517
1,102,517
400,000
792,500
Dave Curran, Chief Information Officer
2018
2017
1,054,000
952,000
1,150,000
1,150,000
George Frazis, Chief Executive, Consumer Bank
2018
2017
Peter King, Acting Chief Risk Officer2
2018
2017
David Lees, Acting Chief Financial Officer3
2018
2017
1,288,000
1,088,000
324,877
485,000
552,500
480,000
872,500
517,000
615,000
Rebecca Lim, Group Executive, Compliance, Legal & Secretariat
2018
2017
356,500
412,500
950,000
750,000
David Lindberg, Chief Executive, Business Bank
2018
1,088,000
2017
952,000
Carolyn McCann, Group Executive, Customer & Corporate Relations4
212,877
2018
2017
440,500
532,500
74,500
----------------------------------------------------------------------- Not a KMP in 2017 ------------------------------------------------------------------
90,500
-
287,412
248,227
440,199
419,808
202,173
-
-
-
-
-
1,593,912
1,410,727
1,968,699
1,904,308
383,299
388,674
817,702
709,083
489,550
393,143
-
-
-
-
-
-
-
-
-
-
-
-
-
4,944,519
5,456,844
4,263,037
3,046,592
2,081,549
2,006,864
2,168,125
2,674,642
1,983,719
2,014,791
2,365,319
2,898,725
2,310,612
2,239,202
-
-
2,064,040
2,206,129
1,761,322
-
1,614,690
1,155,565
1,824,211
1,132,480
415,377
-
----------------------------------------------------------------------- Not a KMP in 2017 ------------------------------------------------------------------
David McLean, Chief Executive Officer, Westpac New Zealand Limited
900,613
2018
864,889
2017
498,439
412,570
\
370,211
430,410
-
-
1,769,263
1,707,869
988,873
-
54
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
55
Directors’ report
Total realised
remuneration
$
Prior year LTVR
forfeited
$
1
395,500
485,000
840,000
840,000
427,500
517,500
884,000
850,000
421,759
481,816
368,685
371,764
Gary Thursby, Group Executive, Strategy & Enterprise Services
2018
2017
Current Group Executives (cont.)
Christine Parker, Group Executive, Human Resources
2018
2017
Former Group Executive
Alexandra Holcomb, Chief Risk Officer5
736,449
2018
1,003,000
2017
411,000
532,500
446,660
498,536
Name
Fixed
remuneration
$
Cash STVR
awarded
$
Vesting of prior
year deferred
STVR awards
$
Vesting of prior
year LTVR
awards
$
-
-
-
-
-
-
1,733,259
1,849,316
1,604,185
1,696,764
1,474,298
1,365,665
471,754
409,680
1,594,109
2,034,036
1,761,322
772,487
Directors’ report
4. Total remuneration outcomes
4.1.
Chief Executive Officer and Group Executive remuneration – realised remuneration
The table below shows the actual remuneration paid and the equity vested1 to the CEO and Group Executives in 2018 and
2017 (unaudited). This includes:
fixed remuneration earned during the year;
cash STVR awarded in respect of 2018 and 2017;
deferred STVR awarded in prior years that vested in 2018 and 2017; and
LTVR awarded in prior years that vested in 2018 and 2017.
The value of deferred STVR and LTVR is based on the number of restricted shares or share rights multiplied by the five day
volume weighted average share price up to and including the date of vesting. The value of equity differs from the disclosure in
Section 7 which provides the annualised accounting value for unvested equity awards prepared in accordance with the
Australian Accounting Standards (AAS).
Fixed
remuneration
$
Cash STVR
awarded
year deferred
STVR awards
$
$
year LTVR
awards
$
Total realised
remuneration
Prior year LTVR
forfeited
$
$
Vesting of prior
Vesting of prior
Name
Brian Hartzer
Managing Director & Chief Executive Officer
2,686,000
2,686,000
1,040,825
1,490,730
1,217,694
1,280,114
4,944,519
5,456,844
4,263,037
3,046,592
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
Peter King, Acting Chief Risk Officer2
David Lees, Acting Chief Financial Officer3
1,122,000
1,122,000
1,102,517
1,102,517
1,054,000
952,000
1,150,000
1,150,000
1,288,000
1,088,000
950,000
750,000
1,088,000
952,000
465,500
640,000
400,000
792,500
485,000
552,500
480,000
872,500
517,000
615,000
356,500
412,500
440,500
532,500
Rebecca Lim, Group Executive, Compliance, Legal & Secretariat
David Lindberg, Chief Executive, Business Bank
494,049
244,864
665,608
779,625
444,719
510,291
735,319
876,225
505,612
536,202
287,412
248,227
440,199
419,808
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Carolyn McCann, Group Executive, Customer & Corporate Relations4
212,877
74,500
202,173
489,550
393,143
----------------------------------------------------------------------- Not a KMP in 2017 ------------------------------------------------------------------
David McLean, Chief Executive Officer, Westpac New Zealand Limited
900,613
864,889
498,439
412,570
\
370,211
430,410
1,769,263
1,707,869
988,873
-
2,081,549
2,006,864
2,168,125
2,674,642
1,983,719
2,014,791
2,365,319
2,898,725
2,310,612
2,239,202
1,593,912
1,410,727
1,968,699
1,904,308
-
-
2,064,040
2,206,129
1,761,322
-
1,614,690
1,155,565
1,824,211
1,132,480
383,299
388,674
817,702
709,083
324,877
90,500
-
415,377
-
----------------------------------------------------------------------- Not a KMP in 2017 ------------------------------------------------------------------
1 Equity that vested on 1 October 2018 is included in the 2018 figures. Equity that vested on 1 October 2017 is included in the 2017 figures.
2 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer.
3 David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018.
4 Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018.
5 Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018.
54
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
55
Directors’ report
Directors’ report
4.2.
Chief Executive Officer and Group Executive remuneration – equity awarded
4.3.
Summary of 2018 Short Term Variable Reward outcomes
The table below shows the value of equity awarded under the STVR and LTVR plans in respect of 2018 and 2017.
Assessment approach
The final value of equity received by the CEO and Group Executives will depend on the share price at the time of vesting and
the number of restricted shares or share rights that vest, subject to performance hurdles (where applicable), continued service
and malus provisions.
The value of equity differs from the disclosure in Section 7 which is prepared in accordance with the AAS.
Name
Managing Director & Chief Executive Officer
Brian Hartzer
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
Peter King4
Acting Chief Risk Officer
David Lees5
Acting Chief Financial Officer
Rebecca Lim
Group Executive, Compliance, Legal & Secretariat
David Lindberg
Chief Executive, Business Bank
Carolyn McCann6
Group Executive, Customer & Corporate Relations
David McLean
Chief Executive Officer, Westpac New Zealand Limited
Christine Parker
Group Executive, Human Resources
Gary Thursby
Group Executive, Strategy & Enterprise Services
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Deferred STVR
1
award
$
1,040,825
1,490,730
465,500
640,000
400,000
792,500
485,000
552,500
480,000
872,500
517,000
615,000
LTVR award
Fair value
2
Face value
3
$
$
2,528,000
2,528,000
1,056,000
1,056,000
1,050,000
1,050,000
992,000
896,000
1,000,000
1,000,000
1,024,000
1,024,000
6,218,959
6,811,269
2,597,783
2,845,209
2,582,994
2,829,046
2,440,337
2,414,087
2,460,034
2,694,332
2,519,060
2,758,984
90,500
-
----------------------------- Not a KMP in 2017 --------------------------
-
356,500
412,500
440,500
532,500
700,000
700,000
1,024,000
912,000
1,722,017
1,885,988
2,519,060
2,457,167
364,743
----------------------------- Not a KMP in 2017 --------------------------
159,658
74,500
498,439
412,570
427,500
517,500
395,500
485,000
872,508
810,138
816,000
750,000
700,000
700,000
2,146,339
2,160,244
2,007,332
2,020,701
1,722,017
1,885,988
Former Group Executive
Alexandra Holcomb7
Chief Risk Officer
1 The value of deferred STVR (granted as restricted shares or unhurdled share rights) is 50% of the total STVR award for the year. The number of
411,000
532,500
944,000
944,000
2018
2017
2,322,222
2,543,391
restricted shares granted is determined by reference to the five day volume weighted average share price (VWAP) up to and including the grant date.
This is adjusted for non-payment of dividends over the vesting period for unhurdled share rights. The five day VWAP for the 2017 award was $31.46.
2 For the purposes of determining the number of performance share rights to grant, the Board Remuneration Committee caps the fair value at a
maximum discount of 60% of the share price at the start of the performance period. The fair value of the 2018 and 2017 awards were capped at
$12.79 and $11.95 respectively.
3 The face value is calculated by multiplying the number of performance share rights granted during the year by the five day VWAP up to and including
the grant date. For the 2018 awards, the five day VWAP was $31.46, and for the 2017 awards, the five day VWAP was $32.20.
4 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer.
5 David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018.
6 Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018.
7 Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018.
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
56
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
57
STVR awards are determined with reference to an assessment of performance against a balanced scorecard.
The Board and the Board Remuneration Committee recognise that the scorecard approach may not always appropriately
reflect overall performance of the Group.
For 2018, the scorecard was split into two sections to support decision making and enhance disclosure in relation to the
Board’s application of discretion when determining STVR outcomes.
Focus areas: This includes consideration of financial and non-financial measures aligned to Westpac’s key strategic
priorities to support an initial scorecard result.
In assessing outcomes for each focus area, a number of factors are taken into account. For example:
matters not known or not relevant at the beginning of the performance period which are relevant to the under or over
performance of the employee over the performance period;
the degree of difficulty associated with achieving the targets that had been set in the scorecard (and the context of
whether the budgetary assumptions that were present when performance targets were set remain correct (and
whether the financial environment is better or worse compared with those assumptions); and
comparisons with the performance of Westpac’s main competitors having regard to major shareholder and customer
benchmarks as well as the composition and/or consistency of financial result performance.
Modifier: This includes further consideration of significant matters not covered in the focus areas, including behaviour,
people management matters, risk and reputation matters, and any other matters determined by the Board, as a tool to
support the adjustment of the overall scorecard result upwards or downwards (including to nil).
Group balanced scorecard – Chief Executive Officer performance objectives
The table below sets out the Group balanced scorecard for 2018 which forms the CEO scorecard and the resulting outcomes
those targets);
against stretching targets.
divisional or functional measures.
Westpac’s strategic priorities are cascaded from the CEO’s scorecard to Group Executive scorecards in combination with other
Focus areas
Economic
performance (40%)
Delivering long term
returns for our
shareholders through
high quality and
consistent financial
results
Balance sheet
management (10%)
Holding sufficient
capital and liquidity to
remain strong, meet
regulatory
requirements and
support growth
Risk management
(10%)
Ensuring we are and
remain strong
Commentary
million.
Delivered economic profit of $3,444 million and a ROE of 13.00% at the bottom of
the 13-14% range that we seek to achieve. Cash earnings were flat at $8,065
Core earnings decreased 1% including the impact of infrequent items. Excluding the
impact of these items, core earnings grew 1%. Customer deposit growth of 6%
funded lending growth of 4%. Margins increased 2bps over the year.
Expenses increased 5% impacted by infrequent items. Excluding these items,
operating expenses increased 3% including higher regulatory and compliance costs,
costs associated with the Royal Commission and investment related spend.
Productivity benefits increased 16% to $304 million more than offsetting growth in
operating costs.
Outcome
TARGET
MAX
Further strengthened funding and liquidity with an increase in the Group’s Net Stable
Funding Ratio to 114% and Liquidity Coverage Ratio to 133%, exceeding the target
TARGET
MAX
and regulatory requirements.
Maintained ‘unquestionably strong’ capital levels with Common Equity Tier 1 Capital
at 10.6%, including absorbing regulatory measurement changes of 30 basis points
for mortgage risk weights and operational risk RWA.
Achieved housing balance sheet growth of 4%.
Remained within the Group Risk Appetite overall; financial risks continue to be
managed well while the management of non-financial risks requires further
TARGET
MAX
Maintained sound credit quality across the portfolio, with ratio of stressed assets to
total committed exposures at 1.1%. Balance sheet settings, liquidity and market risks
improvement.
are within appetite.
Ongoing significant focus on resolving and remediating compliance, regulatory and
customer issues, including enhancing risk management of sales practices, product
design and maintenance and financial crime systems and processes.
Name
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
Acting Chief Risk Officer
Peter King4
David Lees5
Acting Chief Financial Officer
Rebecca Lim
David Lindberg
Chief Executive, Business Bank
Carolyn McCann6
Group Executive, Compliance, Legal & Secretariat
David McLean
Chief Executive Officer, Westpac New Zealand Limited
Christine Parker
Group Executive, Human Resources
Gary Thursby
Group Executive, Strategy & Enterprise Services
Former Group Executive
Alexandra Holcomb7
Chief Risk Officer
Deferred STVR
award
1
$
1,040,825
1,490,730
LTVR award
2
$
2,528,000
2,528,000
1,056,000
1,056,000
1,050,000
1,050,000
992,000
896,000
1,000,000
1,000,000
1,024,000
1,024,000
-
700,000
700,000
1,024,000
912,000
159,658
872,508
810,138
816,000
750,000
700,000
700,000
944,000
944,000
465,500
640,000
400,000
792,500
485,000
552,500
480,000
872,500
517,000
615,000
90,500
356,500
412,500
440,500
532,500
74,500
498,439
412,570
427,500
517,500
395,500
485,000
411,000
532,500
3
$
6,218,959
6,811,269
2,597,783
2,845,209
2,582,994
2,829,046
2,440,337
2,414,087
2,460,034
2,694,332
2,519,060
2,758,984
-
1,722,017
1,885,988
2,519,060
2,457,167
364,743
2,146,339
2,160,244
2,007,332
2,020,701
1,722,017
1,885,988
2,322,222
2,543,391
----------------------------- Not a KMP in 2017 --------------------------
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Group Executive, Customer & Corporate Relations
----------------------------- Not a KMP in 2017 --------------------------
1 The value of deferred STVR (granted as restricted shares or unhurdled share rights) is 50% of the total STVR award for the year. The number of
restricted shares granted is determined by reference to the five day volume weighted average share price (VWAP) up to and including the grant date.
This is adjusted for non-payment of dividends over the vesting period for unhurdled share rights. The five day VWAP for the 2017 award was $31.46.
2 For the purposes of determining the number of performance share rights to grant, the Board Remuneration Committee caps the fair value at a
maximum discount of 60% of the share price at the start of the performance period. The fair value of the 2018 and 2017 awards were capped at
$12.79 and $11.95 respectively.
3 The face value is calculated by multiplying the number of performance share rights granted during the year by the five day VWAP up to and including
the grant date. For the 2018 awards, the five day VWAP was $31.46, and for the 2017 awards, the five day VWAP was $32.20.
4 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer.
5 David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018.
6 Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018.
7 Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018.
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
Directors’ report
Directors’ report
4.2.
Chief Executive Officer and Group Executive remuneration – equity awarded
4.3.
Summary of 2018 Short Term Variable Reward outcomes
The table below shows the value of equity awarded under the STVR and LTVR plans in respect of 2018 and 2017.
The final value of equity received by the CEO and Group Executives will depend on the share price at the time of vesting and
the number of restricted shares or share rights that vest, subject to performance hurdles (where applicable), continued service
and malus provisions.
The value of equity differs from the disclosure in Section 7 which is prepared in accordance with the AAS.
Assessment approach
STVR awards are determined with reference to an assessment of performance against a balanced scorecard.
The Board and the Board Remuneration Committee recognise that the scorecard approach may not always appropriately
reflect overall performance of the Group.
For 2018, the scorecard was split into two sections to support decision making and enhance disclosure in relation to the
Board’s application of discretion when determining STVR outcomes.
1
Fair value
Face value
Focus areas: This includes consideration of financial and non-financial measures aligned to Westpac’s key strategic
priorities to support an initial scorecard result.
In assessing outcomes for each focus area, a number of factors are taken into account. For example:
matters not known or not relevant at the beginning of the performance period which are relevant to the under or over
performance of the employee over the performance period;
the degree of difficulty associated with achieving the targets that had been set in the scorecard (and the context of
those targets);
whether the budgetary assumptions that were present when performance targets were set remain correct (and
whether the financial environment is better or worse compared with those assumptions); and
comparisons with the performance of Westpac’s main competitors having regard to major shareholder and customer
benchmarks as well as the composition and/or consistency of financial result performance.
Modifier: This includes further consideration of significant matters not covered in the focus areas, including behaviour,
people management matters, risk and reputation matters, and any other matters determined by the Board, as a tool to
support the adjustment of the overall scorecard result upwards or downwards (including to nil).
Group balanced scorecard – Chief Executive Officer performance objectives
The table below sets out the Group balanced scorecard for 2018 which forms the CEO scorecard and the resulting outcomes
against stretching targets.
Westpac’s strategic priorities are cascaded from the CEO’s scorecard to Group Executive scorecards in combination with other
divisional or functional measures.
Focus areas
Economic
performance (40%)
Delivering long term
returns for our
shareholders through
high quality and
consistent financial
results
Balance sheet
management (10%)
Holding sufficient
capital and liquidity to
remain strong, meet
regulatory
requirements and
support growth
Risk management
(10%)
Ensuring we are and
remain strong
Commentary
Delivered economic profit of $3,444 million and a ROE of 13.00% at the bottom of
the 13-14% range that we seek to achieve. Cash earnings were flat at $8,065
million.
Core earnings decreased 1% including the impact of infrequent items. Excluding the
impact of these items, core earnings grew 1%. Customer deposit growth of 6%
funded lending growth of 4%. Margins increased 2bps over the year.
Expenses increased 5% impacted by infrequent items. Excluding these items,
operating expenses increased 3% including higher regulatory and compliance costs,
costs associated with the Royal Commission and investment related spend.
Productivity benefits increased 16% to $304 million more than offsetting growth in
operating costs.
Further strengthened funding and liquidity with an increase in the Group’s Net Stable
Funding Ratio to 114% and Liquidity Coverage Ratio to 133%, exceeding the target
and regulatory requirements.
Maintained ‘unquestionably strong’ capital levels with Common Equity Tier 1 Capital
at 10.6%, including absorbing regulatory measurement changes of 30 basis points
for mortgage risk weights and operational risk RWA.
Achieved housing balance sheet growth of 4%.
Remained within the Group Risk Appetite overall; financial risks continue to be
managed well while the management of non-financial risks requires further
improvement.
Maintained sound credit quality across the portfolio, with ratio of stressed assets to
total committed exposures at 1.1%. Balance sheet settings, liquidity and market risks
are within appetite.
Ongoing significant focus on resolving and remediating compliance, regulatory and
customer issues, including enhancing risk management of sales practices, product
design and maintenance and financial crime systems and processes.
Outcome
TARGET
MAX
TARGET
MAX
TARGET
MAX
56
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
57
Directors’ report
Focus areas (continued)
Customer outcomes
(15%)
Helping our customers,
communities and
people to prosper and
grow by delivering
great customer
outcomes, and by
securing the Group’s
future
Commentary
Delivered significant improvements in service quality for our customers resulting in
solid customer growth and an improvement in net promoter scores (NPS). Business
Bank finished the year as Number 1 on both Customer Satisfaction and NPS and
Consumer Bank ranked Number 2 on NPS.
Continued to roll out new, market-leading digital innovations for our customers
including, but not limited to, Mobile Cheque Deposit, conversational banking
through Siri, Amazon, Alexa and Google Home, and digital mortgage origination.
Took a leading role in achieving ASIC approval of the new Banking Code of
Practice, offering enhanced commitments and protections to our customers.
Continued to implement the “Get it Right. Put it Right” initiative to identify and fix
legacy issues.
Closed out more than a third (250) of outstanding Financial Ombudsman Service
Australia matters.
While improvements have been made across the organisation to deliver better
customer outcomes, the Royal Commission has also highlighted certain areas
where we need to do more to meet the needs of customers and the community. The
Board believes it is appropriate to ensure executive accountability and has reduced
the overall result for this focus area by 25%.
Outcome
TARGET
MAX
Short Term Variable Reward outcomes for 2018
The table below sets out the CEO and Group Executive STVR outcomes for 2018 as determined by the Board using the
balanced scorecard outcomes, including the modifier.
STVR award
STVR award
Cash STVR
Target STVR
opportunity
(as % of
target)
(as % of
maximum)
award
(50%)
Deferred
STVR award
(50%)
Directors’ report
Brian Hartzer
2,686,000
77.5%
52%
1,040,825
1,040,825
Customer service
transformation (15%)
Creating superior
customer experiences
for each customer,
every time
People and culture
(10%)
Delivering key people
initiatives that drive
further the Group’s
change agenda
Transformation of complaint handling through the establishment of our new
TARGET
MAX
Customer and Corporate Relations division. This has resulted in a significant
improvement in resolving longstanding customer issues and more proactive
identification of ‘vulnerable’ customers. Consumer and Business Bank long dated
complaints were reduced by 90%.
Undertook substantive work on alleviating the source of customer complaints
through better designed products that meet the needs of customers. Completed a
lifecycle review of certain products and made changes, including: removing
grandfathered payments to salaried BT Financial Advisers benefitting more than
140,000 BT Financial Advice customers; and simplifying and lowering transaction
fees for 1.3 million personal transaction account customers.
Continuing culture change across the Group with targeted messaging in People
Leader Forums and Culture Immersion helping people to consider complaints as
part of our Service Revolution.
Delivered key milestones in line with the Australian Banking Association’s 6 point
plan which commenced in 2016.
Delivered customer benefits from the Service Revolution Transformation programs.
In line with the approach taken for the customer outcomes focus area, the Board
also decided to reduce the overall result for the customer service transformation
focus area by 25%.
Delivered significant milestones as part of our Workforce Revolution Program.
Maintained 50% Women in Leadership and our female General Manager population
has increased over the last two years from 39% in 2016 to 47% in 2018.
Continued to strengthen our culture through initiatives including: conducting the
Navigate program which was held for all employees and led by the CEO, to review
and recommit to our Group Compass which articulates our values, service
standards, code of conduct, and expectations of standards of behaviour and ethical
treatment of our customers; launching ‘Recruit for Culture Fit’ tools designed to help
ensure new recruits fit our service culture; holding various leadership development
programs; refreshing our values and code of conduct; and rolling out a Group
Consequence Management Framework.
Accelerated implementation of the Sedgwick review recommendations for
employees which means that variable reward for Consumer and Business Bank
customer facing employees is further weighted towards service and doing the right
thing, rather than product sales.
TARGET
MAX
1,003,000
82%
55%
411,000
411,000
1 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer.
2 David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018 and was not considered KMP prior to his appointment. His
target STVR opportunity has been apportioned to reflect his time in a Group Executive role.
3 Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018. Her target STVR opportunity
has been apportioned to reflect her time in a Group Executive role.
4 Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018. Her target STVR opportunity
was assessed on a full year basis.
Name
Managing Director & Chief Executive Officer
Current Group Executives
Chief Executive, Westpac Institutional Bank
Lyn Cobley
Brad Cooper
Chief Executive Officer, BT Financial Group
Dave Curran
Chief Information Officer
George Frazis
Chief Executive, Consumer Bank
Peter King1
Acting Chief Risk Officer
David Lees2
Acting Chief Financial Officer
Rebecca Lim
David Lindberg
Chief Executive, Business Bank
Carolyn McCann3
David McLean
Limited
Christine Parker
Gary Thursby
Group Executive, Compliance, Legal & Secretariat
Group Executive, Customer & Corporate Relations
Group Executive, Human Resources
Group Executive, Strategy & Enterprise Services
Former Group Executive
Alexandra Holcomb4
Chief Risk Officer
181,250
100%
67%
90,500
90,500
1,122,000
1,600,000
1,054,000
1,600,000
1,088,000
750,000
1,088,000
161,875
900,000
860,000
83%
50%
92%
60%
95%
95%
81%
92%
95%
92%
55%
465,500
465,500
33%
400,000
400,000
61%
485,000
485,000
40%
480,000
480,000
63%
517,000
517,000
63%
356,500
356,500
54%
440,500
440,500
61%
74,500
74,500
63%
427,500
427,500
61%
395,500
395,500
Chief Executive Officer, Westpac New Zealand
905,919
110%
73%
498,439
498,439
Modifier
In addition to qualitative downward adjustments made in assessing performance against the scorecard outcomes for the customer
outcomes and customer service transformation focus areas, the Board applied a further reduction of 15% to the CEO’s scorecard
outcome (which equates to 13.5% of the target opportunity) based on an overall assessment of risk and reputation matters.
58
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
59
Outcome
TARGET
MAX
TARGET
MAX
Directors’ report
Focus areas (continued)
Commentary
Customer outcomes
(15%)
Helping our customers,
communities and
people to prosper and
grow by delivering
great customer
outcomes, and by
securing the Group’s
future
Delivered significant improvements in service quality for our customers resulting in
solid customer growth and an improvement in net promoter scores (NPS). Business
Bank finished the year as Number 1 on both Customer Satisfaction and NPS and
Consumer Bank ranked Number 2 on NPS.
Continued to roll out new, market-leading digital innovations for our customers
including, but not limited to, Mobile Cheque Deposit, conversational banking
through Siri, Amazon, Alexa and Google Home, and digital mortgage origination.
Took a leading role in achieving ASIC approval of the new Banking Code of
Practice, offering enhanced commitments and protections to our customers.
Continued to implement the “Get it Right. Put it Right” initiative to identify and fix
Customer service
transformation (15%)
Creating superior
customer experiences
for each customer,
every time
People and culture
(10%)
Delivering key people
initiatives that drive
further the Group’s
change agenda
legacy issues.
Australia matters.
Closed out more than a third (250) of outstanding Financial Ombudsman Service
While improvements have been made across the organisation to deliver better
customer outcomes, the Royal Commission has also highlighted certain areas
where we need to do more to meet the needs of customers and the community. The
Board believes it is appropriate to ensure executive accountability and has reduced
the overall result for this focus area by 25%.
Transformation of complaint handling through the establishment of our new
Customer and Corporate Relations division. This has resulted in a significant
improvement in resolving longstanding customer issues and more proactive
identification of ‘vulnerable’ customers. Consumer and Business Bank long dated
complaints were reduced by 90%.
Undertook substantive work on alleviating the source of customer complaints
through better designed products that meet the needs of customers. Completed a
lifecycle review of certain products and made changes, including: removing
grandfathered payments to salaried BT Financial Advisers benefitting more than
140,000 BT Financial Advice customers; and simplifying and lowering transaction
fees for 1.3 million personal transaction account customers.
Continuing culture change across the Group with targeted messaging in People
Leader Forums and Culture Immersion helping people to consider complaints as
Delivered key milestones in line with the Australian Banking Association’s 6 point
part of our Service Revolution.
plan which commenced in 2016.
Delivered customer benefits from the Service Revolution Transformation programs.
In line with the approach taken for the customer outcomes focus area, the Board
also decided to reduce the overall result for the customer service transformation
focus area by 25%.
Delivered significant milestones as part of our Workforce Revolution Program.
Maintained 50% Women in Leadership and our female General Manager population
has increased over the last two years from 39% in 2016 to 47% in 2018.
Continued to strengthen our culture through initiatives including: conducting the
Navigate program which was held for all employees and led by the CEO, to review
and recommit to our Group Compass which articulates our values, service
standards, code of conduct, and expectations of standards of behaviour and ethical
treatment of our customers; launching ‘Recruit for Culture Fit’ tools designed to help
ensure new recruits fit our service culture; holding various leadership development
programs; refreshing our values and code of conduct; and rolling out a Group
Consequence Management Framework.
Accelerated implementation of the Sedgwick review recommendations for
employees which means that variable reward for Consumer and Business Bank
customer facing employees is further weighted towards service and doing the right
thing, rather than product sales.
Modifier
In addition to qualitative downward adjustments made in assessing performance against the scorecard outcomes for the customer
outcomes and customer service transformation focus areas, the Board applied a further reduction of 15% to the CEO’s scorecard
outcome (which equates to 13.5% of the target opportunity) based on an overall assessment of risk and reputation matters.
Directors’ report
Short Term Variable Reward outcomes for 2018
The table below sets out the CEO and Group Executive STVR outcomes for 2018 as determined by the Board using the
balanced scorecard outcomes, including the modifier.
Name
Managing Director & Chief Executive Officer
Target STVR
opportunity
STVR award
(as % of
target)
STVR award
(as % of
maximum)
Cash STVR
award
(50%)
Deferred
STVR award
(50%)
1
Brian Hartzer
2,686,000
77.5%
52%
1,040,825
1,040,825
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
Peter King1
Acting Chief Risk Officer
David Lees2
Acting Chief Financial Officer
Rebecca Lim
Group Executive, Compliance, Legal & Secretariat
David Lindberg
Chief Executive, Business Bank
Carolyn McCann3
Group Executive, Customer & Corporate Relations
David McLean
Chief Executive Officer, Westpac New Zealand
Limited
Christine Parker
Group Executive, Human Resources
Gary Thursby
Group Executive, Strategy & Enterprise Services
Former Group Executive
Alexandra Holcomb4
Chief Risk Officer
1,122,000
1,600,000
1,054,000
1,600,000
1,088,000
83%
50%
92%
60%
95%
55%
465,500
465,500
33%
400,000
400,000
61%
485,000
485,000
40%
480,000
480,000
63%
517,000
517,000
181,250
100%
67%
90,500
90,500
750,000
1,088,000
161,875
95%
81%
92%
63%
356,500
356,500
54%
440,500
440,500
61%
74,500
74,500
905,919
110%
73%
498,439
498,439
900,000
860,000
95%
92%
63%
427,500
427,500
61%
395,500
395,500
1,003,000
82%
55%
411,000
411,000
TARGET
MAX
1 Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer.
2 David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018 and was not considered KMP prior to his appointment. His
target STVR opportunity has been apportioned to reflect his time in a Group Executive role.
3 Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018. Her target STVR opportunity
has been apportioned to reflect her time in a Group Executive role.
4 Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018. Her target STVR opportunity
was assessed on a full year basis.
58
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59
Directors’ report
Directors’ report
4.4.
Summary of Long Term Variable Reward vesting outcomes
4.5.
Aligning pay with performance and shareholder return – five year perspective
The table below shows the vesting outcomes for LTVR awards to the CEO and Group Executives that reached the end of their
performance periods in 2018 and 2017.
Award
Performance
hurdle
Commencement
date1
Test date
Threshold
Maximum
Outcome
% vested % lapsed
Performance range
2015
LTVR
2014
LTVR
TSR
50% of award
EPS
50% of award
TSR
50% of award
EPS
50% of award
1 October 2014
1 October 2018
Equal to
composite TSR
index
Exceeds composite
TSR index by 21.55
(i.e. 5% CAGR2)
Westpac: 8.35
Index: 26.54
0%
100%
1 October 2014
1 October 20173
4.0% CAGR
6.0% CAGR
(0.8%) CAGR
0%
100%
1 October 2014
1 October 2017
50th percentile
75th percentile
20th percentile
0%
100%
1 October 2014
1 October 2017
5.0% CAGR
7.0% CAGR
(0.8%) CAGR
0%
100%
1 Commencement date is the start of the performance period. The 2014 and 2015 LTVR were granted to Group Executives on 3 December 2014. The
2015 LTVR was granted to the CEO on 11 December 2015.
2 Compound annual growth rate.
3 The EPS hurdled performance share rights reached the end of their performance period on 30 September 2017 and were subject to an additional one
year holding lock through to 30 September 2018.
Other equity vested during 2018
Lyn Cobley had 18,115 restricted shares granted under the Restricted Share Plan which vested in July 2018. The restricted
shares were allocated in respect of equity forfeited from her previous employer on joining Westpac.
The table below summarises key performance indicators for the Group and variable reward outcomes over the last five years.
CEO STVR award (% of target)
LTVR award (% vested)
Cash earnings ($m)
Economic profit ($m)
ROE
TSR – three years
TSR – five years
Share price – high
Share price – low
Share price – close
Dividends per Westpac share (cents)
Cash earnings per Westpac share1
Year ended 30 September
2017
111%
0%
8,062
3,774
13.77%
11.79%
81.32%
188
$2.40
$35.39
$28.92
$31.92
2016
97%
0%
7,822
3,774
14.00%
15.24%
100.72%
188
$2.35
$33.74
$27.57
$29.51
2015
108%
36%
7,820
4,418
15.80%
62.30%
92.78%
187
$2.48
$40.07
$29.10
$29.70
2014
127%
72%
7,628
4,491
16.40%
102.03%
103.74%
182
$2.45
$35.99
$30.00
$32.14
1 Cash earnings are not prepared in accordance with AAS and have not been subject to audit.
Graph 1: Cash earnings and CEO STVR award
(2014 to 2018)
Graph 2: Cash earnings per share performance
and average share count (2014 to 2018)
2018
77.5%
0%
8,065
3,444
13.00%
8.27%
25.67%
188
$2.36
$33.68
$27.24
$27.93
150
140
130
120
110
100
90
80
70
60
50
f
o
%
(
O
E
C
e
h
t
r
o
f
d
r
a
w
a
R
V
T
S
)
t
e
g
r
a
t
)
s
t
n
e
c
(
e
r
a
h
s
r
e
p
s
g
n
i
n
r
a
e
h
s
a
C
255
250
245
240
235
230
225
220
215
)
%
(
y
t
i
u
q
e
n
o
n
r
u
t
e
R
17
16
15
14
13
12
11
10
)
m
$
(
s
g
n
i
n
r
a
e
h
s
a
C
8,200
8,000
7,800
7,600
7,400
7,200
7,000
50
40
30
20
10
0
(10)
)
%
(
n
r
u
t
e
r
r
e
d
l
o
h
e
r
a
h
s
l
a
t
o
T
2014
2015
2016
2017
2018
Cash earnings ($m)
STVR award for the CEO (% of target)
2014
2015
2016
2017
2018
Cash earnings per share (cents)
Average share count (m)
Graph 3: Total shareholder return
(from 1 October 2013)
Graph 4: Return on equity and LTVR vesting
(2014 to 2018)
Oct 13
Oct 14
Oct 15
Oct 16
Oct 17
Oct 18
2014
2015
2016
2017
2018
Peer 1
Peer 2
Peer 3
Westpac
Return on equity (%)
LTVR award (% vested)
3,500
3,300
3,100
2,900
2,700
2,500
)
m
(
t
n
u
o
c
e
r
a
h
s
e
g
a
r
e
v
A
80%
70%
60%
50%
40%
30%
20%
10%
0%
)
d
e
t
s
e
v
%
(
d
r
a
w
a
R
V
T
L
60
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
61
Directors’ report
performance periods in 2018 and 2017.
Performance
Commencement
Award
hurdle
date1
TSR
EPS
TSR
EPS
50% of award
2015
LTVR
50% of award
50% of award
2014
LTVR
50% of award
Performance range
Test date
Threshold
Maximum
Outcome
% vested % lapsed
1 October 2014
1 October 2018
composite TSR
0%
100%
Equal to
index
Exceeds composite
TSR index by 21.55
(i.e. 5% CAGR2)
Westpac: 8.35
Index: 26.54
1 October 2014
1 October 20173
4.0% CAGR
6.0% CAGR
(0.8%) CAGR
0%
100%
1 October 2014
1 October 2017
50th percentile
75th percentile
20th percentile
0%
100%
1 October 2014
1 October 2017
5.0% CAGR
7.0% CAGR
(0.8%) CAGR
0%
100%
1 Commencement date is the start of the performance period. The 2014 and 2015 LTVR were granted to Group Executives on 3 December 2014. The
3 The EPS hurdled performance share rights reached the end of their performance period on 30 September 2017 and were subject to an additional one
2015 LTVR was granted to the CEO on 11 December 2015.
2 Compound annual growth rate.
year holding lock through to 30 September 2018.
Other equity vested during 2018
Lyn Cobley had 18,115 restricted shares granted under the Restricted Share Plan which vested in July 2018. The restricted
shares were allocated in respect of equity forfeited from her previous employer on joining Westpac.
4.4.
Summary of Long Term Variable Reward vesting outcomes
4.5.
Aligning pay with performance and shareholder return – five year perspective
The table below shows the vesting outcomes for LTVR awards to the CEO and Group Executives that reached the end of their
The table below summarises key performance indicators for the Group and variable reward outcomes over the last five years.
Year ended 30 September
1
Directors’ report
CEO STVR award (% of target)
LTVR award (% vested)
Cash earnings ($m)
Economic profit ($m)
ROE
TSR – three years
TSR – five years
Dividends per Westpac share (cents)
Cash earnings per Westpac share1
Share price – high
Share price – low
2018
77.5%
0%
8,065
3,444
13.00%
8.27%
25.67%
188
$2.36
$33.68
$27.24
2017
111%
0%
8,062
3,774
13.77%
11.79%
81.32%
188
$2.40
$35.39
$28.92
Share price – close
1 Cash earnings are not prepared in accordance with AAS and have not been subject to audit.
$31.92
$27.93
2016
97%
0%
7,822
3,774
14.00%
15.24%
100.72%
188
$2.35
$33.74
$27.57
$29.51
2015
108%
36%
7,820
4,418
15.80%
62.30%
92.78%
187
$2.48
$40.07
$29.10
$29.70
2014
127%
72%
7,628
4,491
16.40%
102.03%
103.74%
182
$2.45
$35.99
$30.00
$32.14
Graph 1: Cash earnings and CEO STVR award
(2014 to 2018)
Graph 2: Cash earnings per share performance
and average share count (2014 to 2018)
)
m
$
(
i
s
g
n
n
r
a
e
h
s
a
C
8,200
8,000
7,800
7,600
7,400
7,200
7,000
150
140
130
120
110
100
90
80
70
60
50
f
o
%
(
O
E
C
e
h
t
r
o
f
d
r
a
w
a
R
V
T
S
)
t
e
g
r
a
t
)
s
t
n
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c
(
e
r
a
h
s
i
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e
p
s
g
n
n
r
a
e
h
s
a
C
255
250
245
240
235
230
225
220
215
3,500
3,300
3,100
2,900
2,700
2,500
)
m
(
t
n
u
o
c
e
r
a
h
s
e
g
a
r
e
v
A
2014
2015
2016
2017
2018
Cash earnings ($m)
STVR award for the CEO (% of target)
2014
2015
2016
2017
2018
Cash earnings per share (cents)
Average share count (m)
Graph 3: Total shareholder return
(from 1 October 2013)
Graph 4: Return on equity and LTVR vesting
(2014 to 2018)
50
40
30
20
10
0
)
%
(
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
(10)
)
%
(
y
t
i
u
q
e
n
o
n
r
u
t
e
R
17
16
15
14
13
12
11
10
80%
70%
60%
50%
40%
30%
20%
10%
0%
)
d
e
t
s
e
v
%
(
d
r
a
w
a
R
V
T
L
Oct 13
Oct 14
Oct 15
Oct 16
Oct 17
Oct 18
2014
2015
2016
2017
2018
Peer 1
Peer 2
Peer 3
Westpac
Return on equity (%)
LTVR award (% vested)
60
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
61
Directors’ report
Directors’ report
5. Further detail on the 2018 Chief Executive Officer and Group Executive total reward framework
2018 Long Term Variable Reward Plan (continued)
5.1.
Fixed remuneration
Fixed remuneration is set based on market benchmarks within the financial services industry. The Board also takes into
account the size, responsibilities and complexity of the role, as well as the skills and experience of the executive.
5.2.
Short Term Variable Reward
The table below sets out the key design features of the 2018 STVR plan.
Plan
structure
Target
opportunity
Maximum
opportunity
Performance
measures
Assessment
of
performance
outcomes
2018 Short Term Variable Reward Plan
50% of STVR is awarded in cash and 50% is deferred into equity in the form of restricted shares (or unhurdled
share rights for the Group Executive based outside Australia).
The deferred STVR vests in equal portions one and two years after the grant date, subject to continued
service and malus provisions. Dividends are paid on restricted shares from the grant date.
The 2018 plan structure remains unchanged from 2017.
The target opportunity for the CEO and Group Executives is expressed as a percentage of fixed
remuneration. The target opportunity is set by the Board following recommendation from the Board
Remuneration Committee.
The Board and Board Remuneration Committee take into account a range of factors including market
competitiveness and the nature of the role.
Target opportunities range between 75% and 145% of fixed remuneration for the CEO and Group Executives.
The maximum opportunity is 150% of the target opportunity.
Performance is assessed against a balanced scorecard which contains financial and non-financial measures
aligned to Westpac’s strategic priorities at a Group, divisional and individual level as relevant.
Further information on focus areas for the 2018 scorecard is provided at Section 4.3.
Deferred STVR awards recognise past performance and are not subject to any further conditions, other than
continued service and malus provisions.
The Board determines STVR awards for the CEO and Group Executives with reference to performance
against individual scorecards, including an assessment of performance against measures under the focus
areas and other significant matters not covered in the focus areas via the modifier.
The Board has the ability to adjust awards upwards or downwards (including to nil) based on an overall
assessment of behaviour, risk and reputation, and people management matters, and any other matters
determined by the Board.
In addition, the Board has the ability to apply malus to unvested deferred awards if having regard to
circumstances or information which has come to light after the grant of the equity, all or part of the initial
award was not justified.
5.3.
Long Term Variable Reward
The table below sets out the key design features of the 2018 LTVR Plan awarded in December 2017.
2018 Long Term Variable Reward Plan
Plan
structure
Award
opportunity
LTVR is awarded in performance share rights which vest after four years subject to the achievement of
performance hurdles, continued service and malus provisions.
One performance share right entitles the holder to one ordinary share at the time of vesting with no exercise
cost. Dividends are not accumulated on performance share rights.
The value of LTVR awarded to the CEO and Group Executives is expressed as a percentage of fixed
remuneration. The value of LTVR is set by the Board following recommendation from the Board
Remuneration Committee.
LTVR opportunities range between 75% and 95% of fixed remuneration for the CEO and Group Executives.
Allocation
methodology
The number of performance share rights each executive receives is determined by dividing the dollar value of
the LTVR award by the fair value of the performance share rights at the beginning of the performance period.
The fair value of the performance share rights is determined by an independent valuer using a Monte Carlo
simulation pricing model, taking into consideration the life of the awards, the performance hurdles and
likelihood of vesting, non-payment of dividends prior to vesting and appropriate discount rates.
The Board Remuneration Committee caps the valuation at a maximum discount of 60% of the share price.
The value of a TSR hurdled performance share right may be different to the value of a ROE hurdled share
performance right.
Performance
hurdles
Total shareholder return
50% of the award
Return on equity
50% of the award
The performance hurdle measures Westpac’s TSR
The performance hurdle measures the average cash
performance over a four year period against a
return on average ordinary equity over a three year
composite index.
performance period.
TSR is a measure of the total return delivered to
The performance hurdle aims to reward the
shareholders over the performance period assuming
achievement of returns above Westpac’s cost of
dividends are reinvested.
The composite index is comprised of a group of ten
peers with more weight placed on the three other
major Australian banks.
At the end of the performance period, TSR
performance of each index company is multiplied by
its index weighting, and the total of the ten scores
determines the composite TSR index.
50% will vest if Westpac’s TSR performance equals
the composite TSR index. For 100% to vest,
Westpac’s TSR outcome must exceed the index by
21.55 (i.e. 5% compound annual growth over the four
year performance period) as illustrated below.
capital while generating shareholder value and
improving how efficiently the Group uses capital
resources within its risk appetite.
Performance share rights subject to ROE
performance will be tested against the performance
hurdle on 30 September 2020 and will be subject to
an additional one year holding lock through to 30
September 2021.
The graph below shows the performance levels
required for the ROE performance share rights to
vest.
Total shareholder return vesting
Return on equity vesting
g
n
i
t
s
e
v
n
o
i
t
a
c
o
l
l
a
f
o
%
100
75
50
25
0
g
n
i
t
s
e
v
n
o
i
t
a
c
o
l
l
a
f
o
%
100
75
50
25
0
Index
Index exceeded by
21.55
13.25%
14.25%
TSR performance
ROE performance
The companies in the 2018 peer group and their
relative weightings are:
TSR index weighting
Company
ANZ Banking Group
Commonwealth Bank
National Australia Bank
AMP
Bank of Queensland
Bendigo and Adelaide Bank
Challenger
Macquarie Group
Perpetual
Suncorp Group
16.67%
16.67%
16.67%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
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63
Directors’ report
5.1.
Fixed remuneration
Fixed remuneration is set based on market benchmarks within the financial services industry. The Board also takes into
account the size, responsibilities and complexity of the role, as well as the skills and experience of the executive.
5.2.
Short Term Variable Reward
The table below sets out the key design features of the 2018 STVR plan.
2018 Short Term Variable Reward Plan
Plan
structure
50% of STVR is awarded in cash and 50% is deferred into equity in the form of restricted shares (or unhurdled
share rights for the Group Executive based outside Australia).
The deferred STVR vests in equal portions one and two years after the grant date, subject to continued
service and malus provisions. Dividends are paid on restricted shares from the grant date.
The 2018 plan structure remains unchanged from 2017.
Target
opportunity
The target opportunity for the CEO and Group Executives is expressed as a percentage of fixed
remuneration. The target opportunity is set by the Board following recommendation from the Board
Remuneration Committee.
The Board and Board Remuneration Committee take into account a range of factors including market
competitiveness and the nature of the role.
Target opportunities range between 75% and 145% of fixed remuneration for the CEO and Group Executives.
The maximum opportunity is 150% of the target opportunity.
Performance is assessed against a balanced scorecard which contains financial and non-financial measures
aligned to Westpac’s strategic priorities at a Group, divisional and individual level as relevant.
Further information on focus areas for the 2018 scorecard is provided at Section 4.3.
Deferred STVR awards recognise past performance and are not subject to any further conditions, other than
continued service and malus provisions.
Assessment
The Board determines STVR awards for the CEO and Group Executives with reference to performance
against individual scorecards, including an assessment of performance against measures under the focus
areas and other significant matters not covered in the focus areas via the modifier.
of
performance
outcomes
The Board has the ability to adjust awards upwards or downwards (including to nil) based on an overall
assessment of behaviour, risk and reputation, and people management matters, and any other matters
determined by the Board.
award was not justified
In addition, the Board has the ability to apply malus to unvested deferred awards if having regard to
circumstances or information which has come to light after the grant of the equity, all or part of the initial
Maximum
opportunity
Performance
measures
5.3.
Long Term Variable Reward
The table below sets out the key design features of the 2018 LTVR Plan awarded in December 2017.
2018 Long Term Variable Reward Plan
Plan
structure
LTVR is awarded in performance share rights which vest after four years subject to the achievement of
performance hurdles, continued service and malus provisions.
One performance share right entitles the holder to one ordinary share at the time of vesting with no exercise
cost. Dividends are not accumulated on performance share rights.
Award
opportunity
The value of LTVR awarded to the CEO and Group Executives is expressed as a percentage of fixed
remuneration. The value of LTVR is set by the Board following recommendation from the Board
Remuneration Committee.
LTVR opportunities range between 75% and 95% of fixed remuneration for the CEO and Group Executives.
5. Further detail on the 2018 Chief Executive Officer and Group Executive total reward framework
2018 Long Term Variable Reward Plan (continued)
Directors’ report
Allocation
methodology
The number of performance share rights each executive receives is determined by dividing the dollar value of
the LTVR award by the fair value of the performance share rights at the beginning of the performance period.
The fair value of the performance share rights is determined by an independent valuer using a Monte Carlo
simulation pricing model, taking into consideration the life of the awards, the performance hurdles and
likelihood of vesting, non-payment of dividends prior to vesting and appropriate discount rates.
The Board Remuneration Committee caps the valuation at a maximum discount of 60% of the share price.
The value of a TSR hurdled performance share right may be different to the value of a ROE hurdled share
performance right.
1
Performance
hurdles
Total shareholder return
50% of the award
Return on equity
50% of the award
The performance hurdle measures Westpac’s TSR
performance over a four year period against a
composite index.
TSR is a measure of the total return delivered to
shareholders over the performance period assuming
dividends are reinvested.
The composite index is comprised of a group of ten
peers with more weight placed on the three other
major Australian banks.
At the end of the performance period, TSR
performance of each index company is multiplied by
its index weighting, and the total of the ten scores
determines the composite TSR index.
50% will vest if Westpac’s TSR performance equals
the composite TSR index. For 100% to vest,
Westpac’s TSR outcome must exceed the index by
21.55 (i.e. 5% compound annual growth over the four
year performance period) as illustrated below.
The performance hurdle measures the average cash
return on average ordinary equity over a three year
performance period.
The performance hurdle aims to reward the
achievement of returns above Westpac’s cost of
capital while generating shareholder value and
improving how efficiently the Group uses capital
resources within its risk appetite.
Performance share rights subject to ROE
performance will be tested against the performance
hurdle on 30 September 2020 and will be subject to
an additional one year holding lock through to 30
September 2021.
The graph below shows the performance levels
required for the ROE performance share rights to
vest.
Total shareholder return vesting
Return on equity vesting
g
n
i
t
s
e
v
n
o
i
t
a
c
o
l
l
a
f
o
%
100
75
50
25
0
g
n
i
t
s
e
v
n
o
i
t
a
c
o
l
l
a
f
o
%
100
75
50
25
0
Index
Index exceeded by
21.55
13.25%
14.25%
TSR performance
ROE performance
The companies in the 2018 peer group and their
relative weightings are:
Company
ANZ Banking Group
Commonwealth Bank
National Australia Bank
AMP
Bank of Queensland
Bendigo and Adelaide Bank
Challenger
Macquarie Group
Perpetual
Suncorp Group
TSR index weighting
16.67%
16.67%
16.67%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
7.14%
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Directors’ report
Directors’ report
2018 Long Term Variable Reward Plan (continued)
5.4.
Minimum shareholding requirements
Assessment
of
performance
outcomes
Total shareholder return
The TSR result is calculated independently to
ensure objectivity and external validation before
being provided to the Board to determine the
vesting outcome.
The Board may exercise discretion in determining
the final vesting outcome.
Performance share rights subject to TSR
performance will be tested against the performance
hurdle on 30 September 2021.
Return on equity
The ROE outcome is determined by the Board based
on ROE disclosed in the Group’s results over the
performance period.
The Board may exercise discretion in determining the
final vesting outcome.
No re-testing There has been no re-testing of awards since 2011. No current award is subject to re-testing. Awards that
have not vested after the measurement period lapse immediately.
Early vesting For awards made after 1 October 2009, unvested awards may vest before a test date if the executive is no
longer employed by the Group due to death or disability. In these cases, vesting is generally not subject to the
performance hurdles being met.
Treatment of
awards on
cessation of
employment
The Board has the discretion to determine the treatment of unvested performance share rights where the
CEO or a Group Executive resigns, retires or otherwise leaves the Group before vesting occurs.
The Board may choose to accelerate the vesting of performance share rights or leave the awards on foot for
the remainder of the performance period.
In exercising its discretion, the Board will take into account relevant circumstances including those relating to
the departure.
The Board also has the ability to adjust the number of performance share rights downwards (including to nil)
in the event of misconduct, resulting in significant financial and/or reputational impact to the Group and in
other circumstances considered appropriate.
Where an executive 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.
The table below details LTVR awards currently on foot.
Vesting date
Performance hurdles
2016 LTVR
award
30 September 2019
TSR performance against a weighted composite index of
comparator companies (50%)
Cash EPS CAGR performance (50%)
2017 LTVR
award
30 September 2020
TSR performance against a weighted composite index of
comparator companies (50%)
Average ROE performance (50%)
Further detail
Refer to the 2016
Annual Report
Refer to the 2017
Annual Report
Long Term Variable Reward structure 2019
The LTVR structure for the 2019 award will retain the same design features as the 2018 award.
The TSR hurdle, as detailed above, will remain unchanged in 2019.
The performance range for the ROE component of the 2019 LTVR has been set at an average ROE of between 13% and 14%.
The range is 25 basis points lower than the 2018 LTVR ROE target to reflect the current external environment including
continuing competitive intensity, the ongoing cost of meeting regulatory requirements, further increases in capital requirements
and the likelihood of higher impairment charges for the industry across the cycle.
The Board retains the discretion to ensure that vesting outcomes deliver alignment between performance and shareholder
outcomes.
The CEO and Group Executives are required to build and maintain a substantial Westpac shareholding within five years of their
appointment. The requirement supports alignment with shareholders’ interests.
The table below sets out the minimum shareholding requirement for the CEO and Group Executives.
Minimum shareholding requirement
CEO
Five times annual fixed remuneration excluding superannuation, equivalent to $12.26 million
Group Executives
Equivalent to $1.2 million
The table below details whether the requirement is exceeded or if the executive has been in the role for the less than five years.
Commencement date in CEO or
minimum shareholding
Group Executive role
requirement
Assessment against
2 February 2015
Less than five years in role
Name
Brian Hartzer
Lyn Cobley
Brad Cooper
Managing Director & Chief Executive Officer
Chief Executive, Westpac Institutional Bank
Chief Executive Officer, BT Financial Group
Dave Curran
Chief Information Officer
George Frazis
Chief Executive, Consumer Bank
Peter King
Acting Chief Risk Officer
Rebecca Lim
David Lindberg
Chief Executive, Business Bank
Group Executive, Compliance, Legal & Secretariat
Group Executive, Customer & Corporate Relations
Carolyn McCann
David McLean
Chief Executive Officer, Westpac New Zealand Limited
Christine Parker
Group Executive, Human Resources
Gary Thursby
Group Executive, Strategy and Enterprise Services
5.5.
Hedging policy
7 September 2015
1 October 2010
8 September 2014
5 March 2009
1 April 2014
1 October 2016
10 June 2015
18 June 2018
2 February 2015
1 October 2011
1 October 2016
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Participants in Westpac’s equity plans are forbidden from entering, either directly or indirectly, into hedging arrangements for
unvested awards in the STVR and LTVR plans. No financial products may be used to mitigate the risk associated with these
awards. Any attempt to hedge awards will result in forfeiture and the Board may consider other disciplinary action. These
restrictions satisfy the requirements of the Corporations Act which prohibits hedging of unvested awards.
64
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Directors’ report
Directors’ report
2018 Long Term Variable Reward Plan (continued)
5.4.
Minimum shareholding requirements
Assessment
of
performance
outcomes
Total shareholder return
Return on equity
The TSR result is calculated independently to
The ROE outcome is determined by the Board based
ensure objectivity and external validation before
on ROE disclosed in the Group’s results over the
being provided to the Board to determine the
performance period.
vesting outcome.
The Board may exercise discretion in determining the
The Board may exercise discretion in determining
final vesting outcome.
the final vesting outcome.
Performance share rights subject to TSR
performance will be tested against the performance
hurdle on 30 September 2021.
No re-testing There has been no re-testing of awards since 2011. No current award is subject to re-testing. Awards that
have not vested after the measurement period lapse immediately.
Early vesting For awards made after 1 October 2009, unvested awards may vest before a test date if the executive is no
longer employed by the Group due to death or disability. In these cases, vesting is generally not subject to the
performance hurdles being met.
Treatment of
awards on
cessation of
employment
The Board has the discretion to determine the treatment of unvested performance share rights where the
CEO or a Group Executive resigns, retires or otherwise leaves the Group before vesting occurs.
The Board may choose to accelerate the vesting of performance share rights or leave the awards on foot for
the remainder of the performance period.
In exercising its discretion, the Board will take into account relevant circumstances including those relating to
the departure.
The Board also has the ability to adjust the number of performance share rights downwards (including to nil)
in the event of misconduct, resulting in significant financial and/or reputational impact to the Group and in
other circumstances considered appropriate.
Where an executive 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.
The table below details LTVR awards currently on foot.
Vesting date
Performance hurdles
2016 LTVR
award
30 September 2019
TSR performance against a weighted composite index of
comparator companies (50%)
Cash EPS CAGR performance (50%)
2017 LTVR
award
30 September 2020
TSR performance against a weighted composite index of
comparator companies (50%)
Average ROE performance (50%)
Further detail
Refer to the 2016
Annual Report
Refer to the 2017
Annual Report
Long Term Variable Reward structure 2019
The LTVR structure for the 2019 award will retain the same design features as the 2018 award.
The TSR hurdle, as detailed above, will remain unchanged in 2019.
The performance range for the ROE component of the 2019 LTVR has been set at an average ROE of between 13% and 14%.
The range is 25 basis points lower than the 2018 LTVR ROE target to reflect the current external environment including
continuing competitive intensity, the ongoing cost of meeting regulatory requirements, further increases in capital requirements
and the likelihood of higher impairment charges for the industry across the cycle.
The Board retains the discretion to ensure that vesting outcomes deliver alignment between performance and shareholder
outcomes.
The CEO and Group Executives are required to build and maintain a substantial Westpac shareholding within five years of their
appointment. The requirement supports alignment with shareholders’ interests.
The table below sets out the minimum shareholding requirement for the CEO and Group Executives.
1
Minimum shareholding requirement
CEO
Five times annual fixed remuneration excluding superannuation, equivalent to $12.26 million
Group Executives
Equivalent to $1.2 million
The table below details whether the requirement is exceeded or if the executive has been in the role for the less than five years.
Name
Brian Hartzer
Managing Director & Chief Executive Officer
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
Peter King
Acting Chief Risk Officer
Rebecca Lim
Group Executive, Compliance, Legal & Secretariat
David Lindberg
Chief Executive, Business Bank
Carolyn McCann
Group Executive, Customer & Corporate Relations
David McLean
Chief Executive Officer, Westpac New Zealand Limited
Christine Parker
Group Executive, Human Resources
Gary Thursby
Group Executive, Strategy and Enterprise Services
5.5.
Hedging policy
Commencement date in CEO or
Group Executive role
Assessment against
minimum shareholding
requirement
2 February 2015
Less than five years in role
7 September 2015
1 October 2010
8 September 2014
5 March 2009
1 April 2014
1 October 2016
10 June 2015
18 June 2018
2 February 2015
1 October 2011
1 October 2016
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Participants in Westpac’s equity plans are forbidden from entering, either directly or indirectly, into hedging arrangements for
unvested awards in the STVR and LTVR plans. No financial products may be used to mitigate the risk associated with these
awards. Any attempt to hedge awards will result in forfeiture and the Board may consider other disciplinary action. These
restrictions satisfy the requirements of the Corporations Act which prohibits hedging of unvested awards.
64
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65
Directors’ report
5.6.
Employment agreements
The remuneration and other terms of employment for the CEO and Group Executives are formalised in their employment
agreements. Each agreement provides for the payment of fixed and variable reward, employer superannuation contributions
and other benefits such as death and disablement insurance cover.
The table below details the key terms including termination provisions of the employment agreements for the CEO and Group
Executives in 2018.
Non-executive Directors fees are not related to Westpac’s results. All fees are paid in cash and no discretionary payments are
made for performance. Non-executive Directors are required to build and maintain a minimum shareholding to align their
Term
Who
Duration of agreement
CEO and Group Executives
Notice (by the executive or the Group)
to terminate employment
Termination payments on termination
without cause2
CEO and Group Executives
CEO and Group Executives
Termination for cause
CEO and Group Executives
(excluding Brad Cooper)
Brad Cooper
Post-employment restraints
CEO and Group Executives
Conditions
Ongoing until notice given by either
party
12 months1
Deferred STVR and LTVR awards vest
according to the applicable equity plan
rules
Immediately for misconduct
3 months’ notice for poor performance
Immediately for misconduct
Contractual notice period for poor
performance
12 month non-solicitation restraint
1
Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period.
2
The maximum liability for termination benefits for the CEO and Group Executives at 30 September 2018 was $14.1 million (2017: $13.4 million).
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67
6. Non-executive Director remuneration
6.1. Structure and policy
Westpac’s Non-executive Director remuneration strategy is designed to attract and retain experienced, qualified Board
members and provide appropriate remuneration for their time and expertise.
Directors’ report
interests with those of shareholders.
The table below sets out the components of Non-executive Director remuneration.
Non-executive Director remuneration
Base fee
Relates to service on the Westpac Banking Corporation Board. The base fee for the Chairman
covers all responsibilities, including for Board Committees.
Committee fees
Additional fees are paid to Non-executive Directors (other than the Board Chairman) for
chairing or participating in Board Committees.
Employer superannuation
Reflects statutory superannuation contributions which are capped at the superannuation
contributions
maximum contributions base as prescribed under the Superannuation Guarantee legislation.
Subsidiary Board and
Advisory Board fees
subsidiary.
Relates to service on Subsidiary Boards and Advisory Boards and are paid by the relevant
6.2. Non-executive Director remuneration in 2018
Non-executive Director remuneration did not change in 2018. The Board last reviewed Non-executive Director fees in 2016 and
approved an increase to the member fees for the Board Technology Committee based on market data and changes in the
The Non-executive Director fee pool of $4.5 million per annum has not changed for ten years since it was approved by
shareholders at the 2008 Annual General Meeting. For 2018, $3.09 million (69%) of the fee pool was used. The fee pool
includes employer superannuation contributions.
The table below sets out the Board and standing Committee fees for 2018.
workload of members.
Fee pool
Fee framework
Base fee
Chairman
Other Non-executive Directors
Committee Chairman fees
Board Audit Committee
Board Risk & Compliance Committee
Board Remuneration Committee
Board Technology Committee
Committee membership fees
Board Audit Committee
Board Risk & Compliance Committee
Board Remuneration Committee
Board Technology Committee
Annual fee
$
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 Board Nominations Committee.
Subsidiary Board and Advisory Board fees
Advisory Board.
During the reporting period, additional fees of $35,000 were paid to Peter Hawkins as a member of the Bank of Melbourne
Directors’ report
5.6.
Employment agreements
6. Non-executive Director remuneration
Directors’ report
The remuneration and other terms of employment for the CEO and Group Executives are formalised in their employment
agreements. Each agreement provides for the payment of fixed and variable reward, employer superannuation contributions
and other benefits such as death and disablement insurance cover.
6.1. Structure and policy
Westpac’s Non-executive Director remuneration strategy is designed to attract and retain experienced, qualified Board
members and provide appropriate remuneration for their time and expertise.
1
The table below details the key terms including termination provisions of the employment agreements for the CEO and Group
Executives in 2018.
Term
Who
Conditions
Duration of agreement
CEO and Group Executives
Ongoing until notice given by either
Notice (by the executive or the Group)
CEO and Group Executives
to terminate employment
Termination payments on termination
CEO and Group Executives
without cause2
Termination for cause
CEO and Group Executives
(excluding Brad Cooper)
Brad Cooper
party
12 months1
Deferred STVR and LTVR awards vest
according to the applicable equity plan
rules
Immediately for misconduct
3 months’ notice for poor performance
Immediately for misconduct
Contractual notice period for poor
performance
12 month non-solicitation restraint
Post-employment restraints
CEO and Group Executives
1
2
Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period.
The maximum liability for termination benefits for the CEO and Group Executives at 30 September 2018 was $14.1 million (2017: $13.4 million).
Non-executive Directors fees are not related to Westpac’s results. All fees are paid in cash and no discretionary payments are
made for performance. Non-executive Directors are required to build and maintain a minimum shareholding to align their
interests with those of shareholders.
The table below sets out the components of Non-executive Director remuneration.
Non-executive Director remuneration
Base fee
Relates to service on the Westpac Banking Corporation Board. The base fee for the Chairman
covers all responsibilities, including for Board Committees.
Committee fees
Additional fees are paid to Non-executive Directors (other than the Board Chairman) for
chairing or participating in Board Committees.
Employer superannuation
contributions
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
Relates to service on Subsidiary Boards and Advisory Boards and are paid by the relevant
subsidiary.
6.2. Non-executive Director remuneration in 2018
Non-executive Director remuneration did not change in 2018. The Board last reviewed Non-executive Director fees in 2016 and
approved an increase to the member fees for the Board Technology Committee based on market data and changes in the
workload of members.
Fee pool
The Non-executive Director fee pool of $4.5 million per annum has not changed for ten years since it was approved by
shareholders at the 2008 Annual General Meeting. For 2018, $3.09 million (69%) of the fee pool was used. The fee pool
includes employer superannuation contributions.
Fee framework
The table below sets out the Board and standing Committee fees for 2018.
Base fee
Chairman
Other Non-executive Directors
Committee Chairman fees
Board Audit Committee
Board Risk & Compliance Committee
Board Remuneration Committee
Board Technology Committee
Committee membership fees
Board Audit Committee
Board Risk & Compliance Committee
Board Remuneration Committee
Board Technology Committee
Annual fee
$
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 Board Nominations Committee.
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.
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67
Directors’ report
6.3. Changes to Board and Committee composition
The table below outlines the changes that were made to the Board and Committee composition in 2018.
Name
Change in position
Robert Elstone
Alison Deans
Peter Hawkins
Peter Nash
Retired from the Board
Appointed Chairman of the Board Technology Committee
Appointed member of the Board Remuneration Committee
Appointed member of the Board Nominations Committee
Stepped down as Chairman of the Board Technology Committee
(remaining a member of that Committee)
Ceased to be a member of the Board Nominations Committee
Appointed Non-executive Director
Appointed member of the Board Audit Committee
Appointed member of the Board Risk & Compliance Committee
Effective date
8 December 2017 following
the completion of the 2017
Annual General Meeting
8 December 2017
8 December 2017
7 March 2018
6.4. Non-executive Director minimum shareholding requirement
Non-executive Directors are required to build and maintain a holding in Westpac ordinary shares to align their interests with
those of shareholders. Each Non-executive Director is 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.
All Non-executive Directors comply with the minimum shareholding requirement.
Name
Lindsay Maxsted
Chairman
Nerida Caesar
Director
Ewen Crouch
Director
Alison Deans
Director
Craig Dunn
Director
Peter Hawkins
Director
Peter Marriott
Director
Peter Nash
Director
Commencement date on Board
Assessment against minimum
shareholding requirement
1 March 2008
1 September 2017
1 February 2013
1 April 2014
1 June 2015
1 December 2008
1 June 2013
7 March 2018
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
In addition to their direct holdings in Westpac ordinary shares, Non-executive Directors may also have control of Westpac
shares through related bodies corporate. Shares held under this extended definition are set out in Section 7.4.
7. Statutory remuneration details
7.1.
Details of Non-executive Director remuneration
The table below details Non-executive Director remuneration.
Short-term benefits
Post-employment benefits
Westpac Banking
Corporation Board fees1
Subsidiary and
Advisory Board fees
$
$
Superannuation
$
Current Non-executive Directors
Lindsay Maxsted, Chairman
Directors’ report
Total
$
830,181
829,734
297,181
20,540
344,581
343,453
333,146
296,734
340,981
333,955
366,935
378,858
367,581
367,134
64,010
337,734
3,121,030
2,974,065
20,181
19,734
20,181
1,619
20,181
19,734
20,181
19,734
20,181
19,734
20,103
19,658
20,181
19,734
3,895
19,734
156,828
143,390
810,000
810,000
277,000
18,921
324,400
323,719
312,965
277,000
320,800
314,221
311,832
324,200
347,400
347,400
164,690
60,115
318,000
2,929,202
2,795,675
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,000
35,000
35,000
35,000
Former Non-executive Director
Robert Elstone3
11,744
176,434
Includes fees paid to the Chairman and members of Board Committees.
Peter Nash commenced as a Non-executive Director on 7 March 2018.
Robert Elstone retired as a Non-executive Director on 8 December 2017.
The total fees for 2017 reflect the prior year remuneration for the 2017 reported Non-executive Directors.
Nerida Caesar
Ewen Crouch
Alison Deans
Craig Dunn
Name
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Peter Marriott
Peter Nash2
2018
Peter Hawkins
2018
2017
Total fees
2018
20174
1
2
3
4
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69
Directors’ report
6.3. Changes to Board and Committee composition
The table below outlines the changes that were made to the Board and Committee composition in 2018.
Name
Change in position
Robert Elstone
Retired from the Board
Effective date
8 December 2017 following
the completion of the 2017
Annual General Meeting
Alison Deans
Appointed Chairman of the Board Technology Committee
8 December 2017
Peter Hawkins
Stepped down as Chairman of the Board Technology Committee
8 December 2017
Appointed member of the Board Remuneration Committee
Appointed member of the Board Nominations Committee
(remaining a member of that Committee)
Ceased to be a member of the Board Nominations Committee
Appointed member of the Board Audit Committee
Appointed member of the Board Risk & Compliance Committee
Peter Nash
Appointed Non-executive Director
7 March 2018
6.4. Non-executive Director minimum shareholding requirement
Non-executive Directors are required to build and maintain a holding in Westpac ordinary shares to align their interests with
those of shareholders. Each Non-executive Director is 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.
All Non-executive Directors comply with the minimum shareholding requirement.
Commencement date on Board
Assessment against minimum
shareholding requirement
Name
Lindsay Maxsted
Chairman
Nerida Caesar
Director
Ewen Crouch
Director
Alison Deans
Director
Craig Dunn
Director
Peter Hawkins
Director
Peter Marriott
Director
Peter Nash
Director
1 March 2008
1 September 2017
1 February 2013
1 April 2014
1 June 2015
1 December 2008
1 June 2013
7 March 2018
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
Exceeds
In addition to their direct holdings in Westpac ordinary shares, Non-executive Directors may also have control of Westpac
shares through related bodies corporate. Shares held under this extended definition are set out in Section 7.4.
7. Statutory remuneration details
Details of Non-executive Director remuneration
7.1.
The table below details Non-executive Director remuneration.
Directors’ report
1
Short-term benefits
Post-employment benefits
Westpac Banking
Corporation Board fees1
$
Subsidiary and
Advisory Board fees
$
Superannuation
$
Name
Current Non-executive Directors
Lindsay Maxsted, Chairman
2018
2017
Nerida Caesar
2018
2017
Ewen Crouch
2018
2017
Alison Deans
2018
2017
Craig Dunn
2018
2017
Peter Hawkins
2018
2017
Peter Marriott
2018
2017
Peter Nash2
2018
Former Non-executive Director
Robert Elstone3
2018
2017
Total fees
2018
20174
810,000
810,000
277,000
18,921
324,400
323,719
312,965
277,000
320,800
314,221
311,832
324,200
347,400
347,400
164,690
60,115
318,000
2,929,202
2,795,675
-
-
-
-
-
-
-
-
-
-
35,000
35,000
-
-
-
-
-
35,000
35,000
Total
$
830,181
829,734
297,181
20,540
344,581
343,453
333,146
296,734
340,981
333,955
366,935
378,858
367,581
367,134
20,181
19,734
20,181
1,619
20,181
19,734
20,181
19,734
20,181
19,734
20,103
19,658
20,181
19,734
11,744
176,434
3,895
19,734
156,828
143,390
64,010
337,734
3,121,030
2,974,065
1
Includes fees paid to the Chairman and members of Board Committees.
2
Peter Nash commenced as a Non-executive Director on 7 March 2018.
3
Robert Elstone retired as a Non-executive Director on 8 December 2017.
4
The total fees for 2017 reflect the prior year remuneration for the 2017 reported Non-executive Directors.
68
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69
Directors’ report
4
5
6
7
8
9
10
13
Includes payments on cessation of employment or other contracted amounts.
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.
The value of restricted shares is amortised over the applicable vesting period and the amount shown is the amortisation relating to 2018 (and 2017
for comparison).
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 2018. Details of prior year grants are
disclosed in previous Annual Reports. The value for David McLean includes 51% attributed to deferred STVR awards. Refer to footnote 13 for the
treatment of Alexandra Holcomb’s equity.
The expensed value of the 2016 LTVR EPS hurdled performance share rights has been reduced to nil. The expensed value of the 2017 and 2018
LTVR ROE hurdled performance share rights have been reduced by 50%. This reflects the Board’s current assessment of the probability of vesting.
The percentage of the total remuneration which is performance-related (i.e. cash STVR award plus share-based payments) was: Brian Hartzer 57%,
Lyn Cobley 59%, Brad Cooper 59%, Dave Curran 58%, George Frazis 61%, Alexandra Holcomb 82%, Peter King 54%, David Lees 36%, Rebecca
Lim 55%, David Lindberg 56%, Carolyn McCann 48%, David McLean 57%, Christine Parker 60% and Gary Thursby 59%. The percentage of total
remuneration delivered in the form of options (including share rights) was: Brian Hartzer 19%, Lyn Cobley 14%, Brad Cooper 19%, Dave Curran 19%,
George Frazis 16%, Alexandra Holcomb 55%, Peter King 17%, David Lees 3%, Rebecca Lim 16%, David Lindberg 17%, Carolyn McCann 5%, David
McLean 35%, Christine Parker 18% and Gary Thursby 17%.
Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer.
11
David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018.
12
Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018.
Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018. The share based
payment values for Alexandra Holcomb reflect the accruals for all unvested equity up to the end of each performance period. For example, the 2018
LTVR 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, the awards may or may not vest subject to the relevant performance hurdles.
Directors’ report
Remuneration details – CEO and Group Executives
7.2.
The table below sets out details of remuneration for the CEO and Group Executives calculated in accordance with AAS.
Short-term benefits
Post-
employment
benefits
Fixed
remuneration1
$
Cash STVR
award2
$
Name
Non-
monetary
benefits3
$
Other
short-
term
benefits4
$
Superannuation
benefits5
$
Other
long-
term
benefits
Long
service
leave
$
Share-based payments
Restricted
shares6
$
Share
rights7,8
$
Total9
$
Managing Director & Chief Executive Officer
Brian Hartzer
2018
2017
2,730,714
2,665,249
1,040,825
1,490,730
20,618
19,494
Current Group Executives
Lyn Cobley, Chief Executive, Westpac Institutional Bank
2018
2017
1,085,585
1,089,650
465,500
640,000
4,039
4,014
Brad Cooper, Chief Executive Officer, BT Financial Group
4,014
2018
2,924
2017
1,136,073
1,064,384
400,000
792,500
Dave Curran, Chief Information Officer
2018
2017
1,021,322
941,632
485,000
552,500
480,000
872,500
1,109,913
1,127,559
George Frazis, Chief Executive, Consumer Bank
2018
2017
Peter King, Acting Chief Risk Officer10
2018
1,232,059
517,000
2017
1,047,360
615,000
David Lees, Acting Chief Financial Officer11
90,500
2018
315,773
2,924
4,014
2,924
4,014
2,924
4,014
393
Rebecca Lim, Group Executive, Compliance, Legal & Secretariat
2018
2017
903,728
756,722
356,500
412,500
2,924
3,512
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
David Lindberg, Chief Executive, Business Bank
2018
-
2017
-
Carolyn McCann, Group Executive, Customer & Corporate Relations12
-
2018
1,049,010
928,528
440,500
532,500
4,014
11,901
241,365
74,500
1,915
David McLean, Chief Executive Officer, Westpac New Zealand Limited
-
2018
-
2017
849,488
736,628
498,439
412,570
55,885
39,739
Christine Parker, Group Executive, Human Resources
2018
2017
865,802
824,006
427,500
517,500
2,924
4,604
Gary Thursby, Group Executive, Strategy & Enterprise Services
2018
2017
794,889
820,262
395,500
485,000
2,924
2,924
Former Group Executive
Alexandra Holcomb, Chief Risk Officer13
2018
2017
717,564
950,564
411,000
532,500
2,147
2,924
-
-
-
-
-
-
42,235
41,226
40,697
40,697
1,449,964
1,287,590
1,247,127 6,572,180
1,136,724 6,681,710
29,993
37,818
17,000
16,995
749,930
767,014
394,975 2,747,022
591,601 3,147,092
29,366
39,503
16,700
(41,160)
778,096
754,634
538,531 2,902,780
347,391 2,960,176
28,806
28,451
20,703
14,424
531,367
487,089
480,835 2,570,957
404,406 2,432,516
38,132
40,509
17,425
17,419
858,110
842,782
489,032 2,995,536
401,563 3,306,346
34,957
34,421
90,204
16,485
597,487
537,796
512,401 2,987,032
405,875 2,660,951
35,518
21,045
99,521
15,247
577,997
29,912
28,201
55,507
45,641
512,169
425,776
348,768 2,209,508
206,069 1,878,421
28,365
27,244
25,006
18,507
518,657
453,174
435,208 2,500,760
398,655 2,370,509
5,579
12,665
144,344
25,395
505,763
81,444
76,082
-
-
-
39
785,206 2,270,462
837,360 2,102,418
26,848
26,643
(8,854)
(3,479)
500,697
464,335
399,535 2,214,452
260,141 2,093,750
28,616
29,819
12,693
12,642
453,951
372,119
344,305 2,032,878
225,354 1,948,120
22,032
39,645
(23,296)
4,669
657,557
520,145
2,218,208 4,005,212
386,131 2,436,578
1
Fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking and associated fringe benefits tax (FBT))
and an accrual for annual leave entitlements.
2
2018 STVR awards reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2018. STVR
awards are paid in December.
3
Non-monetary benefits are determined on the basis of the cost to the Group (including associated FBT, where applicable) and include annual health
checks, provision of taxation advice, relocation costs, living away from home expenses and allowances.
70
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71
Directors’ report
7.2.
Remuneration details – CEO and Group Executives
The table below sets out details of remuneration for the CEO and Group Executives calculated in accordance with AAS.
Post-
employment
Other
long-
term
Short-term benefits
benefits
benefits
Share-based payments
Fixed
Cash STVR
term
Superannuation
remuneration1
$
award2
$
benefits4
$
$
benefits5
$
Restricted
shares6
$
Share
rights7,8
$
Total9
$
Long
service
leave
$
Other
short-
Non-
monetary
benefits3
2,730,714
2,665,249
1,040,825
1,490,730
20,618
19,494
42,235
41,226
40,697
40,697
1,449,964
1,287,590
1,247,127 6,572,180
1,136,724 6,681,710
Name
Brian Hartzer
Managing Director & Chief Executive Officer
Current Group Executives
Lyn Cobley, Chief Executive, Westpac Institutional Bank
1,085,585
1,089,650
465,500
640,000
4,039
4,014
29,993
37,818
17,000
16,995
749,930
767,014
394,975 2,747,022
591,601 3,147,092
Brad Cooper, Chief Executive Officer, BT Financial Group
1,136,073
1,064,384
400,000
792,500
4,014
2,924
29,366
16,700
39,503
(41,160)
778,096
754,634
538,531 2,902,780
347,391 2,960,176
Dave Curran, Chief Information Officer
George Frazis, Chief Executive, Consumer Bank
Peter King, Acting Chief Risk Officer10
David Lees, Acting Chief Financial Officer11
1,021,322
941,632
485,000
552,500
2,924
4,014
28,806
28,451
20,703
14,424
531,367
487,089
480,835 2,570,957
404,406 2,432,516
1,109,913
1,127,559
480,000
872,500
2,924
4,014
38,132
40,509
17,425
17,419
858,110
842,782
489,032 2,995,536
401,563 3,306,346
1,232,059
1,047,360
517,000
615,000
2,924
4,014
34,957
34,421
90,204
16,485
597,487
537,796
512,401 2,987,032
405,875 2,660,951
315,773
90,500
393
35,518
21,045
99,521
15,247
577,997
Rebecca Lim, Group Executive, Compliance, Legal & Secretariat
903,728
756,722
356,500
412,500
2,924
3,512
29,912
28,201
55,507
45,641
512,169
425,776
348,768 2,209,508
206,069 1,878,421
David Lindberg, Chief Executive, Business Bank
1,049,010
928,528
440,500
532,500
4,014
11,901
28,365
27,244
25,006
18,507
518,657
453,174
435,208 2,500,760
398,655 2,370,509
Carolyn McCann, Group Executive, Customer & Corporate Relations12
David McLean, Chief Executive Officer, Westpac New Zealand Limited
241,365
74,500
1,915
5,579
12,665
144,344
25,395
505,763
849,488
736,628
498,439
412,570
55,885
39,739
81,444
76,082
-
-
-
39
785,206 2,270,462
837,360 2,102,418
Christine Parker, Group Executive, Human Resources
865,802
824,006
427,500
517,500
2,924
4,604
26,848
26,643
(8,854)
(3,479)
500,697
464,335
399,535 2,214,452
260,141 2,093,750
Gary Thursby, Group Executive, Strategy & Enterprise Services
794,889
820,262
395,500
485,000
2,924
2,924
28,616
29,819
12,693
12,642
453,951
372,119
344,305 2,032,878
225,354 1,948,120
Former Group Executive
Alexandra Holcomb, Chief Risk Officer13
717,564
950,564
411,000
532,500
2,147
2,924
22,032
(23,296)
39,645
4,669
657,557
520,145
2,218,208 4,005,212
386,131 2,436,578
Fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking and associated fringe benefits tax (FBT))
2018 STVR awards reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2018. STVR
and an accrual for annual leave entitlements.
awards are paid in December.
Non-monetary benefits are determined on the basis of the cost to the Group (including associated FBT, where applicable) and include annual health
checks, provision of taxation advice, relocation costs, living away from home expenses and allowances.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2018
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
2018
2017
1
2
3
70
Directors’ report
4
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 2018 (and 2017
for comparison).
7
Equity-settled remuneration is based on the amortisation over the vesting period (normally three or four years) of the fair value at grant date of
hurdled and unhurdled options and share rights that were granted during the four years ended 30 September 2018. Details of prior year grants are
disclosed in previous Annual Reports. The value for David McLean includes 51% attributed to deferred STVR awards. Refer to footnote 13 for the
treatment of Alexandra Holcomb’s equity.
8
The expensed value of the 2016 LTVR EPS hurdled performance share rights has been reduced to nil. The expensed value of the 2017 and 2018
LTVR ROE hurdled performance share rights have been reduced by 50%. This reflects the Board’s current assessment of the probability of vesting.
9
The percentage of the total remuneration which is performance-related (i.e. cash STVR award plus share-based payments) was: Brian Hartzer 57%,
Lyn Cobley 59%, Brad Cooper 59%, Dave Curran 58%, George Frazis 61%, Alexandra Holcomb 82%, Peter King 54%, David Lees 36%, Rebecca
Lim 55%, David Lindberg 56%, Carolyn McCann 48%, David McLean 57%, Christine Parker 60% and Gary Thursby 59%. The percentage of total
remuneration delivered in the form of options (including share rights) was: Brian Hartzer 19%, Lyn Cobley 14%, Brad Cooper 19%, Dave Curran 19%,
George Frazis 16%, Alexandra Holcomb 55%, Peter King 17%, David Lees 3%, Rebecca Lim 16%, David Lindberg 17%, Carolyn McCann 5%, David
McLean 35%, Christine Parker 18% and Gary Thursby 17%.
10
11
12
13
Peter King was the Chief Financial Officer until 25 June 2018 when he was appointed as the Acting Chief Risk Officer.
David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018.
Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018.
Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018. The share based
payment values for Alexandra Holcomb reflect the accruals for all unvested equity up to the end of each performance period. For example, the 2018
LTVR 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, the awards may or may not vest subject to the relevant performance hurdles.
1
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
71
Directors’ report
Movement in equity-settled instruments during the year
7.3.
The table shows the movements in the number and value of equity instruments for the CEO and Group Executives under the
relevant plan during 2018.
Name
Type of equity-based instrument
Managing Director & Chief Executive Officer
Number
granted1
Number
vested2
Number
exercised3
Value
granted4
$
Value
exercised5
$
Brian Hartzer
CEO Performance share rights
197,654
Performance share rights
Shares under the CEO Restricted
Share Plan
Current Group Executives
Lyn Cobley
Performance share rights
Shares under Restricted Share Plan
Brad Cooper
Performance share rights
Shares under Restricted Share Plan
Dave Curran
Performance share rights
Shares under Restricted Share Plan
George Frazis
Performance share rights
Shares under Restricted Share Plan
Peter King
Performance share rights
David Lees
Shares under Restricted Share Plan
Performance share rights
Shares under Restricted Share Plan
Rebecca Lim
Performance share rights
Shares under Restricted Share Plan
David Lindberg
Performance share rights
Shares under Restricted Share Plan
Carolyn McCann
Performance share rights
Shares under Restricted Share Plan
David McLean
Performance share rights
Unhurdled share rights
Shares under Restricted Share Plan
Christine Parker
Performance share rights
Shares under Restricted Share Plan
Gary Thursby
Performance share rights
Shares under Restricted Share Plan
Former Group Executive
Alexandra
Holcomb
Performance share rights
Performance options
-
-
-
47,384
39,967
82,564
20,343
82,094
25,190
77,560
17,561
78,186
27,733
80,062
19,548
-
-
54,730
13,111
80,062
16,926
12,482
-
68,216
14,382
-
63,798
16,449
54,730
15,416
73,806
-
-
25,760
-
24,341
-
15,932
-
27,357
-
16,741
-
-
-
14,728
-
13,107
-
-
-
16,710
-
-
15,043
-
11,607
-
-
Value
forfeited or
lapsed5
$
-
3,115,692
-
-
-
2,256,166
-
-
-
1,181,775
-
1,158,166
-
-
-
397,489
-
725,166
-
-
-
-
-
-
1,396,640
-
418,972
-
790,008
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,527,136
-
1,490,884
1,476,657
640,069
1,468,251
792,575
1,387,161
552,537
1,398,357
872,587
1,431,909
615,056
-
-
978,846
412,523
1,431,909
532,557
206,364
-
1,220,043
418,832
-
1,141,027
517,549
978,846
485,047
1,320,020
-
532,557
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Shares under Restricted Share Plan
16,926
15,565
1
No performance options were granted in 2018. Deferred STVR awards in the form of restricted shares or unhurdled share rights (for David McLean
based in New Zealand) are awarded in December. David McLean’s unhurdled share rights were granted on 18 December 2017 at a fair value of
$29.57 (unhurdled share rights vesting on 1 October 2018) and $28.00 (unhurdled rights vesting on 1 October 2019).
2
No hurdled share rights granted in 2014 vested in October 2017 when 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 ten years from their commencement
date. Vested share rights awarded between October 2009 and July 2015 are automatically exercised at vesting. Vested share rights granted after
July 2015 may be exercised at will up to a maximum of 15 years from their commencement date. For each vested 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.
72
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
73
Directors’ report
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 Long Term Variable Reward awards 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 the CEO and Group Executives in 2018, do not reconcile
with the amount shown in the table in Section 7.2 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 value of each option or share right exercised or lapsed is calculated based on the five day VWAP of Westpac ordinary shares 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 fair value, as shown above.
the value has been calculated as nil.
Fair value of Long Term Variable Reward awards made during the year
The table below provides a summary of the fair value of LTVR awards granted to the CEO and Group Executives during 2018
calculated in accordance with AASB 2 Share-based Payment and is used for accounting purposes only. LTVR awards will only
vest if performance hurdles are achieved and service conditions are met in future years.
Plan name
Granted to
Performance
hurdle
Commencement
date1
Grant date
Test date
Expiry
CEO Long Term
Brian Hartzer
8 December 2017
1 October 2017
1 October 2021
1 October 2032
8 December 2017
1 October 2017
1 October 2020
1 October 2032
Westpac Long Term Group
Variable Reward
Executives
1 December 2017
1 October 2017
1 October 2021
1 October 2032
1 December 2017
1 October 2017
1 October 2020
1 October 2032
TSR
ROE
TSR
ROE
Fair
value2 per
instrument
$10.55
$25.14
$10.58
$25.19
The commencement date is the start of the performance period.
The fair values of performance share rights granted during the year have been independently calculated at their respective grant dates based on the
requirements of AASB 2 Share-based Payment. The fair value of performance share 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 performance share
rights valued at $25.19 is four years to the 1 October 2020 vesting date. For the purpose of allocating performance share rights with ROE hurdles, the
valuation also takes into account the average ROE outcome using a Monte Carlo pricing simulation model. The fair value of performance share rights
with hurdles based on TSR performance relative to that of a group of comparator companies also takes into account the average TSR outcome
determined using a Monte Carlo simulation pricing model.
Variable Reward
Plan
Plan
1
2
7.4.
Details of Westpac equity holdings of Non-executive Directors
The table below 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 20181.
Current Non-executive Directors
Name
Lindsay Maxsted
Nerida Caesar
Ewen Crouch2
Alison Deans
Craig Dunn
Peter Hawkins4
Peter Marriott5
Peter Nash6
Former Non-executive Director
Robert Elstone7
Number held at
start of the year
Changes
during the year
Number held at
end of the year
20,767
-
40,264
9,392
8,869
15,880
20,870
n/a
12,096
1,328
9,985
42,0003
5,000
20,202
2,876
-
-
-
22,095
9,985
82,264
14,392
8,869
15,880
41,072
8,020
n/a
Other than as disclosed below, no share interests include non-beneficially held shares.
In addition to holdings of ordinary shares, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2 at year end.
Ewen Crouch holds the securities following the grant of probate in a deceased estate for which he is one of the executors.
In addition to holdings of ordinary shares, Peter Hawkins and his related parties held interests in 850 Westpac Capital Notes 3, 882 Westpac Capital
Notes 4 and 1,370 Westpac Capital Notes 5 at year end.
In addition to holdings of ordinary shares, Peter Marriott and his related parties held interests in 740 Westpac Capital Notes 2 at year end.
Peter Nash commenced as a Non-executive Director on 7 March 2018. The information relates to the period he was a Non-executive Director.
Robert Elstone retired on 8 December 2017. The information relates to the period he was a Non-executive Director.
4
5
1
2
3
4
5
6
7
Directors’ report
relevant plan during 2018.
7.3.
Movement in equity-settled instruments during the year
The table shows the movements in the number and value of equity instruments for the CEO and Group Executives under the
Number
granted1
Number
vested2
Number
exercised3
Value
granted4
exercised5
$
Value
forfeited or
Value
lapsed5
$
Name
Type of equity-based instrument
Managing Director & Chief Executive Officer
Brian Hartzer
CEO Performance share rights
197,654
3,527,136
Performance share rights
-
Shares under the CEO Restricted
Share Plan
47,384
39,967
1,490,884
Current Group Executives
Lyn Cobley
Performance share rights
Shares under Restricted Share Plan
25,760
Brad Cooper
Performance share rights
Shares under Restricted Share Plan
24,341
Dave Curran
Performance share rights
Shares under Restricted Share Plan
15,932
George Frazis
Performance share rights
Shares under Restricted Share Plan
27,357
Peter King
Performance share rights
Shares under Restricted Share Plan
16,741
David Lees
Performance share rights
Shares under Restricted Share Plan
Rebecca Lim
Performance share rights
Shares under Restricted Share Plan
14,728
David Lindberg
Performance share rights
Shares under Restricted Share Plan
13,107
Carolyn McCann
Performance share rights
Shares under Restricted Share Plan
David McLean
Performance share rights
Unhurdled share rights
16,710
Shares under Restricted Share Plan
Christine Parker
Performance share rights
Shares under Restricted Share Plan
15,043
Gary Thursby
Performance share rights
Shares under Restricted Share Plan
11,607
82,564
20,343
82,094
25,190
77,560
17,561
78,186
27,733
80,062
19,548
-
-
-
-
54,730
13,111
80,062
16,926
12,482
68,216
14,382
63,798
16,449
54,730
15,416
73,806
-
Former Group Executive
Alexandra
Holcomb
Performance share rights
Performance options
Shares under Restricted Share Plan
16,926
15,565
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
1,476,657
640,069
1,468,251
792,575
1,387,161
552,537
1,398,357
872,587
1,431,909
615,056
-
-
-
-
978,846
412,523
1,431,909
532,557
206,364
1,220,043
418,832
1,141,027
517,549
978,846
485,047
1,320,020
-
532,557
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,115,692
2,256,166
1,181,775
1,158,166
397,489
725,166
1,396,640
418,972
790,008
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
No performance options were granted in 2018. Deferred STVR awards in the form of restricted shares or unhurdled share rights (for David McLean
based in New Zealand) are awarded in December. David McLean’s unhurdled share rights were granted on 18 December 2017 at a fair value of
$29.57 (unhurdled share rights vesting on 1 October 2018) and $28.00 (unhurdled rights vesting on 1 October 2019).
No hurdled share rights granted in 2014 vested in October 2017 when assessed against the TSR and EPS performance hurdles.
Vested options and share rights that were awarded prior to October 2009 can be exercised up to a maximum of ten years from their commencement
date. Vested share rights awarded between October 2009 and July 2015 are automatically exercised at vesting. Vested share rights granted after
July 2015 may be exercised at will up to a maximum of 15 years from their commencement date. For each vested 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.
1
2
3
72
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 Long Term Variable Reward awards 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 the CEO and Group Executives in 2018, do not reconcile
with the amount shown in the table in Section 7.2 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 VWAP of Westpac ordinary shares 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.
1
Fair value of Long Term Variable Reward awards made during the year
The table below provides a summary of the fair value of LTVR awards granted to the CEO and Group Executives during 2018
calculated in accordance with AASB 2 Share-based Payment and is used for accounting purposes only. LTVR awards will only
vest if performance hurdles are achieved and service conditions are met in future years.
Plan name
Granted to
Performance
hurdle
Commencement
date1
Grant date
Test date
Expiry
Fair
value2 per
instrument
CEO Long Term
Variable Reward
Plan
Brian Hartzer
TSR
ROE
8 December 2017
8 December 2017
1 October 2017
1 October 2017
1 October 2021
1 October 2020
1 October 2032
1 October 2032
$10.55
$25.14
Executives
TSR
ROE
1 December 2017
1 December 2017
Westpac Long Term Group
Variable Reward
Plan
1
The commencement date is the start of the performance period.
2
The fair values of performance share rights granted during the year have been independently calculated at their respective grant dates based on the
requirements of AASB 2 Share-based Payment. The fair value of performance share 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 performance share
rights valued at $25.19 is four years to the 1 October 2020 vesting date. For the purpose of allocating performance share rights with ROE hurdles, the
valuation also takes into account the average ROE outcome using a Monte Carlo pricing simulation model. The fair value of performance share rights
with hurdles based on TSR performance relative to that of a group of comparator companies also takes into account the average TSR outcome
determined using a Monte Carlo simulation pricing model.
1 October 2017
1 October 2017
1 October 2021
1 October 2020
1 October 2032
1 October 2032
$10.58
$25.19
Details of Westpac equity holdings of Non-executive Directors
7.4.
The table below 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 20181.
Name
Current Non-executive Directors
Lindsay Maxsted
Nerida Caesar
Ewen Crouch2
Alison Deans
Craig Dunn
Peter Hawkins4
Peter Marriott5
Peter Nash6
Number held at
start of the year
Changes
during the year
Number held at
end of the year
20,767
-
40,264
9,392
8,869
15,880
20,870
n/a
1,328
9,985
42,0003
5,000
-
-
20,202
2,876
22,095
9,985
82,264
14,392
8,869
15,880
41,072
8,020
12,096
-
n/a
Former Non-executive Director
Robert Elstone7
1
Other than as disclosed below, no share interests include non-beneficially held shares.
2
In addition to holdings of ordinary shares, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2 at year end.
3
Ewen Crouch holds the securities following the grant of probate in a deceased estate for which he is one of the executors.
4
In addition to holdings of ordinary shares, Peter Hawkins and his related parties held interests in 850 Westpac Capital Notes 3, 882 Westpac Capital
Notes 4 and 1,370 Westpac Capital Notes 5 at year end.
In addition to holdings of ordinary shares, Peter Marriott and his related parties held interests in 740 Westpac Capital Notes 2 at year end.
6
Peter Nash commenced as a Non-executive Director on 7 March 2018. The information relates to the period he was a Non-executive Director.
7
Robert Elstone retired on 8 December 2017. The information relates to the period he was a Non-executive Director.
5
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
73
Directors’ report
Details of Westpac equity holdings of Executive Key Management Personnel
7.5.
The table below details Westpac equity held (and movement in that equity) by the CEO and Group Executives (including their
related parties) for the year ended 30 September 20181.
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
Performance share rights
Current Group Executives
Lyn Cobley
Ordinary shares
Brad Cooper
Dave Curran
George Frazis
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Peter King
Ordinary shares
David Lees2
Rebecca Lim
David Lindberg
Carolyn McCann3
David McLean
Christine Parker
Gary Thursby
Performance share rights
Ordinary shares
Performance share rights
Performance options
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
Unhurdled share rights
Ordinary shares
Performance share rights
Ordinary shares
Performance share rights
77,427
47,384
535,163
197,654
129,547
-
71,650
179,282
106,792
316,120
31,864
210,876
71,569
258,835
78,243
269,616
n/a
n/a
n/a
26,270
101,518
48,026
196,484
n/a
n/a
9,613
169,702
42,836
22,028
219,225
77,029
112,636
20,343
82,564
25,190
82,094
17,561
77,560
27,733
78,186
19,548
80,062
-
-
-
13,111
54,730
16,926
80,062
-
12,482
-
68,216
14,382
16,449
63,798
15,416
54,730
Former Group Executive
Alexandra Holcomb4 Ordinary shares
Performance share rights
23,210
242,930
16,926
73,806
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(95,284)
-
-
-
(68,998)
-
-
(15,200)
109,611
-
-
-
-
-
-
-
-
732,817
34,263
91,993
261,846
131,982
329,216
49,425
288,436
-
(36,141)
(18,000)
-
81,302
300,880
-
(35,419)
-
-
-
-
(12,156)
-
(22,177)
-
-
-
-
-
97,791
314,259
29,402
31,402
25,562
-
-
-
-
(8,505)
-
30,876
144,092
-
-
-
-
-
-
-
64,952
254,369
49,435
42,816
9,613
237,918
57,218
-
(42,712)
(11,046)
-
27,431
240,311
-
(12,813)
-
-
92,445
154,553
-
(15,565)
(24,160)
-
n/a
n/a
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,562
-
-
-
-
-
-
-
2,148
36,480
-
-
-
-
-
-
7.6.
Loans to Non-executive Directors and Executive Key Management Personnel disclosures
Financial instrument transactions that occurred during the financial year between Directors, the CEO or Group Executives and
the Group are in the ordinary course of business on terms and conditions (including interest and collateral) as they apply to
other employees and certain customers. These transactions consisted principally of normal personal banking and financial
The table below details loans to Non-executive Directors, the CEO and Group Executives (including their related parties) of the
Directors’ report
Balance at start of
the year
$
3,199,593
12,090,727
15,290,320
Interest paid
and payable
for the year
Interest not
charged during
the year
Balance at
end of the
Number in
year
Group at end of
$
the year
3,544,610
13,953,916
17,498,526
3
10
13
The table below details KMP (including their related parties) with loans above $100,000 during 2018.
Balance at start of
Interest paid
and payable
for the year
$
Interest not
charged during
the year
$
Balance at
end of the
Highest
indebtedness
year
during the year
$
$
$
165,155
485,814
650,969
109,565
39,107
16,483
4,979
21,784
126,984
102,551
-
38,930
18,889
2,588
27,467
67,778
73,864
the year
$
2,061,911
1,137,682
n/a
83,617
-
2,037,998
4,114,727
-
n/a
n/a
711,642
534,828
2,647,386
1,960,529
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,572,889
979,947
991,774
9,847
2,000,000
2,791,360
n/a
-
4,434,534
732,845
145,000
620,841
1,308,486
1,911,003
2,320,000
1,302,742
1,155,383
187,050
2,007,287
2,989,743
4,177,933
4,000,000
4,547,358
736,770
153,736
652,073
2,814,600
2,061,594
investment services.
Group.
Non-executive Directors
CEO and Group Executives
Non-executive Directors
Lindsay Maxsted
Ewen Crouch
Peter Nash1
CEO and Group Executives
Brian Hartzer
Lyn Cobley
Brad Cooper
Alexandra Holcomb2
Peter King
David Lees3
Rebecca Lim
Carolyn McCann4
David McLean
Christine Parker
Gary Thursby
1
2
3
4
Peter Nash commenced as a Non-executive Director on 7 March 2018.
Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018.
David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018.
Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018.
1
The highest number of shares held by an executive in the table is 0.0038% of total Westpac ordinary shares outstanding as at 30 September 2018.
2
The information relates to the period that David Lees was a KMP. David Lees commenced his KMP role as the Acting Chief Financial Officer on 25
June 2018.
3
The information relates to the period that Carolyn McCann was a KMP. Carolyn McCann commenced her KMP role as the Group Executive,
Customer & Corporate Relations on 18 June 2018.
4
The information relates to the period that Alexandra Holcomb was a KMP. She ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and
will retire on 31 December 2018.
74
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
75
Loans to Non-executive Directors and Executive Key Management Personnel disclosures
7.6.
Financial instrument transactions that occurred during the financial year between Directors, the CEO or Group Executives and
the Group are in the ordinary course of business on terms and conditions (including interest and collateral) as they apply to
other employees and certain customers. These transactions consisted principally of normal personal banking and financial
investment services.
1
The table below details loans to Non-executive Directors, the CEO and Group Executives (including their related parties) of the
Group.
Directors’ report
Ordinary shares
CEO performance
share rights
77,427
47,384
535,163
197,654
Performance share rights
129,547
-
(95,284)
(15,200)
109,611
Non-executive Directors
CEO and Group Executives
Balance at start of
the year
$
Interest paid
and payable
for the year
$
Interest not
charged during
the year
$
3,199,593
12,090,727
15,290,320
165,155
485,814
650,969
-
-
-
Balance at
end of the
year
$
3,544,610
13,953,916
17,498,526
Number in
Group at end of
the year
3
10
13
The table below details KMP (including their related parties) with loans above $100,000 during 2018.
Balance at start of
the year
$
Interest paid
and payable
for the year
$
Interest not
charged during
the year
$
Balance at
end of the
year
$
Highest
indebtedness
during the year
$
Non-executive Directors
Lindsay Maxsted
Ewen Crouch
Peter Nash1
CEO and Group Executives
Brian Hartzer
Lyn Cobley
Brad Cooper
Alexandra Holcomb2
Peter King
David Lees3
Rebecca Lim
Carolyn McCann4
David McLean
Christine Parker
Gary Thursby
2,061,911
1,137,682
n/a
83,617
-
2,037,998
4,114,727
-
n/a
711,642
n/a
534,828
2,647,386
1,960,529
109,565
39,107
16,483
4,979
21,784
126,984
102,551
-
38,930
18,889
2,588
27,467
67,778
73,864
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,572,889
979,947
991,774
9,847
2,000,000
2,791,360
n/a
-
4,434,534
732,845
145,000
620,841
1,308,486
1,911,003
2,320,000
1,302,742
1,155,383
187,050
2,007,287
2,989,743
4,177,933
4,000,000
4,547,358
736,770
153,736
652,073
2,814,600
2,061,594
2,148
36,480
(11,046)
27,431
1
Peter Nash commenced as a Non-executive Director on 7 March 2018.
2
Alexandra Holcomb ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and will retire on 31 December 2018.
3
David Lees commenced his KMP role as the Acting Chief Financial Officer on 25 June 2018.
4
Carolyn McCann commenced her KMP role as the Group Executive, Customer & Corporate Relations on 18 June 2018.
Directors’ report
7.5.
Details of Westpac equity holdings of Executive Key Management Personnel
The table below details Westpac equity held (and movement in that equity) by the CEO and Group Executives (including their
related parties) for the year ended 30 September 20181.
Type of equity-based
instrument
the year
remuneration
year
year
year
year
year as
during the
during the
during the
end of the
Number
granted
Received on
exercise
and/or
during the
exercised
Number
held at
start of
Number
lapsed
Other
Number
vested and
changes
held at
exercisable
Number
at end of
the year
Performance share rights
(68,998)
Performance share rights
(35,419)
Name
Brian Hartzer
Managing Director & Chief Executive Officer
Current Group Executives
Lyn Cobley
Ordinary shares
Performance share rights
Brad Cooper
Ordinary shares
Dave Curran
Ordinary shares
Performance share rights
George Frazis
Ordinary shares
Performance share rights
Peter King
Ordinary shares
David Lees2
Ordinary shares
Performance share rights
Performance options
Rebecca Lim
Ordinary shares
Performance share rights
David Lindberg
Ordinary shares
Performance share rights
Carolyn McCann3
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
Alexandra Holcomb4 Ordinary shares
Performance share rights
71,650
179,282
106,792
316,120
31,864
210,876
71,569
258,835
78,243
269,616
n/a
n/a
n/a
26,270
101,518
48,026
196,484
n/a
n/a
9,613
169,702
42,836
22,028
219,225
77,029
112,636
20,343
82,564
25,190
82,094
17,561
77,560
27,733
78,186
19,548
80,062
-
-
-
-
-
13,111
54,730
16,926
80,062
12,482
68,216
14,382
16,449
63,798
15,416
54,730
(18,000)
81,302
(36,141)
-
300,880
(8,505)
30,876
25,562
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(12,156)
(22,177)
(42,712)
(12,813)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
732,817
34,263
91,993
261,846
131,982
329,216
49,425
288,436
97,791
314,259
29,402
31,402
25,562
144,092
64,952
254,369
49,435
42,816
9,613
237,918
57,218
240,311
92,445
154,553
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,210
242,930
16,926
73,806
-
(15,565)
(24,160)
n/a
n/a
The highest number of shares held by an executive in the table is 0.0038% of total Westpac ordinary shares outstanding as at 30 September 2018.
The information relates to the period that David Lees was a KMP. David Lees commenced his KMP role as the Acting Chief Financial Officer on 25
The information relates to the period that Carolyn McCann was a KMP. Carolyn McCann commenced her KMP role as the Group Executive,
June 2018.
1
2
3
4
Customer & Corporate Relations on 18 June 2018.
will retire on 31 December 2018.
The information relates to the period that Alexandra Holcomb was a KMP. She ceased in her KMP role as the Chief Risk Officer on 25 June 2018 and
74
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
75
Directors’ report
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
2018, 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
5 November 2018
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.
Directors’ report
b)
Non-audit services
We may decide to engage PwC on assignments additional to their statutory audit duties where their expertise or experience
with Westpac or a controlled entity is important.
Details of the non-audit service amounts paid or payable to PwC for non-audit services provided during the 2017 and 2018
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 $7.5 million in total (2017: $6 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 2018 by PwC is compatible with the general standard of
independence for auditors imposed by the Corporations Act. The Directors are satisfied, in accordance with advice received
from the Board Audit Committee, 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 provided by PwC for the year have been reviewed by the Board Audit Committee, which is of the
view that they do not impact the impartiality and objectivity of PwC; 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 2018, 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
5 November 2018
Managing Director & Chief Executive Officer
Brian Hartzer
5 November 2018
76
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
77
Directors’ report
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:
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 2017 and 2018
financial years are set out in Note 39 to the financial statements.
1
Directors’ report
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 $7.5 million in total (2017: $6 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 2018 by PwC is compatible with the general standard of
independence for auditors imposed by the Corporations Act. The Directors are satisfied, in accordance with advice received
from the Board Audit Committee, 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 provided by PwC for the year have been reviewed by the Board Audit Committee, which is of the
view that they do not impact the impartiality and objectivity of PwC; 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 2018, 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
5 November 2018
Brian Hartzer
Managing Director & Chief Executive Officer
5 November 2018
76
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
77
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78
2018 Westpac Group Annual Report
02
Five year summary
Reading this report
Review of Group operations
Divisional performance
Risk and risk management
Westpac’s approach to sustainability
Other Westpac business information
This page is intentionally left blank
78
2018 Westpac Group Annual Report
2
02
Five year summary
Reading this report
Review of Group operations
Divisional performance
Risk and risk management
Westpac’s approach to sustainability
Other Westpac business information
Five year summary1
(in $m unless otherwise indicated)
Income statements for the years ended 30 September2
Net interest income
Non-interest income
Net operating income before operating expenses
and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Net profit attributable to owners of Westpac
Banking Corporation
Balance sheet as at 30 September2
Loans
Other assets
Total assets
Deposits and other borrowings
Debt issues
Loan capital
Other liabilities
Total liabilities
Total shareholders' equity and non-controlling interests
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)
Dividend payout ratio (%)3
Return on average ordinary equity (%)
Basic earnings per share (cents)
Net tangible assets per ordinary share ($)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 (%)
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
2018
2017
2016
2015
2014
This Annual Report contains statements that constitute ‘forward-looking statements’ within the meaning of Section 21E of the
Disclosure regarding forward-looking statements
US Securities Exchange Act of 1934.
Reading this report
16,505
5,628
15,516
6,286
15,148
5,837
14,267
7,375
22,133
(9,692)
(710)
11,731
(3,632)
(4)
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)
8,095
7,990
7,445
8,012
709,690
169,902
684,919
166,956
879,592
559,285
172,596
17,265
65,873
815,019
64,573
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
188
79.52
13.05
237.5
15.39
33.68
27.24
27.93
43.79
2.13
7.3
7.3
10.63
12.78
14.74
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
1.14
1.29
1.79
1.80
43
45
54
53
13,542
6,395
19,937
(8,547)
(650)
10,740
(3,115)
(64)
7,561
580,343
190,499
770,842
460,822
152,251
10,858
97,574
721,505
49,337
182
74.68
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
2.49
60
35,029
35,096
35,580
35,484
36,596
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
and may differ from results previously reported.
2 The above income statement extracts for 2018, 2017 and 2016 and balance sheet extracts for 2018 and 2017 are derived from the consolidated
financial statements included in this Annual Report. The above income statement extracts for 2015 and 2014 and balance sheet extracts for 2016,
2015 and 2014 are derived from financial statements previously published.
3 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 include full-time, pro-rata part-time, overtime, temporary and contract staff.
80
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
81
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 and other actions, inquiries, litigation, fines, penalties, restrictions or other regulator imposed
conditions, including as a result of our actual or alleged failure to comply with laws (such as financial crime laws),
regulations or regulatory policy;
internal and external events which may adversely impact 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;
market volatility, including uncertain conditions in funding, equity and asset markets;
adverse asset, credit or capital market conditions;
an increase in defaults in credit exposures because of a deterioration in economic conditions;
the conduct, behaviour or practices of Westpac or its staff;
changes to Westpac’s credit ratings or the methodology used by credit rating agencies;
levels of inflation, interest rates, exchange rates and market and monetary fluctuations;
market liquidity and investor confidence;
changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and 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, including from established providers of financial services and from non-financial services
entities, in the geographic and business areas in which Westpac conducts its operations;
the timely development and acceptance of new products and services and the perceived overall value of these products
and services by customers;
the effectiveness of 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 activity,
business acquisitions and the 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.
(in $m unless otherwise indicated)
Income statements for the years ended 30 September2
2018
2017
2016
2015
2014
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.
Reading this report
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 and other actions, inquiries, litigation, fines, penalties, restrictions or other regulator imposed
conditions, including as a result of our actual or alleged failure to comply with laws (such as financial crime laws),
regulations or regulatory policy;
internal and external events which may adversely impact 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;
2
Five year summary1
Net operating income before operating expenses
Net interest income
Non-interest income
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
Deposits and other borrowings
Loans
Other assets
Total assets
Debt issues
Loan capital
Other liabilities
Total liabilities
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)
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 (%)
Credit quality
loans (basis points)
Other information
Total shareholders' equity and non-controlling interests
16,505
5,628
15,516
6,286
15,148
5,837
14,267
7,375
22,133
(9,692)
(710)
11,731
(3,632)
(4)
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)
8,095
7,990
7,445
8,012
709,690
684,919
661,926
169,902
166,956
177,276
879,592
559,285
172,596
17,265
65,873
851,875
533,591
168,356
17,666
70,920
839,202
513,071
169,902
15,805
82,243
623,316
188,840
812,156
475,328
171,054
13,840
98,019
815,019
790,533
781,021
758,241
64,573
61,342
58,181
53,915
188
79.52
13.05
237.5
15.39
33.68
27.24
27.93
43.79
2.13
7.3
7.3
10.63
12.78
14.74
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
13,542
6,395
19,937
(8,547)
(650)
10,740
(3,115)
(64)
7,561
580,343
190,499
770,842
460,822
152,251
10,858
97,574
721,505
49,337
182
74.68
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
2.49
60
Net impaired assets to equity and collectively assessed provisions (%)
1.14
1.29
1.79
1.80
Total provisions for impairment on loans and credit commitments to total
43
45
54
53
Full time equivalent employees (number at financial year end)5
35,029
35,096
35,580
35,484
36,596
adverse asset, credit or capital market conditions;
an increase in defaults in credit exposures because of a deterioration in economic conditions;
the conduct, behaviour or practices of Westpac or its staff;
changes to Westpac’s credit ratings or the methodology used by credit rating agencies;
levels of inflation, interest rates, exchange rates and market and monetary fluctuations;
market volatility, including uncertain conditions in funding, equity and asset markets;
market liquidity and investor confidence;
changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and 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, including from established providers of financial services and from non-financial services
entities, in the geographic and business areas in which Westpac conducts its operations;
the timely development and acceptance of new products and services and the perceived overall value of these products
and services by customers;
the effectiveness of 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 activity,
business acquisitions and the integration of new businesses; and
various other factors beyond Westpac’s control.
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
and may differ from results previously reported.
2 The above income statement extracts for 2018, 2017 and 2016 and balance sheet extracts for 2018 and 2017 are derived from the consolidated
financial statements included in this Annual Report. The above income statement extracts for 2015 and 2014 and balance sheet extracts for 2016,
2015 and 2014 are derived from financial statements previously published.
3 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 include full-time, pro-rata part-time, overtime, temporary and contract staff.
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.
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Reading this report
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 2018 and
30 September 2017 and income statements, statements of comprehensive income, changes in equity and cash flows for each
of the years ended 30 September 2018, 2017 and 2016 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 2018
is referred to as 2018 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$0.7238, 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, 28 September 2018. The Australian dollar equivalent of New Zealand
dollars at 28 September 2018 was A$1.00 = NZ$1.0920, 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 2014 to 30 September 2018.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to rounding.
Selected consolidated financial and operating data
We have derived the following selected financial information as of, and for the financial years ended, 30 September 2018,
2017, 2016, 2015 and 2014 from our audited consolidated financial statements and related notes.
This information should be read together with our audited consolidated financial statements and the accompanying notes
Review of Group operations
included elsewhere in this Annual Report.
Accounting standards
Accounting Standards Board (IASB).
statements.
Recent accounting developments
Critical accounting estimates
The financial statements and other financial information included elsewhere in this Annual Report, unless otherwise indicated,
have been prepared and presented in accordance with Australian Accounting Standards (AAS). Compliance with AAS ensures
that the financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International
The financial statements have been prepared in accordance with the accounting policies described in the Notes to the financial
For a discussion of recent accounting developments refer to Note 1 to the financial statements.
Our reported results are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of the
income statement and the balance sheet. Note 1(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 2018, 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 $96,951 million (2017: $101,923 million). The fair value of deposits and other borrowings at fair value, other
financial liabilities at fair value through income statement, debt issues at fair value and life insurance liabilities was $56,427
million (2017: $64,317 million). The fair value of outstanding derivatives was a net liability of $306 million (2017: $1,342 million
net liability). The fair value of financial assets and financial liabilities determined by valuation models that use unobservable
market prices was $964 million (2017: $1,399 million) and $6 million (2017: $9 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.
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83
Reading this report
Significant developments
Westpac’ in Section 1.
For a discussion of significant developments impacting the Group, refer to ‘Significant developments’ under ‘Information on
Currency of presentation, exchange rates and certain definitions
In this Annual Report, ‘financial statements’ means our audited consolidated balance sheets as at 30 September 2018 and
30 September 2017 and income statements, statements of comprehensive income, changes in equity and cash flows for each
of the years ended 30 September 2018, 2017 and 2016 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 2018
is referred to as 2018 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$0.7238, 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, 28 September 2018. The Australian dollar equivalent of New Zealand
dollars at 28 September 2018 was A$1.00 = NZ$1.0920, 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 2014 to 30 September 2018.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to rounding.
Review of Group operations
Selected consolidated financial and operating data
We have derived the following selected financial information as of, and for the financial years ended, 30 September 2018,
2017, 2016, 2015 and 2014 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.
2
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 2018, 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 $96,951 million (2017: $101,923 million). The fair value of deposits and other borrowings at fair value, other
financial liabilities at fair value through income statement, debt issues at fair value and life insurance liabilities was $56,427
million (2017: $64,317 million). The fair value of outstanding derivatives was a net liability of $306 million (2017: $1,342 million
net liability). The fair value of financial assets and financial liabilities determined by valuation models that use unobservable
market prices was $964 million (2017: $1,399 million) and $6 million (2017: $9 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.
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Review of Group operations
As at 30 September 2018, gross loans to customers were $712,504 million (2017: $687,785 million) and the provision for
impairment charges on loans was $2,814 million (2017: $2,866 million).
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 2018, the carrying value of goodwill was $8,890 million (2017: $9,012 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 net superannuation surplus across all our plans as at 30 September 2018 was $64 million (2017: net superannuation
surplus of $5 million). As at 30 September 2018, two superannuation plans were in surplus of $89 million (2017: one plan in
surplus of $48 million) and two superannuation plans were in deficit of $25 million (2017: three plans in deficit of $43 million).
Provisions (other than loan impairment charges)
Provisions are held in respect of a range of obligations such as employee entitlements, litigation and non-lending losses,
impairment charges on credit commitments, surplus lease space, restructuring costs and compliance, regulation and
remediation provisions. Some of the provisions involve significant judgement about the likely outcome of various events and
estimated future cash flows. Refer
Note 28.
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.
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
and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net profit for the year
Net operating income before operating expenses
Net profit attributable to non-controlling interests
Net profit attributable to owners of Westpac
Banking Corporation
Weighted average number of ordinary shares (millions)
Basic earnings per ordinary share (cents)
Diluted earnings per share (cents)3
Dividends per ordinary share (cents)
Dividend payout ratio (%)4
Overview of performance – 2018 v 2017
Review of Group operations
2018
US$2
2018
A$
2017
A$
2016
A$
2015
A$
2014
A$
23,575
32,571
31,232
31,822
32,295
32,248
(11,629)
(16,066)
(15,716)
(16,674)
(18,028)
(18,706)
11,946
16,505
15,516
15,148
14,267
13,542
4,074
5,628
6,286
5,837
7,375
6,395
16,020
(7,015)
(514)
8,491
(2,629)
5,862
(3)
5,859
3,406
171.9
166.5
136
79.52
22,133
(9,692)
(710)
11,731
(3,632)
21,802
(9,434)
(853)
11,515
(3,518)
8,099
7,997
(4)
(7)
8,095
3,406
237.5
230.1
188
79.52
7,990
3,355
238.0
229.3
188
79.28
20,985
(9,217)
(1,124)
10,644
(3,184)
7,460
(15)
7,445
3,313
224.6
217.8
188
84.19
21,642
(9,473)
(753)
11,416
(3,348)
8,068
(56)
8,012
3,140
255.0
248.2
187
73.39
19,937
(8,547)
(650)
10,740
(3,115)
7,625
(64)
7,561
3,114
242.5
237.6
182
74.68
Net profit attributable to owners of Westpac Banking Corporation for 2018 was $8,095 million, an increase of $105 million or 1%
compared to 2017. Features of this result included a $331 million or 2% increase in net operating income before operating
expenses and impairment charges, a $258 million or 3% increase in operating expenses and a $143 million or 17% decrease in
impairment charges.
Net interest income increased $989 million or 6% compared to 2017, with total loan growth of 4%, mostly from Australian
housing which grew 4%. Net interest margin increased 7 basis points to 2.13% reflecting increased spreads on certain
Australian mortgages, a rise in Treasury income and contribution from fair value gains on economic hedges and higher deposit
spreads. These increases were partly offset by the full period impact of the Bank Levy which was effective from July 2017.
Wholesale funding costs were little changed, as short term funding costs increased while long term funding costs decreased.
Non-interest income decreased $658 million or 10% compared to 2017 primarily due to a decrease in trading income of $257
million, the non-repeat of a large gain of $279 million on disposal of an associate (BTIM5) in 2017, an impairment loss of $104
million on the Pendal investment in 2018, and additional provisions for estimated customer refunds and payments recorded as
negative income. These items were partly offset by income related to the exit of the Hastings business ($135 million).
Operating expenses increased $258 million or 3% compared to 2017. The rise included annual salary increases, higher
technology expenses related to the Group’s investment program, an increase in regulatory and compliance costs and costs
associated with the exit of the Hastings business. These increases were partly offset by productivity benefits and lower
amortisation of intangibles.
Impairment charges were $143 million or 17% lower compared to 2017. Asset quality remained sound, with stressed exposures
as a percentage of total committed exposures (TCE) at 1.08%, up 3 basis points over the year. The decrease in impairment
charges was primarily due to reduced individual provisions for larger facilities.
The effective tax rate of 31.0% was higher than the 2017 effective tax rate of 30.6% mostly related to an increase in non-
deductible expenses.
2018 basic earnings per share were 237.5 cents per share compared to 238.0 cents per share in 2017.
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
2 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7238, the noon
and may differ from results previously reported.
buying rate in New York City on 28 September 2018.
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 Adjusted for Treasury shares.
5 Pendal Group Limited (Pendal) was previously called BT Investment Management (BTIM).
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Review of Group operations
As at 30 September 2018, gross loans to customers were $712,504 million (2017: $687,785 million) and the provision for
impairment charges on loans was $2,814 million (2017: $2,866 million).
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 2018, the carrying value of goodwill was $8,890 million (2017: $9,012 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
The net superannuation surplus across all our plans as at 30 September 2018 was $64 million (2017: net superannuation
surplus of $5 million). As at 30 September 2018, two superannuation plans were in surplus of $89 million (2017: one plan in
surplus of $48 million) and two superannuation plans were in deficit of $25 million (2017: three plans in deficit of $43 million).
Provisions (other than loan impairment charges)
Provisions are held in respect of a range of obligations such as employee entitlements, litigation and non-lending losses,
impairment charges on credit commitments, surplus lease space, restructuring costs and compliance, regulation and
remediation provisions. Some of the provisions involve significant judgement about the likely outcome of various events and
estimated future cash flows. Refer
Note 28.
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
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
Net profit for the year
Net profit attributable to non-controlling interests
Net profit attributable to owners of Westpac
Banking Corporation
Weighted average number of ordinary shares (millions)
Basic earnings per ordinary share (cents)
Diluted earnings per share (cents)3
Dividends per ordinary share (cents)
Dividend payout ratio (%)4
Review of Group operations
2018
US$2
23,575
(11,629)
11,946
4,074
2018
A$
32,571
(16,066)
16,505
5,628
2017
A$
31,232
(15,716)
15,516
6,286
2016
A$
31,822
(16,674)
15,148
5,837
2015
A$
32,295
(18,028)
14,267
7,375
2014
A$
32,248
(18,706)
13,542
6,395
16,020
(7,015)
(514)
8,491
(2,629)
5,862
(3)
5,859
3,406
171.9
166.5
136
79.52
22,133
(9,692)
(710)
11,731
(3,632)
8,099
(4)
8,095
3,406
237.5
230.1
188
79.52
21,802
(9,434)
(853)
11,515
(3,518)
7,997
(7)
7,990
3,355
238.0
229.3
188
79.28
20,985
(9,217)
(1,124)
10,644
(3,184)
7,460
(15)
7,445
3,313
224.6
217.8
188
84.19
21,642
(9,473)
(753)
11,416
(3,348)
8,068
(56)
8,012
3,140
255.0
248.2
187
73.39
19,937
(8,547)
(650)
10,740
(3,115)
7,625
(64)
7,561
3,114
242.5
237.6
182
74.68
2
Overview of performance – 2018 v 2017
Net profit attributable to owners of Westpac Banking Corporation for 2018 was $8,095 million, an increase of $105 million or 1%
compared to 2017. Features of this result included a $331 million or 2% increase in net operating income before operating
expenses and impairment charges, a $258 million or 3% increase in operating expenses and a $143 million or 17% decrease in
impairment charges.
Net interest income increased $989 million or 6% compared to 2017, with total loan growth of 4%, mostly from Australian
housing which grew 4%. Net interest margin increased 7 basis points to 2.13% reflecting increased spreads on certain
Australian mortgages, a rise in Treasury income and contribution from fair value gains on economic hedges and higher deposit
spreads. These increases were partly offset by the full period impact of the Bank Levy which was effective from July 2017.
Wholesale funding costs were little changed, as short term funding costs increased while long term funding costs decreased.
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.
Non-interest income decreased $658 million or 10% compared to 2017 primarily due to a decrease in trading income of $257
million, the non-repeat of a large gain of $279 million on disposal of an associate (BTIM5) in 2017, an impairment loss of $104
million on the Pendal investment in 2018, and additional provisions for estimated customer refunds and payments recorded as
negative income. These items were partly offset by income related to the exit of the Hastings business ($135 million).
Operating expenses increased $258 million or 3% compared to 2017. The rise included annual salary increases, higher
technology expenses related to the Group’s investment program, an increase in regulatory and compliance costs and costs
associated with the exit of the Hastings business. These increases were partly offset by productivity benefits and lower
amortisation of intangibles.
Impairment charges were $143 million or 17% lower compared to 2017. Asset quality remained sound, with stressed exposures
as a percentage of total committed exposures (TCE) at 1.08%, up 3 basis points over the year. The decrease in impairment
charges was primarily due to reduced individual provisions for larger facilities.
The effective tax rate of 31.0% was higher than the 2017 effective tax rate of 30.6% mostly related to an increase in non-
deductible expenses.
2018 basic earnings per share were 237.5 cents per share compared to 238.0 cents per share in 2017.
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
and may differ from results previously reported.
2 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7238, the noon
buying rate in New York City on 28 September 2018.
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 Adjusted for Treasury shares.
5 Pendal Group Limited (Pendal) was previously called BT Investment Management (BTIM).
84
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
85
Review of Group operations
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 2017 and represents a pay-out ratio of 79.52%. The full year ordinary dividend
is fully franked.
Income statement review – 2018 v 2017
Net interest income – 2018 v 2017
$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
2018
2017
2016
32,571
31,232
31,822
(16,066)
(15,716)
(16,674)
16,505
15,516
15,148
648
341
989
855
(487)
368
1,313
(432)
881
Net interest income increased $989 million or 6% compared to 2017. Key features include:
A 3% growth in average interest-earning assets, primarily from Australian housing which grew 4%;
Group net interest margin increased 7 basis points. The full period impact of pricing changes for certain Australian
mortgages in 2017, including investor lending and interest only loans, higher New Zealand mortgage spreads and higher
term deposits spreads, were partly offset by the full period impact of the Bank Levy. Wholesale funding costs were little
changed, as short term costs increased and long term costs reduced. In addition, Treasury and Markets income was
higher in 2018 primarily due to increased revenue from interest risk management and a rise in contributions from fair value
gains on economic hedges.
Total net loans increased $24.8 billion or 4% compared to 2017. Excluding foreign currency translation impacts, total net loans
increased $24.0 billion or 3%.
Key features of total loan growth were:
Australian housing loans increased $17.6 billion or 4% (slightly below system growth1). Owner occupied loans increased
6% over the year, while the Group’s investor property lending grew by 2%. Principal and interest loan flows represented
77% of all new flows and now comprise 61% of the portfolio (2017: 50%);
Australian business loans increased $3.8 billion or 3% from broad based growth in Business Bank including SME,
agriculture, manufacturing and property;
New Zealand lending increased NZ$3.2 billion or 4%. Housing loans grew at 4% mostly in fixed rate products, while
business lending increased 4% supported by growth across agriculture, property and corporate lending; and
Other overseas lending increased $1.7 billion or 12%, across trade finance and institutional lending in Asia.
Total deposits and other borrowings excluding certificates of deposits increased $31.1 billion or 6% compared to 2017, with the
increase more than fully funding loan growth in the year. Excluding foreign currency translation impacts, deposits and other
borrowings excluding certificates of deposits increased $29.5 billion or 6%.
Key features of total deposits and other borrowings excluding certificates of deposits growth were:
Australian deposits and other borrowings excluding certificates of deposits increased $25.8 billion or 6%, particularly
across term deposits (up 10%). Household deposits growth was in line with system2 and non-financial corporation deposits
grew above system2. Customers continued to direct funds to mortgage offset accounts, supporting 4% growth in Australian
non-interest bearing deposits;
New Zealand deposits and other borrowings excluding certificates of deposits increased NZ$3.5 billion or 6%, with the
increase fully funding loan growth during the year. Term deposits grew 9%, particularly across household and institutional
segments. Non-interest bearing deposits increased 12% from growth in business and consumer transaction deposits,
including growth in mortgage offset accounts; and
Other overseas deposits and other borrowings excluding certificates of deposits increased $2.3 billion or 19% due to
growth in deposits across Asia.
Certificates of deposits decreased $5.4 billion or 11%, reflecting reduced short-term wholesale funding issuance in this form.
1 Source: Reserve Bank of Australia (RBA).
2 Source: Australian Prudential Regulation Authority (APRA).
Interest spread and margin – 2018 v 2017
$m
Group
Net interest income
Average interest earning assets
Average interest bearing liabilities
Average net non-interest bearing assets, liabilities and equity
Interest spread1
Net interest margin3
Benefit of net non-interest bearing assets, liabilities and equity2
Review of Group operations
2018
2017
2016
16,505
15,516
15,148
774,944
752,294
721,843
715,509
694,924
667,276
59,435
57,370
54,567
1.95%
0.18%
2.13%
1.89%
0.17%
2.06%
1.91%
0.19%
2.10%
Net interest margin was 2.13% in 2018, up 7 basis points compared to 2017. Key drivers of the margin increase were:
2 basis points increase from loan spreads. This reflected the full period impact of pricing changes for certain Australian
mortgages in late 2017, including interest only and investor lending, along with higher spreads on New Zealand mortgages.
These gains were partly offset by the impact of customers switching from interest only to principal and interest loans,
retention pricing, customer preference for lower spread basic products and competition across loan markets;
2 basis points increase related to customer deposit spreads, mainly from term deposits, partly offset by the impact of lower
rates on the hedging of transaction deposits;
2 basis points decrease from a rise in short term wholesale funding costs, particularly in the second half of 2018;
2 basis points increase from term wholesale funding as pricing for new term issuance was lower than the portfolio average;
4 basis points decrease from the full period impact of the Bank Levy, which was introduced on 1 July 2017;
1 basis point increase in capital and other largely from the positive effect of higher capital balances, partly offset by the
impact of lower interest rates; and
6 basis points increase from Treasury and Markets, due to increased Treasury revenue from interest rate risk management
and a rise in contributions from fair value gains on economic hedges.
Non-interest income – 2018 v 2017
Wealth management and insurance income
$m
Fees and commissions
Trading income
Other income
Non-interest income
2018
2017
2016
2,550
2,061
945
72
5,628
2,755
1,800
1,202
529
6,286
2,755
1,899
1,124
59
5,837
Non-interest income decreased $658 million or 10% over the year. 2018 was impacted by a number of infrequent items,
including income related to the exit of the Hastings business ($135 million) partly offset by an increase in provisions for
estimated customer refunds and payments (up $52 million from $111 million in 2017 to $163 million in 2018).
Excluding the impact of these infrequent items and the partial sale of BTIM shares of $279 million in 2017, non-interest income
was $462 million or 8% lower, primarily due to reduced markets income and lower banking fee income from the full period
impact of regulatory changes to Australian credit card interchange fees and removal of ATM withdrawal fees.
Fees and commissions decreased $205 million or 7% compared to 2017, largely due to:
additional provisions for estimated customer refunds and payments ($101 million), related to Advice and retail banking
products;
lower revenue from the removal of ATM withdrawal fees and changes to transaction fees ($64 million);
lower credit card income ($49 million) from the full period impact of regulatory changes to Australian interchange rates from
1 July 2017 and lower rewards redemptions; and
lower corporate and institutional lending fees ($23 million) from a reduction in unused customer limits; partly offset by
higher business lending fees ($40 million) primarily driven by portfolio growth.
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.
1
86
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
87
Review of Group operations
is fully franked.
Income statement review – 2018 v 2017
Net interest income – 2018 v 2017
$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
2018
2017
2016
32,571
31,232
31,822
(16,066)
(15,716)
(16,674)
16,505
15,516
15,148
648
341
989
855
(487)
368
1,313
(432)
881
Net interest income increased $989 million or 6% compared to 2017. Key features include:
A 3% growth in average interest-earning assets, primarily from Australian housing which grew 4%;
Group net interest margin increased 7 basis points. The full period impact of pricing changes for certain Australian
mortgages in 2017, including investor lending and interest only loans, higher New Zealand mortgage spreads and higher
term deposits spreads, were partly offset by the full period impact of the Bank Levy. Wholesale funding costs were little
changed, as short term costs increased and long term costs reduced. In addition, Treasury and Markets income was
higher in 2018 primarily due to increased revenue from interest risk management and a rise in contributions from fair value
Total net loans increased $24.8 billion or 4% compared to 2017. Excluding foreign currency translation impacts, total net loans
gains on economic hedges.
increased $24.0 billion or 3%.
Key features of total loan growth were:
Australian housing loans increased $17.6 billion or 4% (slightly below system growth1). Owner occupied loans increased
6% over the year, while the Group’s investor property lending grew by 2%. Principal and interest loan flows represented
77% of all new flows and now comprise 61% of the portfolio (2017: 50%);
Australian business loans increased $3.8 billion or 3% from broad based growth in Business Bank including SME,
agriculture, manufacturing and property;
New Zealand lending increased NZ$3.2 billion or 4%. Housing loans grew at 4% mostly in fixed rate products, while
business lending increased 4% supported by growth across agriculture, property and corporate lending; and
Other overseas lending increased $1.7 billion or 12%, across trade finance and institutional lending in Asia.
Total deposits and other borrowings excluding certificates of deposits increased $31.1 billion or 6% compared to 2017, with the
increase more than fully funding loan growth in the year. Excluding foreign currency translation impacts, deposits and other
borrowings excluding certificates of deposits increased $29.5 billion or 6%.
Key features of total deposits and other borrowings excluding certificates of deposits growth were:
Australian deposits and other borrowings excluding certificates of deposits increased $25.8 billion or 6%, particularly
across term deposits (up 10%). Household deposits growth was in line with system2 and non-financial corporation deposits
grew above system2. Customers continued to direct funds to mortgage offset accounts, supporting 4% growth in Australian
non-interest bearing deposits;
New Zealand deposits and other borrowings excluding certificates of deposits increased NZ$3.5 billion or 6%, with the
increase fully funding loan growth during the year. Term deposits grew 9%, particularly across household and institutional
segments. Non-interest bearing deposits increased 12% from growth in business and consumer transaction deposits,
including growth in mortgage offset accounts; and
Other overseas deposits and other borrowings excluding certificates of deposits increased $2.3 billion or 19% due to
growth in deposits across Asia.
Certificates of deposits decreased $5.4 billion or 11%, reflecting reduced short-term wholesale funding issuance in this form.
1 Source: Reserve Bank of Australia (RBA).
2 Source: Australian Prudential Regulation Authority (APRA).
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 2017 and represents a pay-out ratio of 79.52%. The full year ordinary dividend
Interest spread and margin – 2018 v 2017
$m
Group
Net interest income
Average interest earning assets
Average interest bearing liabilities
Average net non-interest bearing assets, liabilities and equity
Interest spread1
Benefit of net non-interest bearing assets, liabilities and equity2
Net interest margin3
Review of Group operations
2018
2017
2016
16,505
15,516
15,148
774,944
752,294
721,843
715,509
694,924
667,276
59,435
57,370
54,567
1.95%
0.18%
2.13%
1.89%
0.17%
2.06%
1.91%
0.19%
2.10%
Net interest margin was 2.13% in 2018, up 7 basis points compared to 2017. Key drivers of the margin increase were:
2 basis points increase from loan spreads. This reflected the full period impact of pricing changes for certain Australian
mortgages in late 2017, including interest only and investor lending, along with higher spreads on New Zealand mortgages.
These gains were partly offset by the impact of customers switching from interest only to principal and interest loans,
retention pricing, customer preference for lower spread basic products and competition across loan markets;
2 basis points increase related to customer deposit spreads, mainly from term deposits, partly offset by the impact of lower
rates on the hedging of transaction deposits;
2 basis points decrease from a rise in short term wholesale funding costs, particularly in the second half of 2018;
2 basis points increase from term wholesale funding as pricing for new term issuance was lower than the portfolio average;
4 basis points decrease from the full period impact of the Bank Levy, which was introduced on 1 July 2017;
1 basis point increase in capital and other largely from the positive effect of higher capital balances, partly offset by the
impact of lower interest rates; and
6 basis points increase from Treasury and Markets, due to increased Treasury revenue from interest rate risk management
and a rise in contributions from fair value gains on economic hedges.
2
Non-interest income – 2018 v 2017
$m
Fees and commissions
Wealth management and insurance income
Trading income
Other income
Non-interest income
2018
2017
2016
2,550
2,061
945
72
5,628
2,755
1,800
1,202
529
6,286
2,755
1,899
1,124
59
5,837
Non-interest income decreased $658 million or 10% over the year. 2018 was impacted by a number of infrequent items,
including income related to the exit of the Hastings business ($135 million) partly offset by an increase in provisions for
estimated customer refunds and payments (up $52 million from $111 million in 2017 to $163 million in 2018).
Excluding the impact of these infrequent items and the partial sale of BTIM shares of $279 million in 2017, non-interest income
was $462 million or 8% lower, primarily due to reduced markets income and lower banking fee income from the full period
impact of regulatory changes to Australian credit card interchange fees and removal of ATM withdrawal fees.
Fees and commissions decreased $205 million or 7% compared to 2017, largely due to:
additional provisions for estimated customer refunds and payments ($101 million), related to Advice and retail banking
products;
lower revenue from the removal of ATM withdrawal fees and changes to transaction fees ($64 million);
lower credit card income ($49 million) from the full period impact of regulatory changes to Australian interchange rates from
1 July 2017 and lower rewards redemptions; and
lower corporate and institutional lending fees ($23 million) from a reduction in unused customer limits; partly offset by
higher business lending fees ($40 million) primarily driven by portfolio growth.
Interest spread is the difference between the average yield on all interest earning assets and the average yield on all interest bearing liabilities.
1
2 The benefit of net non-interest bearing assets, liabilities and equity is determined by applying the average yield paid on all interest bearing liabilities to
the 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.
86
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
87
Review of Group operations
Wealth management and insurance income increased $261 million or 15% compared to 2017, reflecting:
a rise in Hastings revenue which included fees of $144 million related to the exit of the business, the associated costs can
be seen in other expenses;
a fall in provisions for estimated customer refunds and payments for wealth products ($49 million);
higher revenue from investments in boutique funds ($43 million); and
higher insurance income ($41 million) reflecting:
- increase in general insurance income ($24 million) from lower claims, with the prior year impacted by Cyclone Debbie,
and a 2% increase in net earned premiums;
- increase in life insurance income ($34 million) from movements in policyholder tax recoveries and a 17% increase to
earned premiums, primarily due to BTFG commencing the management of Group Insurance for BTFG Corporate Super
in 2018. This was partly offset by a rise in claims; and
- lower LMI contribution ($17 million) due to a reduction in loans written at higher LVR bands; partly offset by
lower platforms income ($14 million), impacted by margin compression and pricing changes to BT Panorama in July 2018.
This was partly offset by the benefit of higher asset markets.
Trading income decreased $257 million or 21% compared to 2017. The majority of the reduction was due to a lower fixed
income trading result.
Other income decreased $457 million or 86% compared to 2017 reflecting the partial sale of BTIM shares ($279 million) in 2017
that did not repeat, impairment loss on the remaining Pendal shares ($104 million), the impact of hedging future earnings (down
$44 million) and lower rental income ($36 million).
Operating expenses – 2018 v 2017
$m
Staff expenses
Occupancy expenses
Technology expenses
Other expenses
Total operating expenses
Total operating expenses to net operating income ratio
2018
2017
2016
4,887
1,033
2,110
1,662
4,701
1,073
2,008
1,652
4,601
1,032
1,929
1,655
9,692
43.79%
9,434
43.27%
9,217
43.92%
Operating expenses increased $258 million or 3% compared to 2017. The key factors of the result were:
higher costs from infrequent items of $233 million related to exit of the Hastings business ($121 million), costs associated
with implementing customer refunds and payments ($62 million) and provisions for litigation ($50 million);
growth in regulation and compliance expenses of $184 million, including expenses related to the Royal Commission of $62
million;
higher investment related expenses of $125 million largely across our banking and wealth platforms; and
growth in other operating costs of $178 million; partly offset by
lower intangible asset amortisation of $158 million; and
productivity benefits of $304 million.
Staff expenses increased $186 million or 4% compared to 2017 from the full period impact of annual salary increases, higher
restructuring costs (up $39 million) and additional FTE for regulatory and compliance activities and the Group’s investment
program. This was partly offset by lower bonuses and productivity benefits largely related to simplifying the organisation and
digitising processes across the branch network and operations.
Occupancy expenses decreased $40 million or 4% from lower depreciation on operating leases (down $30 million) and
benefits from retail property consolidation (branch numbers down by 47 across the Group), partly offset by higher energy costs.
Technology expenses increased $102 million or 5% compared to 2017, primarily due to the Group’s investment program.
Higher technology services costs (up $82 million) and software maintenance and licensing costs (up $29 million) were driven by
continued investment spend, increased volumes and new software licences following upgraded capability. This was partly
offset by lower IT equipment depreciation (down $17 million) as prior investment in data centres was fully depreciated.
Review of Group operations
Other expenses increased $10 million or 1% during the year and contained a number of infrequent items, including the write-
off of Hastings goodwill ($105 million) following the exit of that business, provisions for litigation ($50 million) and costs
associated with implementing customer refunds and payments ($25 million). Excluding these items, expenses reduced by $170
million primarily due to lower amortisation of intangible assets (down $158 million) as a number of intangible assets were fully
amortised during the year; postage and stationery costs decreased ($35 million) as customers migrated to electronic
statements; and lower credit card loyalty program costs down ($26 million) from changes to reward programs; and benefits
from disciplined cost management. These were partly offset by costs associated with the Royal Commission.
Impairment charges – 2018 v 2017
$m
Impairment charges
Impairment charges to average gross loans (basis points)
2018
2017
2016
710
10
853
13
1,124
17
Asset quality remained sound through 2018 with stressed assets to total committed exposures increasing by 3 basis points to
1.08%. The increase in stress mostly reflects higher mortgage delinquencies and a small rise in stressed exposures in
Business Bank. Impaired assets were lower, with gross impaired assets to gross loans 2 basis points lower at 0.20% compared
to 30 September 2017.
Provisioning levels at 30 September 2018 of $3,053 million were $66 million lower compared to 30 September 2017. IAPs were
$58 million lower in line with the decline in impaired facilities while CAPs were $8 million lower. Within CAPs the overlay was
down $22 million to $301 million at 30 September 2018.
Impairment charges for 2018 of $710 million are equivalent to 10 basis points of average loans and were down $143 million
when compared to 2017.
Key movements included:
total new IAPs less write-backs and recoveries were $112 million lower than 2017. This was due to lower new IAPs (down
$239 million) partially offset by lower write-backs. The reduction in new IAPs was due to a small number of large
impairments in WIB in 2017 while in 2018 no new large impaired loans (greater than $50 million) emerged during the year.
New IAPs in Business Bank were also lower. This was partially offset by higher new IAPs in New Zealand; and
total new CAPs were $31 million lower due to a $110 million reduction in write-offs partially offset by a $79 million fall in the
benefit from other changes in CAPs. Write-offs were lower, principally in Consumer Bank from the credit card portfolio and
in Business Bank related to the auto finance and commercial portfolios. The overlay was $22 million lower in 2018
compared to a $66 million reduction in 2017.
Income tax expense – 2018 v 2017
$m
Income tax expense
Tax as a percentage of profit before income tax expense (effective tax rate)
2018
2017
2016
3,632
3,518
30.96%
30.55%
3,184
29.91%
The effective tax rate of 31.0% in 2018 was higher than the 2017 effective tax rate of 30.6%. The effective tax rate was higher
than the Australian corporate tax rate of 30% due to the non-deductibility of certain expenses, including penalties and the write-
off of Hastings goodwill associated with the exit of that business.
88
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
89
Review of Group operations
Wealth management and insurance income increased $261 million or 15% compared to 2017, reflecting:
a rise in Hastings revenue which included fees of $144 million related to the exit of the business, the associated costs can
be seen in other expenses;
a fall in provisions for estimated customer refunds and payments for wealth products ($49 million);
higher revenue from investments in boutique funds ($43 million); and
higher insurance income ($41 million) reflecting:
Review of Group operations
Other expenses increased $10 million or 1% during the year and contained a number of infrequent items, including the write-
off of Hastings goodwill ($105 million) following the exit of that business, provisions for litigation ($50 million) and costs
associated with implementing customer refunds and payments ($25 million). Excluding these items, expenses reduced by $170
million primarily due to lower amortisation of intangible assets (down $158 million) as a number of intangible assets were fully
amortised during the year; postage and stationery costs decreased ($35 million) as customers migrated to electronic
statements; and lower credit card loyalty program costs down ($26 million) from changes to reward programs; and benefits
from disciplined cost management. These were partly offset by costs associated with the Royal Commission.
- increase in general insurance income ($24 million) from lower claims, with the prior year impacted by Cyclone Debbie,
and a 2% increase in net earned premiums;
Impairment charges – 2018 v 2017
$m
- increase in life insurance income ($34 million) from movements in policyholder tax recoveries and a 17% increase to
earned premiums, primarily due to BTFG commencing the management of Group Insurance for BTFG Corporate Super
Impairment charges
Impairment charges to average gross loans (basis points)
2018
2017
2016
710
10
853
13
1,124
17
in 2018. This was partly offset by a rise in claims; and
- lower LMI contribution ($17 million) due to a reduction in loans written at higher LVR bands; partly offset by
lower platforms income ($14 million), impacted by margin compression and pricing changes to BT Panorama in July 2018.
This was partly offset by the benefit of higher asset markets.
Trading income decreased $257 million or 21% compared to 2017. The majority of the reduction was due to a lower fixed
income trading result.
Other income decreased $457 million or 86% compared to 2017 reflecting the partial sale of BTIM shares ($279 million) in 2017
that did not repeat, impairment loss on the remaining Pendal shares ($104 million), the impact of hedging future earnings (down
$44 million) and lower rental income ($36 million).
Operating expenses – 2018 v 2017
$m
Staff expenses
Occupancy expenses
Technology expenses
Other expenses
Total operating expenses
Total operating expenses to net operating income ratio
2018
2017
2016
4,887
1,033
2,110
1,662
9,692
4,701
1,073
2,008
1,652
9,434
43.79%
43.27%
4,601
1,032
1,929
1,655
9,217
43.92%
Asset quality remained sound through 2018 with stressed assets to total committed exposures increasing by 3 basis points to
1.08%. The increase in stress mostly reflects higher mortgage delinquencies and a small rise in stressed exposures in
Business Bank. Impaired assets were lower, with gross impaired assets to gross loans 2 basis points lower at 0.20% compared
to 30 September 2017.
2
Provisioning levels at 30 September 2018 of $3,053 million were $66 million lower compared to 30 September 2017. IAPs were
$58 million lower in line with the decline in impaired facilities while CAPs were $8 million lower. Within CAPs the overlay was
down $22 million to $301 million at 30 September 2018.
Impairment charges for 2018 of $710 million are equivalent to 10 basis points of average loans and were down $143 million
when compared to 2017.
Key movements included:
total new IAPs less write-backs and recoveries were $112 million lower than 2017. This was due to lower new IAPs (down
$239 million) partially offset by lower write-backs. The reduction in new IAPs was due to a small number of large
impairments in WIB in 2017 while in 2018 no new large impaired loans (greater than $50 million) emerged during the year.
New IAPs in Business Bank were also lower. This was partially offset by higher new IAPs in New Zealand; and
total new CAPs were $31 million lower due to a $110 million reduction in write-offs partially offset by a $79 million fall in the
benefit from other changes in CAPs. Write-offs were lower, principally in Consumer Bank from the credit card portfolio and
in Business Bank related to the auto finance and commercial portfolios. The overlay was $22 million lower in 2018
compared to a $66 million reduction in 2017.
Operating expenses increased $258 million or 3% compared to 2017. The key factors of the result were:
Income tax expense – 2018 v 2017
higher costs from infrequent items of $233 million related to exit of the Hastings business ($121 million), costs associated
$m
with implementing customer refunds and payments ($62 million) and provisions for litigation ($50 million);
growth in regulation and compliance expenses of $184 million, including expenses related to the Royal Commission of $62
Income tax expense
Tax as a percentage of profit before income tax expense (effective tax rate)
2018
2017
2016
3,632
30.96%
3,518
30.55%
3,184
29.91%
The effective tax rate of 31.0% in 2018 was higher than the 2017 effective tax rate of 30.6%. The effective tax rate was higher
than the Australian corporate tax rate of 30% due to the non-deductibility of certain expenses, including penalties and the write-
off of Hastings goodwill associated with the exit of that business.
million;
higher investment related expenses of $125 million largely across our banking and wealth platforms; and
growth in other operating costs of $178 million; partly offset by
lower intangible asset amortisation of $158 million; and
productivity benefits of $304 million.
Staff expenses increased $186 million or 4% compared to 2017 from the full period impact of annual salary increases, higher
restructuring costs (up $39 million) and additional FTE for regulatory and compliance activities and the Group’s investment
program. This was partly offset by lower bonuses and productivity benefits largely related to simplifying the organisation and
digitising processes across the branch network and operations.
Occupancy expenses decreased $40 million or 4% from lower depreciation on operating leases (down $30 million) and
benefits from retail property consolidation (branch numbers down by 47 across the Group), partly offset by higher energy costs.
Technology expenses increased $102 million or 5% compared to 2017, primarily due to the Group’s investment program.
Higher technology services costs (up $82 million) and software maintenance and licensing costs (up $29 million) were driven by
continued investment spend, increased volumes and new software licences following upgraded capability. This was partly
offset by lower IT equipment depreciation (down $17 million) as prior investment in data centres was fully depreciated.
88
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
89
Review of Group operations
2018
US$1
2018
A$
2017
A$
2016
A$
2015
A$
2014
A$
2.13
0.92
13.05
13.05
7.01
10.63
12.78
14.74
171.9
166.5
136
2.13
0.92
13.05
13.05
7.01
10.63
12.78
14.74
237.5
230.1
188
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
79.52
79.52
79.28
84.19
73.39
74.68
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)
Dividend payout ratio (%)
Credit quality ratios
average loans (bps)
Balance sheet review
Assets – 2018 v 2017
Impairment charges on loans written off (net of recoveries)
686
948
1,488
1,052
1,107
1,302
Impairment charges on loans written off (net of recoveries) to
14
14
22
16
18
23
Total assets as at 30 September 2018 were $879.6 billion, an increase of $27.7 billion or 3% compared to 30 September 2017.
Significant movements during the year included:
cash and balances with central banks increased $8.0 billion or 44% reflecting higher liquid assets held in this form;
receivables due from other financial institutions decreased $1.3 billion or 19% mainly due to a reduction in collateral posted
with derivative counterparties and lower interbank lending;
trading securities and financial assets designated at fair value and available-for-sale securities decreased $2.8 billion or
3% reflecting lower holdings of liquid assets in this form;
loans grew $24.8 billion or 4%. Refer to loan quality – 2018 v 2017 below for further information; and
Review of Group operations
Balance sheet review
Selected consolidated balance sheet data1
The detailed components of the balance sheet are set out in the notes to the financial statements.
As at 30 September
Cash and balances with central banks
2018
US$m2
19,131
2018
A$m
2017
A$m
2016
A$m
2015
A$m
2014
A$m
26,431
18,397
17,015
14,770
25,760
Receivables due from other financial institutions
4,191
5,790
7,128
9,951
9,583
7,424
Trading securities and financial assets designated at
fair value and available-for-sale securities
60,259
83,253
86,034
81,833
82,287
81,933
Derivative financial instruments
17,444
24,101
24,033
32,227
48,173
41,404
Loans
Life insurance assets
All other assets
Total assets
513,674
709,690
684,919
661,926
623,316
580,343
6,840
9,450
10,643
14,192
13,125
11,007
15,110
20,877
20,721
22,058
20,902
22,971
636,649
879,592
851,875
839,202
812,156
770,842
Payables due to other financial institutions
13,128
18,137
21,907
18,209
18,731
18,636
Deposits and other borrowings
404,810
559,285
533,591
513,071
475,328
460,822
Other financial liabilities at fair value through
income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
3,110
4,297
4,056
4,752
9,226
19,236
17,666
24,407
25,375
36,076
48,304
39,539
124,925
172,596
168,356
169,902
171,054
152,251
5,499
8,277
7,597
9,019
12,361
11,559
9,637
11,435
10,563
10,845
10,199
10,526
Total liabilities excluding loan capital
577,415
797,754
772,867
765,216
744,401
710,647
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
Banking Corporation
Non-controlling interests
12,496
17,265
17,666
15,805
13,840
10,858
589,911
815,019
790,533
781,021
758,241
721,505
46,738
64,573
61,342
58,181
53,915
49,337
46,700
64,521
61,288
58,120
53,098
48,456
38
52
54
61
817
881
46,738
64,573
61,342
58,181
53,915
49,337
640,291
884,624
864,525
843,555
798,703
737,124
life insurance assets decreased $1.2 billion or 11%, due to the transfer by an investor to another Group managed fund that
494,757
683,555
658,058
629,159
594,200
559,789
is not consolidated.
44,888
22
62,017
31
58,556
20
55,896
575
49,361
854
46,477
862
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
and may differ from results previously reported.
2 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7238, the noon
3
buying rate in New York City on 28 September 2018.
Includes interest earning balances. 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.
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$0.7238, the noon
buying rate in New York City on 28 September 2018.
2 Calculated by dividing net interest income by average interest earning assets.
3 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average total assets.
4 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity.
5 Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity and non-controlling interests.
6 Based on the weighted average number of fully paid ordinary shares.
7 Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive
potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
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91
Review of Group operations
Balance sheet review
Selected consolidated balance sheet data1
The detailed components of the balance sheet are set out in the notes to the financial statements.
As at 30 September
2018
US$m2
2018
A$m
2017
A$m
2016
A$m
2015
A$m
2014
A$m
Cash and balances with central banks
19,131
26,431
18,397
17,015
14,770
25,760
Receivables due from other financial institutions
4,191
5,790
7,128
9,951
9,583
7,424
Trading securities and financial assets designated at
fair value and available-for-sale securities
60,259
83,253
86,034
81,833
82,287
81,933
Derivative financial instruments
17,444
24,101
24,033
32,227
48,173
41,404
Loans
Life insurance assets
All other assets
Total assets
513,674
709,690
684,919
661,926
623,316
580,343
6,840
9,450
10,643
14,192
13,125
11,007
15,110
20,877
20,721
22,058
20,902
22,971
636,649
879,592
851,875
839,202
812,156
770,842
Payables due to other financial institutions
13,128
18,137
21,907
18,209
18,731
18,636
Deposits and other borrowings
404,810
559,285
533,591
513,071
475,328
460,822
Total liabilities excluding loan capital
577,415
797,754
772,867
765,216
744,401
710,647
Other financial liabilities at fair value through
income statement
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
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
Banking Corporation
Non-controlling interests
3,110
4,297
4,056
4,752
9,226
19,236
17,666
24,407
25,375
36,076
48,304
39,539
124,925
172,596
168,356
169,902
171,054
152,251
5,499
8,277
7,597
9,019
12,361
11,559
9,637
11,435
10,563
10,845
10,199
10,526
12,496
17,265
17,666
15,805
13,840
10,858
589,911
815,019
790,533
781,021
758,241
721,505
46,738
64,573
61,342
58,181
53,915
49,337
46,700
64,521
61,288
58,120
53,098
48,456
38
52
54
61
817
881
46,738
64,573
61,342
58,181
53,915
49,337
640,291
884,624
864,525
843,555
798,703
737,124
494,757
683,555
658,058
629,159
594,200
559,789
44,888
62,017
58,556
55,896
49,361
46,477
22
31
20
575
854
862
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)
Dividend payout ratio (%)
Credit quality ratios
Review of Group operations
2018
US$1
2018
A$
2017
A$
2016
A$
2015
A$
2014
A$
2.13
0.92
13.05
13.05
7.01
10.63
12.78
14.74
171.9
166.5
136
2.13
0.92
13.05
13.05
7.01
10.63
12.78
14.74
237.5
230.1
188
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
79.52
79.52
79.28
84.19
73.39
74.68
2
Impairment charges on loans written off (net of recoveries)
686
948
1,488
1,052
1,107
1,302
Impairment charges on loans written off (net of recoveries) to
average loans (bps)
14
14
22
16
18
23
Balance sheet review
Assets – 2018 v 2017
Total assets as at 30 September 2018 were $879.6 billion, an increase of $27.7 billion or 3% compared to 30 September 2017.
Significant movements during the year included:
receivables due from other financial institutions decreased $1.3 billion or 19% mainly due to a reduction in collateral posted
with derivative counterparties and lower interbank lending;
cash and balances with central banks increased $8.0 billion or 44% reflecting higher liquid assets held in this form;
trading securities and financial assets designated at fair value and available-for-sale securities decreased $2.8 billion or
3% reflecting lower holdings of liquid assets in this form;
loans grew $24.8 billion or 4%. Refer to loan quality – 2018 v 2017 below for further information; and
life insurance assets decreased $1.2 billion or 11%, due to the transfer by an investor to another Group managed fund that
is not consolidated.
1 Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised
2 Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7238, the noon
and may differ from results previously reported.
buying rate in New York City on 28 September 2018.
Includes interest earning balances. 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.
3
90
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91
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$0.7238, the noon
buying rate in New York City on 28 September 2018.
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.
Review of Group operations
Liabilities and equity – 2018 v 2017
Total liabilities as at 30 September 2018 were $815.0 billion, an increase of $24.5 billion or 3% compared to 30 September
2017. Significant movements during the year included:
payables due to other financial institutions decreased $3.8 billion or 17% due to lower securities sold under agreements to
repurchase, interbank borrowings and collateral posted by derivative counterparties, partly offset by higher offshore central
bank deposits;
deposits and other borrowings increased $25.7 billion or 5%;
debt issues increased $4.2 billion or 3% ($6.8 billion or 4% decrease excluding foreign currency translation impacts); and
Restructured loans:
life insurance liabilities decreased $1.4 billion or 16%, due to the transfer by an investor to another Group managed fund
that is not consolidated.
Equity attributable to owners of Westpac Banking Corporation increased $3.2 billion reflecting retained profits less dividends
paid during the period, shares issued under the 2018 interim DRP and 2017 final DRP and the conversion of some convertible
preference shares to ordinary share capital.
Overdrafts, personal loans and revolving credit facilities greater than
Loan quality – 2018 v 2017
$m
Total gross loans1
Average gross loans
Australia
New Zealand
Other overseas
Total average gross loans
As at 30 September
2018
2017
2016
712,504
687,785
665,256
611,398
588,920
562,633
73,000
72,269
67,686
16,228
700,626
12,837
674,026
15,112
645,431
Total gross loans represented 81% of the total assets of the Group as at 30 September 2018, unchanged from 2017.
Australia average gross loans were $611.4 billion in 2018, an increase of $22.5 billion or 4% from $588.9 billion in 2017. This
increase was primarily due to growth in housing loans.
New Zealand average gross loans were $73.0 billion in 2018, an increase of $0.7 billion or 1% from $72.3 billion in 2017. This
increase was primarily due to growth in housing loans.
Other overseas average loans were $16.2 billion in 2018, an increase of $3.4 billion or 26% from $12.8 billion in 2017. This was
primarily due to an increase in Asia.
Approximately 13% of the loans at 30 September 2018 mature within one year and 18% mature between one year and five
years. Retail lending comprises the majority of the loan portfolio maturing after five years.
1 Gross loans are stated before related provisions for impairment.
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93
$m
Impaired loans
Non-performing loans1:
Impairment provisions
Gross
Net
Gross
Net
Gross
Net
Impairment provisions
90 days past due:
Impairment provisions
Net impaired loans
Review of Group operations
As at 30 September
2018
2017
2016
2015
2014
1,019
1,142
1,851
1,593
(458)
561
(507)
635
(885)
966
(689)
904
2,030
(862)
1,168
26
(6)
20
371
(189)
182
763
27
(12)
15
373
(195)
178
828
31
(16)
15
39
(16)
23
93
(44)
49
277
(166)
111
263
(172)
91
217
(141)
76
1,092
1,018
1,293
422
2,631
480
2,639
869
2,733
669
2,663
867
2,614
3,053
3,119
3,602
3,332
3,481
46.12%
46.30%
49.42%
46.28%
44.76%
0.20%
0.22%
0.32%
0.30%
0.40%
0.43%
0.45%
0.54%
0.53%
0.60%
215.6%
202.3%
166.8%
175.8%
148.8%
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
Total provisions for impairment on loans and credit commitments to total
to total loans
impaired loans
September 2017.
The credit quality remained sound over 2018, with total stressed exposures to TCE increasing by 3 basis points to 1.08%. Total
impaired loans as a percentage of total gross loans were 0.20% at 30 September 2018, a decrease of 0.02% from 0.22% at 30
At 30 September 2018, we had one impaired counterparty with exposure greater than $50 million, accounting for 4% of total
impaired loans. This compares to one impaired counterparty with exposure greater than $50 million in 2017 accounting for 5%
of total impaired loans. There were two impaired counterparties at 30 September 2018 that were less than $50 million and
greater than $20 million (2017: four impaired counterparties).
At 30 September 2018, 79% of our exposure was to either investment grade or secured consumer mortgage segment (2017:
78%, 2016: 78%, 2015: 77%, 2014: 77%) and 95% of our exposure as at 30 September 2018 was in Australia, New Zealand
and the Pacific region (2017: 96%, 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 46.1% at 30 September 2018 compared to 46.3% at 30 September 2017. Total provisions for impairment on
loans and credit commitments to total impaired loans represented 215.6% of total impaired loans as at 30 September 2018, up
from 202.3% at 30 September 2017. Total provisions for impairments on loans and credit commitments to total loans were
0.43% at 30 September 2018, down from 0.45% at 30 September 2017 (2016: 0.54%).
Group mortgage loans 90 days past due at 30 September 2018 were 0.67% of outstandings, up from 0.62% of outstandings at
30 September 2017 (2016: 0.61%).
Group other consumer loan delinquencies (including credit card and personal loan products) were 1.64% of outstandings as at
30 September 2018, up from 1.57% of outstandings as at 30 September 2017 (2016: 1.11%).
Potential problem loans as at 30 September 2018 amounted to $1,691 million, an increase of 36% from $1,247 million at 30
September 2017. The increase in potential problem loans was mainly due to the downgrade of a small number of companies in
the Australian and New Zealand business portfolios.
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 $231 million as at 30 September 2018 (2017: $234 million, 2016: $198 million, 2015: $208 million, 2014: $180
million). This sum is compared to the total gross impaired loans to determine this ratio.
Review of Group operations
Liabilities and equity – 2018 v 2017
Total liabilities as at 30 September 2018 were $815.0 billion, an increase of $24.5 billion or 3% compared to 30 September
2017. Significant movements during the year included:
payables due to other financial institutions decreased $3.8 billion or 17% due to lower securities sold under agreements to
repurchase, interbank borrowings and collateral posted by derivative counterparties, partly offset by higher offshore central
bank deposits;
deposits and other borrowings increased $25.7 billion or 5%;
debt issues increased $4.2 billion or 3% ($6.8 billion or 4% decrease excluding foreign currency translation impacts); and
life insurance liabilities decreased $1.4 billion or 16%, due to the transfer by an investor to another Group managed fund
that is not consolidated.
$m
Impaired loans
Non-performing loans1:
Gross
Impairment provisions
Net
Restructured loans:
Gross
Impairment provisions
Net
Equity attributable to owners of Westpac Banking Corporation increased $3.2 billion reflecting retained profits less dividends
paid during the period, shares issued under the 2018 interim DRP and 2017 final DRP and the conversion of some convertible
Overdrafts, personal loans and revolving credit facilities greater than
90 days past due:
As at 30 September
2018
2017
2016
712,504
687,785
665,256
611,398
588,920
562,633
73,000
16,228
72,269
12,837
67,686
15,112
700,626
674,026
645,431
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
2018
2017
2016
2015
2014
1,019
(458)
561
1,142
(507)
635
1,851
(885)
966
1,593
(689)
904
2,030
(862)
1,168
26
(6)
20
371
(189)
182
763
27
(12)
15
373
(195)
178
828
31
(16)
15
39
(16)
23
93
(44)
49
2
277
(166)
111
263
(172)
91
1,092
1,018
217
(141)
76
1,293
422
2,631
480
2,639
869
2,733
669
2,663
867
2,614
3,053
3,119
3,602
3,332
3,481
46.12%
0.20%
46.30%
0.22%
49.42%
0.32%
46.28%
0.30%
44.76%
0.40%
to total loans
0.43%
0.45%
0.54%
0.53%
0.60%
Total provisions for impairment on loans and credit commitments to total
impaired loans
215.6%
202.3%
166.8%
175.8%
148.8%
The credit quality remained sound over 2018, with total stressed exposures to TCE increasing by 3 basis points to 1.08%. Total
impaired loans as a percentage of total gross loans were 0.20% at 30 September 2018, a decrease of 0.02% from 0.22% at 30
September 2017.
At 30 September 2018, we had one impaired counterparty with exposure greater than $50 million, accounting for 4% of total
impaired loans. This compares to one impaired counterparty with exposure greater than $50 million in 2017 accounting for 5%
of total impaired loans. There were two impaired counterparties at 30 September 2018 that were less than $50 million and
greater than $20 million (2017: four impaired counterparties).
At 30 September 2018, 79% of our exposure was to either investment grade or secured consumer mortgage segment (2017:
78%, 2016: 78%, 2015: 77%, 2014: 77%) and 95% of our exposure as at 30 September 2018 was in Australia, New Zealand
and the Pacific region (2017: 96%, 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 46.1% at 30 September 2018 compared to 46.3% at 30 September 2017. Total provisions for impairment on
loans and credit commitments to total impaired loans represented 215.6% of total impaired loans as at 30 September 2018, up
from 202.3% at 30 September 2017. Total provisions for impairments on loans and credit commitments to total loans were
0.43% at 30 September 2018, down from 0.45% at 30 September 2017 (2016: 0.54%).
Group mortgage loans 90 days past due at 30 September 2018 were 0.67% of outstandings, up from 0.62% of outstandings at
30 September 2017 (2016: 0.61%).
Group other consumer loan delinquencies (including credit card and personal loan products) were 1.64% of outstandings as at
30 September 2018, up from 1.57% of outstandings as at 30 September 2017 (2016: 1.11%).
Potential problem loans as at 30 September 2018 amounted to $1,691 million, an increase of 36% from $1,247 million at 30
September 2017. The increase in potential problem loans was mainly due to the downgrade of a small number of companies in
the Australian and New Zealand business portfolios.
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 $231 million as at 30 September 2018 (2017: $234 million, 2016: $198 million, 2015: $208 million, 2014: $180
million). This sum is compared to the total gross impaired loans to determine this ratio.
preference shares to ordinary share capital.
Loan quality – 2018 v 2017
$m
Total gross loans1
Average gross loans
Australia
New Zealand
Other overseas
Total average gross loans
Total gross loans represented 81% of the total assets of the Group as at 30 September 2018, unchanged from 2017.
Australia average gross loans were $611.4 billion in 2018, an increase of $22.5 billion or 4% from $588.9 billion in 2017. This
increase was primarily due to growth in housing loans.
New Zealand average gross loans were $73.0 billion in 2018, an increase of $0.7 billion or 1% from $72.3 billion in 2017. This
increase was primarily due to growth in housing loans.
Other overseas average loans were $16.2 billion in 2018, an increase of $3.4 billion or 26% from $12.8 billion in 2017. This was
primarily due to an increase in Asia.
Approximately 13% of the loans at 30 September 2018 mature within one year and 18% mature between one year and five
years. Retail lending comprises the majority of the loan portfolio maturing after five years.
1 Gross loans are stated before related provisions for impairment.
92
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93
Review of Group operations
Basel Capital Accord
APRA’s Prudential Sandards 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.
Review of Group operations
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.
$m
Common equity
Deductions from common equity
Total common equity after deductions
Additional Tier 1 capital
Net Tier 1 regulatory capital
Tier 2 capital
Deductions from Tier 2 capital
Total Tier 2 capital after deductions
Total regulatory capital
Credit risk
Market risk
Operational risk
Other assets
Interest rate risk in the banking book
Total risk weighted assets
Common Equity Tier 1 capital ratio
Additional Tier 1 capital ratio
Tier 1 capital ratio
Tier 2 capital ratio
Total regulatory capital ratio
capital requirements.
2018
2017
63,576
60,520
(18,337)
(17,850)
45,239
42,670
9,144
8,505
54,383
51,175
8,565
(233)
8,332
8,952
(217)
8,735
62,715
59,910
362,749
349,258
6,723
8,094
39,113
31,229
12,989
11,101
3,810
4,553
425,384
404,235
10.63%
10.56%
2.15%
2.10%
12.78%
12.66%
1.96%
2.16%
14.74%
14.82%
Refer to ‘Significant developments’ in Section 1 for a discussion on future regulatory developments that may impact upon
In light of APRA’s announcement on ‘unquestionably strong’ capital benchmarks on 19 July 2017, Westpac will seek to operate
with a CET1 capital ratio of at least 10.5% in March and September as measured under the existing capital framework. This
also takes into consideration:
current regulatory capital minimums and the CCB, which together are the total CET1 requirement;
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
stress testing to calibrate an appropriate buffer against a downturn; and
Westpac will revise its target capital level once APRA finalises its review of the capital adequacy framework.
94
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
95
Review of Group operations
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
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
adequacy purposes;
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:
contingency plans;
the development of a capital management strategy, including consideration of regulatory minimums, capital buffers and
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 benchmarks on 19 July 2017, Westpac will seek to operate
with a CET1 capital ratio of at least 10.5% in March and September as measured under the existing capital framework. This
also takes into consideration:
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.
Westpac will revise its target capital level once APRA finalises its review of the capital adequacy framework.
Review of Group operations
Basel Capital Accord
APRA’s Prudential Sandards 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
2018
2017
2
63,576
60,520
(18,337)
(17,850)
45,239
42,670
9,144
8,505
54,383
51,175
8,565
(233)
8,332
8,952
(217)
8,735
62,715
59,910
362,749
349,258
6,723
8,094
39,113
31,229
12,989
11,101
3,810
4,553
425,384
404,235
10.63%
10.56%
2.15%
2.10%
12.78%
1.96%
14.74%
12.66%
2.16%
14.82%
Refer to ‘Significant developments’ in Section 1 for a discussion on future regulatory developments that may impact upon
capital requirements.
94
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
95
Divisional performance
over time;
earnings;
-
ineffective hedges: The unrealised (gain)/loss on ineffective hedges is reversed in deriving cash earnings 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
adjustment related to Pendal (previously BTIM): The Group recognised a gain, net of costs, associated with the partial sale
of shares in Pendal Group Limited in 2017. In 2018, the Group recorded an impairment on its current holding of Pendal
shares. Consistent with prior years these items have been treated as a cash earnings adjustment given their size and that
it does not reflect ongoing operations. The Group has indicated that it may sell the remaining 10% shareholding in Pendal
at some future date. Any future gain or loss on this shareholding will similarly be excluded from the calculation of cash
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 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; and
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;
earnings basis; and
earnings basis.
- policyholder tax recoveries: Income and tax amounts that are grossed up to comply with the AAS covering Life
Insurance Business (policyholder tax recoveries) are reversed in deriving income and taxation expense on a cash
- operating leases: Under AAS rental income on operating leases is presented gross of the depreciation of the assets
subject to the lease. These amounts are offset in deriving non-interest income and operating expenses on a cash
The guidance provided in Australian Securities and Investments Commission (ASIC) Regulatory Guide 230 has been followed
when presenting this information.
Divisional performance
Divisional performance – 2018 v 2017
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 and operates under the
Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands;
Business Bank, which we refer to as BB: responsible for all Australian SME and commercial business relationships with
facilities up to approximately $150 million, and operates under the Westpac, St.George, BankSA and Bank of Melbourne
brands;
BT Financial Group (Australia), which we refer to as BTFG: responsible for the Group's Australian wealth management,
insurance and private wealth businesses;
Westpac Institutional Bank, which we refer to as WIB: responsible for the relationship with commercial, corporate,
institutional and government customers, with customers supported throughout Australia, as well as via branches and
subsidiaries located in New Zealand, US, UK, Asia, Fiji and Papua New Guinea; and
Westpac New Zealand: responsible for all customer segments in New Zealand.
Group Businesses include Treasury, Group Technology and Core Support.
The Group revised its allocations of capital, funds transfer pricing and expenses in 2018. In addition, balance sheet disclosure
and associated revenue and expenses related to customer transfer have also been aligned. Divisional results have been
restated for 2017 and 2016 to ensure comparability with 2018 results (refer to Note 2 to the financial statements for the
disclosure of the Group’s reportable operating segments and revisions to segment 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
both cash and non-cash adjustments to net profit attributable to owners of Westpac Banking Corporation. 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 the 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; 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: Identifiable intangible assets arising from business acquisitions 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. The last of
these intangible assets were fully amortised in December 2017;
96
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;
fair value (gain)/loss on economic hedges (which do not qualify for hedge accounting under AAS) comprise:
-
-
the unrealised fair value (gain)/loss on foreign exchange hedges of future New Zealand earnings impacting non-interest
income is reversed in deriving cash earnings as they may create a material timing difference on reported results but do
not affect the Group's cash earnings over the life of the hedge; and
the unrealised fair value (gain)/loss on hedges of accrual accounted term funding transactions are reversed in deriving
cash earnings as they may create a material timing difference on reported results but do not affect the Group's cash
earnings over the life of the hedge;
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
97
Divisional performance
ineffective hedges: The unrealised (gain)/loss on ineffective hedges is reversed in deriving cash earnings 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;
adjustment related to Pendal (previously BTIM): The Group recognised a gain, net of costs, associated with the partial sale
of shares in Pendal Group Limited in 2017. In 2018, the Group recorded an impairment on its current holding of Pendal
shares. Consistent with prior years these items have been treated as a cash earnings adjustment given their size and that
it does not reflect ongoing operations. The Group has indicated that it may sell the remaining 10% shareholding in Pendal
at some future date. Any future gain or loss on this shareholding 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 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; and
accounting reclassifications between individual line items that do not impact reported results comprise:
2
-
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 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.
Divisional performance
Divisional performance – 2018 v 2017
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 and operates under the
Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands;
Business Bank, which we refer to as BB: responsible for all Australian SME and commercial business relationships with
facilities up to approximately $150 million, and operates under the Westpac, St.George, BankSA and Bank of Melbourne
brands;
BT Financial Group (Australia), which we refer to as BTFG: responsible for the Group's Australian wealth management,
insurance and private wealth businesses;
Westpac Institutional Bank, which we refer to as WIB: responsible for the relationship with commercial, corporate,
institutional and government customers, with customers supported throughout Australia, as well as via branches and
subsidiaries located in New Zealand, US, UK, Asia, Fiji and Papua New Guinea; and
Westpac New Zealand: responsible for all customer segments in New Zealand.
Group Businesses include Treasury, Group Technology and Core Support.
The Group revised its allocations of capital, funds transfer pricing and expenses in 2018. In addition, balance sheet disclosure
and associated revenue and expenses related to customer transfer have also been aligned. Divisional results have been
restated for 2017 and 2016 to ensure comparability with 2018 results (refer to Note 2 to the financial statements for the
disclosure of the Group’s reportable operating segments and revisions to segment 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
both cash and non-cash adjustments to net profit attributable to owners of Westpac Banking Corporation. 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 the 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; 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: Identifiable intangible assets arising from business acquisitions 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. The last of
these intangible assets were fully amortised in December 2017;
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;
fair value (gain)/loss on economic hedges (which do not qualify for hedge accounting under AAS) comprise:
-
-
the unrealised fair value (gain)/loss on foreign exchange hedges of future New Zealand earnings impacting non-interest
income is reversed in deriving cash earnings as they may create a material timing difference on reported results but do
not affect the Group's cash earnings over the life of the hedge; and
the unrealised fair value (gain)/loss on hedges of accrual accounted term funding transactions are reversed in deriving
cash earnings as they may create a material timing difference on reported results but do not affect the Group's cash
earnings over the life of the hedge;
96
2018 Westpac Group Annual Report
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97
Divisional performance
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 2018, 2017 and 2016. 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
2018
3,140
2,159
645
2017
3,155
2,003
736
1,086
1,159
934
101
8,065
917
92
8,062
2016
3,011
1,885
832
979
825
290
7,822
2018
2017
2016
392.5
156.5
34.9
102.4
82.4
110.9
879.6
377.5
153.1
35.2
103.1
81.3
101.7
851.9
359.2
148.9
38.2
110.6
82.1
100.2
839.2
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.
Divisional performance
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 works in an integrated way with Business Bank, BTFG and WIB in the sales
and service of certain financial services and products including wealth and foreign exchange. The revenue from these products
is mostly retained by the product originators.
Net operating income before operating expenses and impairment charges
Net profit attributable to owners of Westpac Banking Corporation
Financial performance
$m
Net interest income
Non-interest income
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Deposits and other borrowings
Net loans
Total assets
2018 v 2017
2018
2017
2016
7,748
7,638
7,268
746
813
8,494
8,451
863
8,131
(3,542)
(3,378)
(3,312)
(451)
(565)
4,501
4,508
(516)
4,303
(1,361)
(1,353)
(1,292)
3,140
(15)
3,125
$bn
206.2
385.4
392.5
3,155
(116)
3,039
$bn
196.5
370.4
377.5
3,011
(116)
2,895
$bn
185.0
352.5
359.2
Total operating expenses to net operating income ratio
41.70%
39.97%
40.73%
Cash earnings were broadly unchanged even though there was a 7 basis point decline in net interest margin, the removal of
certain ATM fees, changes in card interchange fees and increased regulatory and compliance costs. A $114 million decline in
impairment charges resulted in cash earnings of $3,140 million, down $15 million, over the year.
Net interest
income up $110
million, 1%
Lending increased 4% mostly in mortgages. Other lending decreased 4% mostly due to a 3% decline
in credit cards, which was in line with the decline in the overall system1;
A 10% increase in term deposits, and a 5% rise in transaction accounts (including offsets) supported
Non-interest
income down
$67 million, 8%
Operating
expenses up
$164 million,
5%
the 5% rise in deposits; and
Net interest margin was down 7 basis points. The decline was due to higher short term wholesale
funding costs, the full period impact of the Bank Levy, and higher provisions for estimated customer
refunds and payments. The decline was partly offset by higher deposit spreads.
The decline was mostly due to the removal of certain ATM fees and changes to account keeping fees
announced in 2017; and
Lower credit card income, mostly from changes in interchange fees, contributed to the fall.
Most of the operating expense increase was due to:
- Provisions for costs associated with implementing customer refunds and payments and estimated
litigation;
management.
- Compliance costs (up $61 million) and investment related costs (up $61 million); and
- Investment to improve financial crime systems and processes, cyber security and complaints
Other cost increases including annual salary reviews and inflationary rises were more than offset by
productivity benefits from:
- Digital capabilities increasing customer self-service including take-up of e-statements;
- Full period benefit of 45 branches closed in 2017 and 40 branches closed in 2018; and
Credit quality remains sound. Other consumer delinquencies reduced 10 basis points to 1.54% from
- Benefits from organisation redesign.
improved collections processes; and
Impairment charges were lower from reduced write-offs due to improved collection processes and
higher recoveries from the maturing of hardship changes.
Impairment
charges down
$114 million,
20%
1 Source: APRA September 2018.
98
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
99
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 2018, 2017 and 2016. 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.
Divisional performance
Cash earnings and assets by division
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
$bn
Consumer Bank
Business Bank
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Group Businesses
Total assets
Total assets by business division
2018
3,140
2,159
645
2017
3,155
2,003
736
1,086
1,159
934
101
917
92
392.5
156.5
34.9
102.4
82.4
110.9
879.6
377.5
153.1
35.2
103.1
81.3
101.7
851.9
2016
3,011
1,885
832
979
825
290
359.2
148.9
38.2
110.6
82.1
100.2
839.2
8,065
8,062
7,822
2018
2017
2016
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.
Divisional performance
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 works in an integrated way with Business Bank, BTFG and WIB in the sales
and service of certain financial services and products including wealth and foreign exchange. The revenue from these products
is mostly retained by the product originators.
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
2
2018
2017
2016
7,748
7,638
7,268
746
813
8,494
8,451
863
8,131
(3,542)
(3,378)
(3,312)
(451)
(565)
4,501
4,508
(516)
4,303
(1,361)
(1,353)
(1,292)
3,140
(15)
3,125
$bn
206.2
385.4
3,155
(116)
3,039
$bn
196.5
370.4
3,011
(116)
2,895
$bn
185.0
352.5
392.5
41.70%
377.5
39.97%
359.2
40.73%
2018 v 2017
Cash earnings were broadly unchanged even though there was a 7 basis point decline in net interest margin, the removal of
certain ATM fees, changes in card interchange fees and increased regulatory and compliance costs. A $114 million decline in
impairment charges resulted in cash earnings of $3,140 million, down $15 million, over the year.
Net interest
income up $110
million, 1%
Lending increased 4% mostly in mortgages. Other lending decreased 4% mostly due to a 3% decline
in credit cards, which was in line with the decline in the overall system1;
A 10% increase in term deposits, and a 5% rise in transaction accounts (including offsets) supported
Non-interest
income down
$67 million, 8%
Operating
expenses up
$164 million,
5%
the 5% rise in deposits; and
Net interest margin was down 7 basis points. The decline was due to higher short term wholesale
funding costs, the full period impact of the Bank Levy, and higher provisions for estimated customer
refunds and payments. The decline was partly offset by higher deposit spreads.
The decline was mostly due to the removal of certain ATM fees and changes to account keeping fees
announced in 2017; and
Lower credit card income, mostly from changes in interchange fees, contributed to the fall.
Most of the operating expense increase was due to:
- Provisions for costs associated with implementing customer refunds and payments and estimated
litigation;
- Compliance costs (up $61 million) and investment related costs (up $61 million); and
- Investment to improve financial crime systems and processes, cyber security and complaints
management.
Other cost increases including annual salary reviews and inflationary rises were more than offset by
productivity benefits from:
- Digital capabilities increasing customer self-service including take-up of e-statements;
- Full period benefit of 45 branches closed in 2017 and 40 branches closed in 2018; and
- Benefits from organisation redesign.
Impairment
charges down
$114 million,
20%
Credit quality remains sound. Other consumer delinquencies reduced 10 basis points to 1.54% from
improved collections processes; and
Impairment charges were lower from reduced write-offs due to improved collection processes and
higher recoveries from the maturing of hardship changes.
1 Source: APRA September 2018.
98
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
99
Divisional performance
Business Bank
BT Financial Group (Australia)
Divisional performance
Business Bank (BB) is responsible for sales and service to 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, and property finance. 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, referral and service of certain 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 and retirement products, wealth administration platforms, private wealth, 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 a third party to manufacture certain general insurance products. In managing risk
across all insurance classes the division reinsures certain risks using external providers. In addition to the BT brand, BTFG
operates a range of financial service brands along with the banking brands of Westpac, St.George, Bank of Melbourne and
BankSA for Private Wealth and Insurance.
Net operating income before operating expenses and impairment charges
Financial performance
$m
Net interest income
Non-interest income
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Deposits and other borrowings
Net loans
Total assets
Total funds
Cash earnings
$m
Funds management business
Insurance
Capital and other
Total cash earnings
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
(1,291)
(1,199)
(1,184)
2018
578
1,648
2,226
(6)
929
(284)
-
645
(73)
572
$bn
33.0
21.0
34.9
2017
511
1,744
2,255
(4)
1,052
(316)
-
736
160
896
$bn
30.7
20.1
35.2
2016
460
1,908
2,368
-
1,184
(352)
-
832
(32)
800
$bn
26.6
18.6
38.2
205.6
58.00%
191.4
53.17%
179.2
50.00%
2018
2017
2016
327
278
40
645
413
290
33
736
498
305
29
832
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
2018
2017
2016
4,065
1,189
5,254
3,885
1,141
5,026
3,766
1,089
4,855
(1,876)
(1,818)
(1,774)
(291)
3,087
(928)
2,159
(2)
2,157
$bn
110.8
152.7
(343)
2,865
(862)
2,003
(10)
1,993
$bn
107.0
149.4
156.5
35.71%
153.1
36.17%
(386)
2,695
(810)
1,885
(10)
1,875
$bn
99.8
145.5
148.9
36.54%
2018 v 2017
Cash earnings increased 8% ($156 million), compared to 2017 from net operating income before operating expenses and
impairment charges growth of 5% and a 15% decline in impairment charges. The result was supported by increased fee
income and higher net interest margins.
Net interest
income up $180
million, 5%
Lending growth of 2% was supported by diversified growth across industries including property,
agriculture and manufacturing and in equipment finance. Mortgage growth slowed through the year
as demand for investment lending slowed;
The 7% increase in term deposits, and 5% higher transaction balances supported the 4% increase in
deposits; and
Net interest margin was up 5 basis points from repricing of certain mortgages types in the second half
of 2017 and higher deposits spreads. These were partly offset by the full period impact of the Bank
Levy (5 basis points).
Higher business line fees from portfolio growth and pricing for facilities, including unused limits.
Most of the increase was due to higher investment related costs and regulatory and compliance
costs;
Increases from other costs were largely offset by productivity benefits from:
- Improved banker coverage and support structures;
- Better alignment of customers to bankers across SME and industries; and
- Process improvements from the extension of LOLA, improved online functionality and standardising
risk reviews.
Impairment charges benefited from lower credit card and auto write-offs; and
The level of stressed assets to TCE increased 58 basis points to 2.71% from 2.13%. Most of the
increase was from Commercial customers moving into stressed risk grades.
Non-interest
income up $48
million, 4%
Operating
expenses up
$58 million, 3%
Impairment
charges down
$52 million,
15%
100
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
101
Divisional performance
Business Bank
Business Bank (BB) is responsible for sales and service to 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, and property finance. 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, referral and service of certain financial services and products
including corporate superannuation, foreign exchange and interest rate hedging. The revenue from these products is mostly
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 and retirement products, wealth administration platforms, private wealth, 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 a third party to manufacture certain general insurance products. In managing risk
across all insurance classes the division reinsures certain risks using external providers. In addition to the BT brand, BTFG
operates a range of financial service brands along with the banking brands of Westpac, St.George, Bank of Melbourne and
BankSA for Private Wealth and Insurance.
Net operating income before operating expenses and impairment charges
Net operating income before operating expenses and impairment charges
Operating expenses
Financial performance
$m
Net interest income
Non-interest income
Net profit attributable to owners of Westpac Banking Corporation
Net profit attributable to owners of Westpac Banking Corporation
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
Deposits and other borrowings
Net loans
Total assets
Total funds
Total operating expenses to net operating income ratio
Cash earnings
$m
Funds management business
Insurance
Capital and other
Total cash earnings
2
2018
578
2017
511
1,648
1,744
2,226
(1,291)
(6)
929
(284)
-
645
(73)
572
$bn
33.0
21.0
34.9
2,255
(1,199)
(4)
1,052
(316)
-
736
160
896
$bn
30.7
20.1
35.2
2016
460
1,908
2,368
(1,184)
-
1,184
(352)
-
832
(32)
800
$bn
26.6
18.6
38.2
205.6
58.00%
191.4
53.17%
179.2
50.00%
2018
2017
2016
327
278
40
645
413
290
33
736
498
305
29
832
retained by the product originator.
Financial performance
$m
Net interest income
Non-interest income
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Deposits and other borrowings
Net loans
Total assets
2018 v 2017
2018
2017
2016
(1,876)
(1,818)
(1,774)
4,065
1,189
5,254
(291)
3,087
(928)
2,159
(2)
2,157
$bn
110.8
152.7
156.5
3,885
1,141
5,026
(343)
2,865
(862)
2,003
(10)
1,993
$bn
107.0
149.4
153.1
3,766
1,089
4,855
(386)
2,695
(810)
1,885
(10)
1,875
$bn
99.8
145.5
148.9
Total operating expenses to net operating income ratio
35.71%
36.17%
36.54%
Cash earnings increased 8% ($156 million), compared to 2017 from net operating income before operating expenses and
impairment charges growth of 5% and a 15% decline in impairment charges. The result was supported by increased fee
income and higher net interest margins.
Net interest
income up $180
million, 5%
Lending growth of 2% was supported by diversified growth across industries including property,
agriculture and manufacturing and in equipment finance. Mortgage growth slowed through the year
as demand for investment lending slowed;
The 7% increase in term deposits, and 5% higher transaction balances supported the 4% increase in
Net interest margin was up 5 basis points from repricing of certain mortgages types in the second half
of 2017 and higher deposits spreads. These were partly offset by the full period impact of the Bank
deposits; and
Levy (5 basis points).
Higher business line fees from portfolio growth and pricing for facilities, including unused limits.
Non-interest
income up $48
million, 4%
Operating
expenses up
$58 million, 3%
Impairment
charges down
$52 million,
15%
Most of the increase was due to higher investment related costs and regulatory and compliance
Increases from other costs were largely offset by productivity benefits from:
- Improved banker coverage and support structures;
- Better alignment of customers to bankers across SME and industries; and
- Process improvements from the extension of LOLA, improved online functionality and standardising
costs;
risk reviews.
Impairment charges benefited from lower credit card and auto write-offs; and
The level of stressed assets to TCE increased 58 basis points to 2.71% from 2.13%. Most of the
increase was from Commercial customers moving into stressed risk grades.
100
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
101
Net operating income before operating expenses and impairment charges
Funds management business
$m
Net interest income
Non-interest income
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Insurance business
Insurance (LMI) businesses.
$m
Net interest income
Non-interest income
Operating expenses
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net operating income before operating expenses and impairment charges
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
Divisional performance
2018
572
1,080
1,652
(1,171)
(7)
474
(147)
-
327
(73)
254
2017
496
1,183
1,679
(1,084)
(3)
592
(179)
-
413
160
573
2016
445
1,334
1,779
(1,069)
-
710
(212)
-
498
(32)
466
70.88%
64.56%
60.09%
2018
2017
2016
5
512
517
(115)
402
(124)
278
-
278
10
499
509
(99)
410
(120)
290
-
290
7
525
532
(95)
437
(132)
305
-
305
22.24%
19.45%
17.86%
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
The Insurance business result includes the Westpac and St.George Life Insurance, General Insurance and Lenders Mortgage
Divisional performance
2018 v 2017
Cash earnings were 12% lower ($91 million) than 2017 impacted by additional provisions for estimated customer refunds and
payments and associated costs. Excluding these items, performance was down 1% over the year. Disciplined balance sheet
growth, and lower weather related insurance claims were offset by a lower Advice contribution, fund margin compression and
higher life insurance claims.
Net interest
income up $67
million, 13%
The 4% increase in lending was mostly in mortgages in Private Wealth. Deposits increased 7%,
supported by an increase in term deposits, as customers looked for yield; and
Net interest margin was up 20 basis points due to disciplined margin management combined with
Non-interest
income down
$96 million, 6%
repricing of certain mortgage types and term deposits. This was partly offset by the full period impact
of the Bank Levy, an increase of $15 million.
Funds Management contribution was down $103 million (or 9%):
Increase in provisions for estimated customer refunds and payments ($57 million);
Lower advice income, mostly from reduced activity ($37 million);
-
-
- Contribution from Pendal (previously BT Investment Management) was $17 million lower,
-
-
-
following the further sale of shares in Pendal in May 2017;
Partly offset by a reduced revaluation loss from investments in boutique funds ($22 million) and
higher seed pool performance ($5 million);
Funds related revenue was also higher ($10 million), from a 7% growth in funds, partly offset by
lower margins from repricing and product mix changes; and
Panorama has seen funds on the platform increased from $6.7 billion to $12.4 billion (up 85%).
These gains have been partially offset by net outflows on legacy platforms.
Insurance income was $13 million or 3% higher;
- General insurance was $29 million higher, mostly from lower claims for major weather events;
-
Life insurance was $8 million higher from an increase in in-force premiums relating to Group
Insurance for BTFG Corporate Super. These gains were partly offset by higher claims and
lapses;
Provisions for estimated customer refunds and payments reduced insurance income by $6
million; and
LMI contribution was lower ($17 million) from a reduction in loans originated with an LVR >90%.
-
-
Operating
expenses up
$92 million, 8%
Return on capital decreased $6 million mostly due to higher hedging costs.
Increase mostly due to:
- Provisions for the costs associated with customer refunds and payments ($55 million);
-
Investment costs ($44 million) from the roll-out of additional functionality in Panorama, the
implementation of BT Open Services and removing grandfathered commissions across systems;
Regulatory costs were lower due to the completion of the MySuper migration and FoFA (Future of
Financial Advice); and
Productivity savings largely offset other costs increases, including annual salary reviews, property and
technology related spending.
102
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
103
Divisional performance
2018 v 2017
Cash earnings were 12% lower ($91 million) than 2017 impacted by additional provisions for estimated customer refunds and
payments and associated costs. Excluding these items, performance was down 1% over the year. Disciplined balance sheet
growth, and lower weather related insurance claims were offset by a lower Advice contribution, fund margin compression and
higher life insurance claims.
Net interest
income up $67
million, 13%
The 4% increase in lending was mostly in mortgages in Private Wealth. Deposits increased 7%,
supported by an increase in term deposits, as customers looked for yield; and
Net interest margin was up 20 basis points due to disciplined margin management combined with
repricing of certain mortgage types and term deposits. This was partly offset by the full period impact
Non-interest
income down
$96 million, 6%
of the Bank Levy, an increase of $15 million.
Funds Management contribution was down $103 million (or 9%):
Increase in provisions for estimated customer refunds and payments ($57 million);
Lower advice income, mostly from reduced activity ($37 million);
- Contribution from Pendal (previously BT Investment Management) was $17 million lower,
following the further sale of shares in Pendal in May 2017;
Partly offset by a reduced revaluation loss from investments in boutique funds ($22 million) and
higher seed pool performance ($5 million);
Funds related revenue was also higher ($10 million), from a 7% growth in funds, partly offset by
lower margins from repricing and product mix changes; and
Panorama has seen funds on the platform increased from $6.7 billion to $12.4 billion (up 85%).
These gains have been partially offset by net outflows on legacy platforms.
Insurance income was $13 million or 3% higher;
- General insurance was $29 million higher, mostly from lower claims for major weather events;
-
Life insurance was $8 million higher from an increase in in-force premiums relating to Group
Insurance for BTFG Corporate Super. These gains were partly offset by higher claims and
Provisions for estimated customer refunds and payments reduced insurance income by $6
lapses;
million; and
-
-
-
-
-
-
-
LMI contribution was lower ($17 million) from a reduction in loans originated with an LVR >90%.
Return on capital decreased $6 million mostly due to higher hedging costs.
Operating
expenses up
$92 million, 8%
-
Increase mostly due to:
- Provisions for the costs associated with customer refunds and payments ($55 million);
Investment costs ($44 million) from the roll-out of additional functionality in Panorama, the
implementation of BT Open Services and removing grandfathered commissions across systems;
Regulatory costs were lower due to the completion of the MySuper migration and FoFA (Future of
Productivity savings largely offset other costs increases, including annual salary reviews, property and
Financial Advice); and
technology related spending.
Funds management business
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Total operating expenses to net operating income ratio
Divisional performance
2018
572
1,080
1,652
(1,171)
(7)
474
(147)
-
327
(73)
2017
496
1,183
1,679
(1,084)
(3)
592
(179)
-
413
160
254
70.88%
573
64.56%
2016
445
1,334
1,779
(1,069)
-
710
(212)
-
498
(32)
466
60.09%
2
Insurance business
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
2018
5
512
517
(115)
402
(124)
278
-
2017
10
499
509
(99)
410
(120)
290
-
278
22.24%
290
19.45%
2016
7
525
532
(95)
437
(132)
305
-
305
17.86%
102
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
103
Westpac New Zealand
technology, operations and treasury.
Financial performance
$m
Net interest income
Non-interest income
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Deposits and other borrowings1
Net loans
Total assets
Total funds
Net operating income before operating expenses and impairment charges
Net profit attributable to owners of Westpac Banking Corporation
Divisional performance
2018
2017
2016
1,720
1,629
1,606
438
2,158
(860)
(2)
1,296
(362)
-
934
13
947
$bn
56.7
73.6
82.4
9.8
480
2,109
(903)
72
1,278
(361)
-
917
(14)
903
$bn
53.7
71.1
81.3
9.3
483
2,089
(889)
(54)
1,146
(321)
-
825
2
827
$bn
54.9
71.7
82.1
9.1
Total operating expenses to net operating income ratio
39.85%
42.82%
42.56%
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 financing, transactional banking, and financial and
debt capital markets. 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 across foreign exchange and fixed interest solutions.
Westpac New Zealand is responsible for sales and service of banking, wealth and insurance products for consumers, business
and institutional customers in New Zealand. Westpac conducts its New Zealand banking business through two banks in New
Zealand: Westpac New Zealand Limited, which is incorporated in New Zealand and Westpac Banking Corporation (New
Zealand Branch), which is incorporated in Australia. Westpac New Zealand operates via an extensive network of branches and
ATMs across both the North and South Islands. Business and institutional customers are also served through relationship and
specialist product teams. Banking products are provided under the Westpac brand while insurance and wealth products are
provided under Westpac Life and BT brands, respectively. New Zealand also maintains its own infrastructure, including
Financial performance
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Deposits and other borrowings
Net loans
Total assets
Total operating expenses to net operating income ratio
2018
2017
2016
1,416
1,556
2,972
(1,446)
38
1,564
(473)
(5)
1,086
-
1,086
$bn
104.8
77.2
1,328
1,707
3,035
(1,351)
(56)
1,628
(462)
(7)
1,159
-
1,159
$bn
92.1
74.1
1,421
1,537
2,958
(1,374)
(177)
1,407
(421)
(7)
979
-
979
$bn
93.7
74.0
102.4
48.65%
103.1
44.51%
110.6
46.45%
2018 v 2017
Cash earnings were $73 million or 6% lower than 2017 mostly due to lower markets revenue. The decline was partially offset
by higher net interest margins and an impairment benefit. In 2018 the division exited the Hastings business which lifted both
revenues and expenses (and contributed to a higher tax rate) but had little impact on cash earnings.
Net interest
income up $88
million, 7%
Non-interest
income down
$151 million,
9%
Operating
expenses
up $95 million,
7%
Impairment
charge positive
movement of
$94 million
Lending was up 4%, from increased utilisation of mortgage warehouse facilities and a fall in the A$
lifting Asia trade finance and loan balances;
Deposits increased 14% from higher Australian transaction balances and term deposits. Asia term
deposits also increased due to foreign exchange translation impacts and to support lending in that
region; and
Net interest margin was up 6 basis points, from higher transaction deposit margins and reduced
wholesale funding costs. This was partially offset by the full period impact of the Bank Levy (5 basis
points).
Hastings contribution up $110 million, mainly from income associated with the exit of Hastings
business;
Excluding Hastings, non-interest income was down $261 million, or 16%, primarily from the non-
repeat of several large infrastructure transactions and lower markets revenue in fixed income sales
and trading; and
Fee income was also lower from increased utilisation of existing credit limits.
Hastings operating expenses up $87 million, from goodwill write-off and restructuring costs
associated with the exit of the business; and
Excluding Hastings, operating expenses were up $8 million, or 1%, due to higher technology,
regulatory and compliance expenses.
Stressed and impaired assets to TCE decreased over the year; and
The movement in impairment charges was due to the absence of any large downgrade over the year.
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105
1 Refers to total customer deposits in this table.
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 financing, transactional banking, and financial and
debt capital markets. 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 across foreign exchange and fixed interest solutions.
Divisional performance
Westpac New Zealand
Westpac New Zealand is responsible for sales and service of banking, wealth and insurance products for consumers, business
and institutional customers in New Zealand. Westpac conducts its New Zealand banking business through two banks in New
Zealand: Westpac New Zealand Limited, which is incorporated in New Zealand and Westpac Banking Corporation (New
Zealand Branch), which is incorporated in Australia. Westpac New Zealand operates via an extensive network of branches and
ATMs across both the North and South Islands. Business and institutional customers are also served through relationship and
specialist product teams. Banking products are provided under the Westpac brand while insurance and wealth products are
provided under Westpac Life and BT brands, respectively. New Zealand also maintains its own infrastructure, including
technology, operations and treasury.
2018
2017
2016
1,416
1,556
2,972
(1,446)
38
1,564
(473)
(5)
-
1,086
$bn
104.8
77.2
102.4
1,328
1,707
3,035
(1,351)
(56)
1,628
(462)
(7)
-
1,159
$bn
92.1
74.1
103.1
1,086
1,159
1,421
1,537
2,958
(1,374)
(177)
1,407
(421)
(7)
979
-
979
$bn
93.7
74.0
110.6
46.45%
Financial performance
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Deposits and other borrowings1
Net loans
Total assets
2
2018
2017
2016
1,720
1,629
1,606
438
2,158
(860)
(2)
1,296
(362)
-
934
13
947
$bn
56.7
73.6
82.4
480
2,109
(903)
72
1,278
(361)
-
917
(14)
903
$bn
53.7
71.1
81.3
483
2,089
(889)
(54)
1,146
(321)
-
825
2
827
$bn
54.9
71.7
82.1
Total funds
Total operating expenses to net operating income ratio
9.8
39.85%
9.3
42.82%
9.1
42.56%
Net operating income before operating expenses and impairment charges
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Financial performance
$m
Net interest income
Non-interest income
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Deposits and other borrowings
Net loans
Total assets
2018 v 2017
Total operating expenses to net operating income ratio
48.65%
44.51%
Cash earnings were $73 million or 6% lower than 2017 mostly due to lower markets revenue. The decline was partially offset
by higher net interest margins and an impairment benefit. In 2018 the division exited the Hastings business which lifted both
revenues and expenses (and contributed to a higher tax rate) but had little impact on cash earnings.
Net interest
income up $88
million, 7%
Lending was up 4%, from increased utilisation of mortgage warehouse facilities and a fall in the A$
lifting Asia trade finance and loan balances;
Deposits increased 14% from higher Australian transaction balances and term deposits. Asia term
deposits also increased due to foreign exchange translation impacts and to support lending in that
Net interest margin was up 6 basis points, from higher transaction deposit margins and reduced
wholesale funding costs. This was partially offset by the full period impact of the Bank Levy (5 basis
Hastings contribution up $110 million, mainly from income associated with the exit of Hastings
Excluding Hastings, non-interest income was down $261 million, or 16%, primarily from the non-
repeat of several large infrastructure transactions and lower markets revenue in fixed income sales
region; and
points).
business;
and trading; and
Fee income was also lower from increased utilisation of existing credit limits.
Hastings operating expenses up $87 million, from goodwill write-off and restructuring costs
associated with the exit of the business; and
up $95 million,
Excluding Hastings, operating expenses were up $8 million, or 1%, due to higher technology,
regulatory and compliance expenses.
Stressed and impaired assets to TCE decreased over the year; and
The movement in impairment charges was due to the absence of any large downgrade over the year.
Non-interest
income down
$151 million,
9%
Operating
expenses
7%
Impairment
charge positive
movement of
$94 million
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105
1 Refers to total customer deposits in this table.
Divisional performance
2018 v 2017
Cash earnings increased 2% over the year supported by a 13 basis point increase in net interest margin, and a 5% decline in
expenses, partly offset by lower non-interest income. 2018 recorded an impairment charge of $2 million compared to an
impairment benefit in 2017.
Net interest
income up $91
million, 6%
Loans increased $2.5 billion (4%), with the majority ($1.6 billion) in mortgages. Business growth of
$1.0 billion was across a broad range of sectors. Overall consumer lending was below system1 as the
division balanced return with growth;
Deposits increased $3 billion, more than funding loan growth over the year, and resulting in the
deposit to loan ratio increasing 144 basis points2 to 77.0%2. Most deposit growth was in term
products as customers sought higher yields; and
Net interest margin was 13 basis points higher from increased mortgage and business lending
spreads, partly offset by lower deposit spreads.
Decline was driven by lower cards income, product simplification (reducing some fees on existing
accounts) and customer migration to lower/no fee digital channels; and
Higher investment income from a 5% rise in funds and higher merchant and business lending fees,
partly offset these declines.
Benefits from the transformation program include a reduction in branch numbers (down 6 over the
year), lower FTE, and increased self-service from digitisation;
Project costs associated with the transformation program were also lower; and
Partly offsetting these benefits were increased risk management and regulatory costs and higher
costs from annual salary reviews and inflation.
Credit quality improved with stressed assets to TCE reducing 49 basis points2 to 1.57%2. The decline
was mostly due to the continued improvement in the dairy sector. Consumer 90+ day delinquencies
remain low; and
Impairment charges were higher due to the non-repeat of write-backs of some large facilities and
improvement in the dairy industry across 2017.
Non-interest
income down
$42 million,9%
Operating
expenses down
$43 million, 5%
Impairment
charge of $2m
compared to an
impairment
benefit of $72
million
Divisional performance
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, human resources and customer and corporate relations; and
Group Businesses also includes earnings on capital not allocated to divisions, certain intra-group transactions that facilitate
presentation of 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
Operating expenses
Impairment benefits
Profit before income tax
Income tax (expense)/benefit
2018 v 2017
Net operating
income before
operating
expenses and
impairment
charges up
$167 million,
25%
Operating
expenses up
$115 million,
25%
Impairment
benefit down
$41 million
Net operating income before operating expenses and impairment charges
Profit attributable to non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
2018
2017
812
35
847
(571)
2
278
(178)
1
101
107
208
713
(33)
680
(456)
43
267
(175)
-
92
(92)
-
2016
827
8
835
(398)
9
446
(148)
(8)
290
(221)
69
Cash earnings increased $9 million primarily from higher Treasury revenue and earnings on capital, partly offset by increased
operating expenses and a lower impairment benefit.
Net interest income increased $99 million primarily from Treasury revenue related to Australian
interest rate risk management and increased earnings from centrally held capital; and
Non-interest income increased $68 million primarily due to the impact of New Zealand earnings
hedges and a $10 million gain on asset sales.
Higher regulatory and compliance costs, including costs associated with the Royal Commission, and
estimated provisions for litigation;
Higher restructuring costs; and
Expenses associated with the Group's fintech investments.
Movements in impairments reflect a $2 million benefit from a reduction to centrally held overlays
during 2018, compared to a $43 million benefit in 2017.
1 Source: RBNZ
2 Calculated in NZ$.
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.
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107
Divisional performance
2018 v 2017
impairment benefit in 2017.
Net interest
income up $91
million, 6%
Cash earnings increased 2% over the year supported by a 13 basis point increase in net interest margin, and a 5% decline in
expenses, partly offset by lower non-interest income. 2018 recorded an impairment charge of $2 million compared to an
Loans increased $2.5 billion (4%), with the majority ($1.6 billion) in mortgages. Business growth of
$1.0 billion was across a broad range of sectors. Overall consumer lending was below system1 as the
division balanced return with growth;
Deposits increased $3 billion, more than funding loan growth over the year, and resulting in the
deposit to loan ratio increasing 144 basis points2 to 77.0%2. Most deposit growth was in term
products as customers sought higher yields; and
Net interest margin was 13 basis points higher from increased mortgage and business lending
spreads, partly offset by lower deposit spreads.
Decline was driven by lower cards income, product simplification (reducing some fees on existing
accounts) and customer migration to lower/no fee digital channels; and
Higher investment income from a 5% rise in funds and higher merchant and business lending fees,
partly offset these declines.
Benefits from the transformation program include a reduction in branch numbers (down 6 over the
year), lower FTE, and increased self-service from digitisation;
Project costs associated with the transformation program were also lower; and
Partly offsetting these benefits were increased risk management and regulatory costs and higher
costs from annual salary reviews and inflation.
Credit quality improved with stressed assets to TCE reducing 49 basis points2 to 1.57%2. The decline
was mostly due to the continued improvement in the dairy sector. Consumer 90+ day delinquencies
remain low; and
Impairment charges were higher due to the non-repeat of write-backs of some large facilities and
improvement in the dairy industry across 2017.
Non-interest
income down
$42 million,9%
Operating
expenses down
$43 million, 5%
Impairment
charge of $2m
compared to an
impairment
benefit of $72
million
Divisional performance
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, human resources and customer and corporate relations; and
Group Businesses also includes earnings on capital not allocated to divisions, certain intra-group transactions that facilitate
presentation of 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.
2
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
2018
2017
812
35
847
(571)
2
278
(178)
1
101
107
208
713
(33)
680
(456)
43
267
(175)
-
92
(92)
-
2016
827
8
835
(398)
9
446
(148)
(8)
290
(221)
69
2018 v 2017
Cash earnings increased $9 million primarily from higher Treasury revenue and earnings on capital, partly offset by increased
operating expenses and a lower impairment benefit.
Net operating
income before
operating
expenses and
impairment
charges up
$167 million,
25%
Operating
expenses up
$115 million,
25%
Impairment
benefit down
$41 million
Net interest income increased $99 million primarily from Treasury revenue related to Australian
interest rate risk management and increased earnings from centrally held capital; and
Non-interest income increased $68 million primarily due to the impact of New Zealand earnings
hedges and a $10 million gain on asset sales.
Higher regulatory and compliance costs, including costs associated with the Royal Commission, and
estimated provisions for litigation;
Higher restructuring costs; and
Expenses associated with the Group's fintech investments.
Movements in impairments reflect a $2 million benefit from a reduction to centrally held overlays
during 2018, compared to a $43 million benefit in 2017.
1 Source: RBNZ
2 Calculated in NZ$.
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.
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107
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 and
the Pacific. 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), the US Securities and
Exchange Commission (SEC), the Office of Foreign Assets Control (OFAC) and the National Futures Association (NFA). 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, we are also required to comply with relevant requirements of the local
regulatory bodies.
The Group's business, prospects, reputation, financial performance and financial condition could all be affected by changes to
law and regulation, changes to policies and changes in the supervisory activities and expectations 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, prudential regulation, tax, anti-money
laundering and counter-terrorism financing, conduct, consumer protection (including in the design and distribution of financial
products), remuneration, competition (including through the introduction of changes to the Competition and Consumer Act 2010
(Cth) following recommendations by the Competition Policy Review chaired by Professor Ian Harper), privacy (including
mandatory data breach notification obligations), data access and data protection (including through the introduction of the EU
General Data Protection Regulation), information security, 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, requiring us or our
competitors to change our business models or requiring us to amend our corporate structure. For example, Westpac's business
model may change with the phasing in of open banking. Further details about open banking are set out in ‘Significant
developments’ in Section 1.
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, restrict our ability to set
prices for certain products and services or require us to alter the pricing that applies to products and services provided to new
and existing customers. 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).
Risk and risk management
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
announced the finalisation of this framework in December 2017, 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,
and during 2018 released further discussion papers on the implementation of the revised capital framework, which APRA has
stated is likely to come into effect on 1 January 2021. 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 I.
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 the Bank 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 the South Australian Government has announced that it will not proceed
with the proposed South Australian levy, 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 Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry, the House of Representatives Standing Committee on Economics'
ongoing 'Review of Australia's Four Major Banks', the Senate Economics References Committee's inquiry into consumer
protection in the banking, insurance and financial sector, the Productivity Commission's Inquiry into Competition in the
Australian Financial System and the ACCC's Residential Mortgage Price Inquiry and Inquiry into foreign currency conversion
services). These reviews and commissions of inquiry could lead to substantial regulatory change or investigations, which could
have a material impact on our business, prospects, reputation, 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 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 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
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
regulatory policy
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 domestic and global regulation. Compliance risk can also arise where we interpret our regulatory obligations,
compliance requirements and rights (including in relation to tax incentives and GST recoveries) differently to our regulators or a
court. The potential for this to occur may be heightened in the period that follows the introduction of significant changes to
regulation, particularly where that new regulation is untested and/or not subject to extensive regulatory guidance.
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109
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
policy
Our businesses are highly regulated and we could be adversely affected by changes in laws, regulations or regulatory
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 and
the Pacific. 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), the US Securities and
Exchange Commission (SEC), the Office of Foreign Assets Control (OFAC) and the National Futures Association (NFA). 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, we are also required to comply with relevant requirements of the local
regulatory bodies.
The Group's business, prospects, reputation, financial performance and financial condition could all be affected by changes to
law and regulation, changes to policies and changes in the supervisory activities and expectations 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, prudential regulation, tax, anti-money
laundering and counter-terrorism financing, conduct, consumer protection (including in the design and distribution of financial
products), remuneration, competition (including through the introduction of changes to the Competition and Consumer Act 2010
(Cth) following recommendations by the Competition Policy Review chaired by Professor Ian Harper), privacy (including
mandatory data breach notification obligations), data access and data protection (including through the introduction of the EU
General Data Protection Regulation), information security, 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, requiring us or our
competitors to change our business models or requiring us to amend our corporate structure. For example, Westpac's business
model may change with the phasing in of open banking. Further details about open banking are set out in ‘Significant
developments’ in Section 1.
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, restrict our ability to set
prices for certain products and services or require us to alter the pricing that applies to products and services provided to new
and existing customers. 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).
Risk and risk management
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
announced the finalisation of this framework in December 2017, 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,
and during 2018 released further discussion papers on the implementation of the revised capital framework, which APRA has
stated is likely to come into effect on 1 January 2021. 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.
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 the Bank 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.
2
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 the South Australian Government has announced that it will not proceed
with the proposed South Australian levy, 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 Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry, the House of Representatives Standing Committee on Economics'
ongoing 'Review of Australia's Four Major Banks', the Senate Economics References Committee's inquiry into consumer
protection in the banking, insurance and financial sector, the Productivity Commission's Inquiry into Competition in the
Australian Financial System and the ACCC's Residential Mortgage Price Inquiry and Inquiry into foreign currency conversion
services). These reviews and commissions of inquiry could lead to substantial regulatory change or investigations, which could
have a material impact on our business, prospects, reputation, 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 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 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 domestic and global regulation. Compliance risk can also arise where we interpret our regulatory obligations,
compliance requirements and rights (including in relation to tax incentives and GST recoveries) differently to our regulators or a
court. The potential for this to occur may be heightened in the period that follows the introduction of significant changes to
regulation, particularly where that new regulation is untested and/or not subject to extensive regulatory guidance.
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Risk and risk management
The Group employs a compliance management system which is designed to identify, assess and manage compliance risk. This
system includes (amongst other things) frameworks, policies, procedures, controls and assurance oversight. While this system
is currently in place, it may not always have been or continue to be effective. Breakdowns may occur in this compliance
management system due, for example, to flaws in the design of controls or underlying processes. This could result in potential
breaches of our compliance obligations, as well as poor customer outcomes.
The Group also depends on its employees, contractors, agents, authorised representatives and external service providers to
'do the right thing' in order for it to meet its compliance obligations. If an employee, contractor or external service provider fails
to act in an appropriate manner, such as by neglecting to follow a policy or by engaging in misconduct, these actions could
result in poor customer outcomes and a failure by the Group to comply with its compliance obligations.
The Group's failure, or suspected failure, to comply with a compliance obligation could lead to a regulator commencing
surveillance or an investigation into the Group, which may, depending on the circumstances, result in the regulator taking
administrative or enforcement action against us (including seeking fines or other monetary penalties). 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), disqualify an 'Accountable Person' under the Banking and Executive Accountability Regime or require us to hold
additional capital. Other regulators also have the power to investigate, including looking into past conduct.
The powers exercisable and penalties that can be imposed by our regulators may also be expanded in the future. For example,
the Australian Government has released an exposure draft of the Treasury Laws Amendment (Design and Distribution
Obligations and Product Intervention Power) Bill 2018 (Cth), which proposes to introduce design and distribution obligations in
relation to financial products and provide ASIC with a product intervention power. The Australian Government has also publicly
endorsed a proposal by the ASIC Enforcement Review Taskforce to expand ASIC's powers to ban individuals working in the
financial services sector, with an exposure draft of legislation released in September 2018. In addition, the Australian Treasury
released the Treasury Laws Amendment (ASIC Enforcement) Bill 2018, which proposes to strengthen penalties for corporate
and financial sector misconduct. 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. There have also been recent announcements for regulators to
embed staff within the institutions they supervise, with the Australian Government announcing an increase in ASIC's funding in
order to implement this type of supervisory approach.
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, infringement notices, 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 bank bill swap reference rate in the period April 2010 to June 2012, including
market manipulation and unconscionable conduct. Westpac defended these proceedings with the trial concluding in late
2017. On 24 May 2018, Justice Beach found that Westpac had not engaged in market manipulation or misleading or
deceptive conduct under the Corporations Act 2001 (Cth). His Honour also found that there was no 'trading practice' of
manipulating the BBSW rate. However, the Court found that Westpac engaged in unconscionable conduct on 4 occasions
and that Westpac breached its supervisory duty. Costs and penalties will be determined in the coming months;
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). On 4 September 2018, Westpac and
ASIC agreed to settle the proceedings on the basis of a proposed $35 million penalty and declarations that Westpac
contravened the National Consumer Credit Protection Act 2009 (Cth). The proposed settlement is subject to Court
approval; 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 action 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.
Risk and risk management
During the year ended 30 September 2018, Westpac has responded to requirements, compulsory notices and requests for
information from its regulators and the Royal Commission as part of both industry-wide and Westpac-specific reviews, including
in relation to matters involving the quality of advice, ongoing advice services, employers and superannuation, insurance and
superannuation, life insurance and total and permanent disability arrangements, remuneration arrangements, responsible
lending (including collections and hardship), credit cards, loan application fraud, mortgage-related conduct, commercial lending,
consumer credit insurance and anti-money laundering and counter-terrorism financing.
Regulatory investigations, inquiries, 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, prospects, reputation, 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 in some
circumstances, impose a diverse range of obligations. For example, anti-money laundering and counter-terrorism financing
laws require Westpac and other regulated institutions to (amongst other things) undertake customer identification and
verification, conduct ongoing due diligence on certain classes of customer, maintain and comply with an AML/CTF program,
undertake ongoing risk assessments and report certain matters and transactions to regulators (including in relation to
International Funds Transfer Instructions, Threshold Transaction Reports and Suspicious Matter Reports). Furthermore,
financial crime laws are also undergoing change in a number of jurisdictions.
In recent years there has been increased focus on compliance with financial crime 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 (including its reporting obligations), these may not always have been or continue to 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, prospects, reputation, 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.
Westpac is currently undertaking a number of reviews to identify 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. Westpac's reputation may be damaged where any of its policies,
processes, practices or behaviours result in a negative outcome for a customer or a class of customers. Other potential sources
of reputational damage include the 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 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 its conduct, practices, behaviours or business activities fall below evolving
community standards and 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, lending practices, remuneration structures, pricing
policies and the use and protection 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, joint-venture partners, strategic
partners and other counterparties.
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Risk and risk management
The Group employs a compliance management system which is designed to identify, assess and manage compliance risk. This
system includes (amongst other things) frameworks, policies, procedures, controls and assurance oversight. While this system
is currently in place, it may not always have been or continue to be effective. Breakdowns may occur in this compliance
management system due, for example, to flaws in the design of controls or underlying processes. This could result in potential
breaches of our compliance obligations, as well as poor customer outcomes.
The Group also depends on its employees, contractors, agents, authorised representatives and external service providers to
'do the right thing' in order for it to meet its compliance obligations. If an employee, contractor or external service provider fails
to act in an appropriate manner, such as by neglecting to follow a policy or by engaging in misconduct, these actions could
result in poor customer outcomes and a failure by the Group to comply with its compliance obligations.
The Group's failure, or suspected failure, to comply with a compliance obligation could lead to a regulator commencing
surveillance or an investigation into the Group, which may, depending on the circumstances, result in the regulator taking
administrative or enforcement action against us (including seeking fines or other monetary penalties). 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), disqualify an 'Accountable Person' under the Banking and Executive Accountability Regime or require us to hold
additional capital. Other regulators also have the power to investigate, including looking into past conduct.
The powers exercisable and penalties that can be imposed by our regulators may also be expanded in the future. For example,
the Australian Government has released an exposure draft of the Treasury Laws Amendment (Design and Distribution
Obligations and Product Intervention Power) Bill 2018 (Cth), which proposes to introduce design and distribution obligations in
relation to financial products and provide ASIC with a product intervention power. The Australian Government has also publicly
endorsed a proposal by the ASIC Enforcement Review Taskforce to expand ASIC's powers to ban individuals working in the
financial services sector, with an exposure draft of legislation released in September 2018. In addition, the Australian Treasury
released the Treasury Laws Amendment (ASIC Enforcement) Bill 2018, which proposes to strengthen penalties for corporate
and financial sector misconduct. Further details are set out in 'Significant developments' in Section I.
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. There have also been recent announcements for regulators to
embed staff within the institutions they supervise, with the Australian Government announcing an increase in ASIC's funding in
order to implement this type of supervisory approach.
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, infringement notices, 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 bank bill swap reference rate in the period April 2010 to June 2012, including
market manipulation and unconscionable conduct. Westpac defended these proceedings with the trial concluding in late
2017. On 24 May 2018, Justice Beach found that Westpac had not engaged in market manipulation or misleading or
deceptive conduct under the Corporations Act 2001 (Cth). His Honour also found that there was no 'trading practice' of
manipulating the BBSW rate. However, the Court found that Westpac engaged in unconscionable conduct on 4 occasions
and that Westpac breached its supervisory duty. Costs and penalties will be determined in the coming months;
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). On 4 September 2018, Westpac and
ASIC agreed to settle the proceedings on the basis of a proposed $35 million penalty and declarations that Westpac
contravened the National Consumer Credit Protection Act 2009 (Cth). The proposed settlement is subject to Court
approval; 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 action 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.
Risk and risk management
During the year ended 30 September 2018, Westpac has responded to requirements, compulsory notices and requests for
information from its regulators and the Royal Commission as part of both industry-wide and Westpac-specific reviews, including
in relation to matters involving the quality of advice, ongoing advice services, employers and superannuation, insurance and
superannuation, life insurance and total and permanent disability arrangements, remuneration arrangements, responsible
lending (including collections and hardship), credit cards, loan application fraud, mortgage-related conduct, commercial lending,
consumer credit insurance and anti-money laundering and counter-terrorism financing.
Regulatory investigations, inquiries, 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, prospects, reputation, 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 in some
circumstances, impose a diverse range of obligations. For example, anti-money laundering and counter-terrorism financing
laws require Westpac and other regulated institutions to (amongst other things) undertake customer identification and
verification, conduct ongoing due diligence on certain classes of customer, maintain and comply with an AML/CTF program,
undertake ongoing risk assessments and report certain matters and transactions to regulators (including in relation to
International Funds Transfer Instructions, Threshold Transaction Reports and Suspicious Matter Reports). Furthermore,
financial crime laws are also undergoing change in a number of jurisdictions.
2
In recent years there has been increased focus on compliance with financial crime 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 (including its reporting obligations), these may not always have been or continue to 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, prospects, reputation, 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.
Westpac is currently undertaking a number of reviews to identify 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. Westpac's reputation may be damaged where any of its policies,
processes, practices or behaviours result in a negative outcome for a customer or a class of customers. Other potential sources
of reputational damage include the 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 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 its conduct, practices, behaviours or business activities fall below evolving
community standards and 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, lending practices, remuneration structures, pricing
policies and the use and protection 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, joint-venture partners, strategic
partners and other counterparties.
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Risk and risk management
Furthermore, the risk of reputational damage may be heightened by factors such as the increasing use of social media or the
increasing prevalence of groups which seek to publicly challenge the Group's strategy or approach to aspects of its business.
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.
The Royal Commission may lead to regulatory enforcement activity, litigation and changes in laws, regulations or
regulatory policy, as well as potentially result in further and ongoing reputational damage to the Group, all of which is
and may continue to have an adverse effect on our business and prospects
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is currently
investigating (amongst other things) whether any conduct, practices, behaviours or business activities engaged in by financial
services entities amounted to potential misconduct, or fell below community standards and expectations. The Royal
Commission is currently scheduled to provide its final report and recommendations to the Australian Government by 1 February
2019. There is a possibility that the deadline for the report will be extended in the future.
The Royal Commission's inquiries have made public, and are likely to continue to make public, instances where the Group or
entities or persons associated with the Group engaged in potential misconduct or failed to meet community standards and
expectations. The Royal Commission's Terms of Reference are broad and enable the Royal Commission to investigate
potential misconduct in a wide range of areas. The public hearings of the Royal Commission have to date examined consumer
lending practices, the provision of financial advice, business lending to small and medium enterprises, experiences with
financial entities in regional and remote communities, superannuation and insurance. These investigations, including the public
hearings, submissions, evidence and eventual findings of the Royal Commission, have had, and are likely to continue to have,
an adverse impact on the Group's reputation and potentially the financial performance of the business. The Royal Commission
may make findings that Westpac (including persons or entities acting on its behalf) has engaged in misconduct. These findings
may lead to regulators commencing investigations and/or enforcement action against the Group. The Group may also be
exposed to an increased risk of litigation involving third parties (including class action proceedings) in connection with matters
raised publicly at the Royal Commission, particularly if the Royal Commission makes a finding of misconduct affecting the
Group or the industry in a way that affects the Group.
The Interim Report of the Commission released on 28 September 2018 outlined a range of views the Commissioner has
formed to date based on the information and hearings so far and has requested submissions on key areas of policy that might
affect or address misconduct in the financial services industry. Many of those matters could have significant impacts on
particular entities (including Westpac), the banking sector and the financial performance of banks. Recommendations may
include matters which could cause structural change to the market and/or business models employed within the market.
Westpac made submissions in relation to the questions posed in the Interim Report on 26 October.
Under the Royal Commission's Terms of Reference, it is required to investigate the adequacy of existing laws and policies of
the Federal Government relating to the provision of banking, superannuation and financial services, and whether any further
changes to the legal framework are necessary to minimise the likelihood of misconduct. Consequently, the Royal Commission
is likely, in its final report, to recommend changes to Australia's legal framework, which the Federal Government may pass into
legislation. The Royal Commission is also considering the regulation and enforcement practices of our regulators. Any findings
or recommendations made by the Royal Commission, may result in our regulators altering their existing policies and practices
(including increasing their expectations for entities that they regulate). Depending on the nature of any changes to Australia's
legal framework and/or the policies and practices of our regulators which might be prompted by the Royal Commission, there
may be an adverse effect on our business, prospects, financial performance or financial condition.
The Royal Commission may also lead to increased political or regulatory scrutiny of the financial industry in New Zealand.
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. If a cyberattack is successful, technology systems might fail to operate properly or become disabled and it could
result in the unauthorised release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other
information of the Group, its employees, customers or third parties or otherwise adversely impact network access, business
operations or availability of services.
In addition, as cyber threats continue to evolve, we may be required to expend significant additional resources to modify or
enhance our systems or to investigate and remediate any vulnerabilities or incidents.
Risk and risk management
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 (such as the obligation to retain records and data for requisite periods of time), or our customers may be adversely
affected (such as where they are unable to access online banking services for an extended period of time or where an
underlying technology issue results in a customer not receiving a product or service on the terms and conditions they agreed
to). This could potentially result in reputational damage, remediation costs and 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, comply with our regulatory obligations and
meet the ongoing expectations of our regulators, 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.
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. Capital markets may also be
affected by proposed changes to US repatriation tax rules.
As of 30 September 2018, approximately 29% of our total funding originated from domestic and international wholesale
markets. Of this, around 66% was sourced outside Australia and New Zealand. Customer deposits provide around 63% 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, do so at acceptable prices, or that we
will be able to recover any additional costs.
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Risk and risk management
Furthermore, the risk of reputational damage may be heightened by factors such as the increasing use of social media or the
increasing prevalence of groups which seek to publicly challenge the Group's strategy or approach to aspects of its business.
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.
The Royal Commission may lead to regulatory enforcement activity, litigation and changes in laws, regulations or
regulatory policy, as well as potentially result in further and ongoing reputational damage to the Group, all of which is
and may continue to have an adverse effect on our business and prospects
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is currently
investigating (amongst other things) whether any conduct, practices, behaviours or business activities engaged in by financial
services entities amounted to potential misconduct, or fell below community standards and expectations. The Royal
Commission is currently scheduled to provide its final report and recommendations to the Australian Government by 1 February
2019. There is a possibility that the deadline for the report will be extended in the future.
The Royal Commission's inquiries have made public, and are likely to continue to make public, instances where the Group or
entities or persons associated with the Group engaged in potential misconduct or failed to meet community standards and
expectations. The Royal Commission's Terms of Reference are broad and enable the Royal Commission to investigate
potential misconduct in a wide range of areas. The public hearings of the Royal Commission have to date examined consumer
lending practices, the provision of financial advice, business lending to small and medium enterprises, experiences with
financial entities in regional and remote communities, superannuation and insurance. These investigations, including the public
hearings, submissions, evidence and eventual findings of the Royal Commission, have had, and are likely to continue to have,
an adverse impact on the Group's reputation and potentially the financial performance of the business. The Royal Commission
may make findings that Westpac (including persons or entities acting on its behalf) has engaged in misconduct. These findings
may lead to regulators commencing investigations and/or enforcement action against the Group. The Group may also be
exposed to an increased risk of litigation involving third parties (including class action proceedings) in connection with matters
raised publicly at the Royal Commission, particularly if the Royal Commission makes a finding of misconduct affecting the
Group or the industry in a way that affects the Group.
The Interim Report of the Commission released on 28 September 2018 outlined a range of views the Commissioner has
formed to date based on the information and hearings so far and has requested submissions on key areas of policy that might
affect or address misconduct in the financial services industry. Many of those matters could have significant impacts on
particular entities (including Westpac), the banking sector and the financial performance of banks. Recommendations may
include matters which could cause structural change to the market and/or business models employed within the market.
Westpac made submissions in relation to the questions posed in the Interim Report on 26 October.
Under the Royal Commission's Terms of Reference, it is required to investigate the adequacy of existing laws and policies of
the Federal Government relating to the provision of banking, superannuation and financial services, and whether any further
changes to the legal framework are necessary to minimise the likelihood of misconduct. Consequently, the Royal Commission
is likely, in its final report, to recommend changes to Australia's legal framework, which the Federal Government may pass into
legislation. The Royal Commission is also considering the regulation and enforcement practices of our regulators. Any findings
or recommendations made by the Royal Commission, may result in our regulators altering their existing policies and practices
(including increasing their expectations for entities that they regulate). Depending on the nature of any changes to Australia's
legal framework and/or the policies and practices of our regulators which might be prompted by the Royal Commission, there
may be an adverse effect on our business, prospects, financial performance or financial condition.
The Royal Commission may also lead to increased political or regulatory scrutiny of the financial industry in New Zealand.
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. If a cyberattack is successful, technology systems might fail to operate properly or become disabled and it could
result in the unauthorised release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other
information of the Group, its employees, customers or third parties or otherwise adversely impact network access, business
operations or availability of services.
In addition, as cyber threats continue to evolve, we may be required to expend significant additional resources to modify or
enhance our systems or to investigate and remediate any vulnerabilities or incidents.
Risk and risk management
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.
2
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 (such as the obligation to retain records and data for requisite periods of time), or our customers may be adversely
affected (such as where they are unable to access online banking services for an extended period of time or where an
underlying technology issue results in a customer not receiving a product or service on the terms and conditions they agreed
to). This could potentially result in reputational damage, remediation costs and 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, comply with our regulatory obligations and
meet the ongoing expectations of our regulators, 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.
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. Capital markets may also be
affected by proposed changes to US repatriation tax rules.
As of 30 September 2018, approximately 29% of our total funding originated from domestic and international wholesale
markets. Of this, around 66% was sourced outside Australia and New Zealand. Customer deposits provide around 63% 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, do so at acceptable prices, or that we
will be able to recover any additional costs.
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Risk and risk management
Risk and risk management
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.
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
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' in Note 22 to the financial statements'.
Sovereign risk may destabilise financial markets adversely
Sovereign risk is the risk that 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.
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. In particular, there have been significant global political
developments in recent times, including Brexit and the introduction of tariffs and other protectionist measures by various
countries, such as the US and China. 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.
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, including as the result of the implementation of tariffs or other protectionist trade measures, 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.
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.
The competitive environment may also change as a result of legislative reforms. For example, the introduction of the Open
Banking regime, which will require banks to provide customers data to accredited third parties (at the direction of the customer),
is likely to alter the competitive landscape.
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.
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Risk and risk management
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' in Note 22 to the financial statements'.
Sovereign risk may destabilise financial markets adversely
Sovereign risk is the risk that 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.
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. In particular, there have been significant global political
developments in recent times, including Brexit and the introduction of tariffs and other protectionist measures by various
countries, such as the US and China. 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.
Risk and risk management
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.
2
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, including as the result of the implementation of tariffs or other protectionist trade measures, 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.
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.
The competitive environment may also change as a result of legislative reforms. For example, the introduction of the Open
Banking regime, which will require banks to provide customers data to accredited third parties (at the direction of the customer),
is likely to alter the competitive landscape.
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.
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115
Risk and risk management
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.
Changes in market factors could be driven by a number of developments. As an example, in July 2017, the FCA, which
regulates the London Interbank Offered Rate ("LIBOR"), announced that it would not require panel banks to continue to submit
rates for the calculation of the LIBOR benchmark after 2021. Accordingly, the continuation of LIBOR in its current form will not
be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021. Any such developments or
future changes in the administration of LIBOR or any other benchmarks could result in adverse consequences to the return on,
value of and market for, securities and other instruments whose returns are linked to any such benchmark, including those
securities or other instruments issued by the Group.
If we were to suffer substantial losses due to any market volatility (including changes in the return on, value of or market for,
securities or other instruments) 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, reputational risk, 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 or that a particular action or activity was undertaken. 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.
Accurate and complete data is critical to ensuring that Westpac's systems (both customer facing and back-office), risk
management frameworks, and financial reporting processes operate effectively. Poor data quality could arise in a number of
ways, including through inadequacies in systems, processes and policies, which could lead to deficiencies or failings in
customer service, risk management, financial reporting (including in the calculation of risk weighted assets) and result in poor
decision making. In addition, Westpac is exposed to model risk, being the risk of loss arising from errors or inadequacies in
data or a model, or in the control and use of a model.
Westpac is required to retain and access data and documentation for specific retention periods in order to satisfy its compliance
obligations. In some cases, Westpac also retains data to enable it to demonstrate that a past decision was appropriate at the
time it was made. Failings in systems, processes and policies could all adversely affect Westpac's ability to retain and access
data.
In recent times, financial services entities have been increasingly sharing data with third parties, such as suppliers and
regulators (both domestic and offshore), in order to conduct their business activities and meet regulatory obligations. A
breakdown in a process or control related to the transfer, storage or protection of data transferred to a third party, or the failure
of a third party to use and handle this data correctly, could result in the Group failing to meet a compliance obligation and/or
have an adverse impact on our customers and the Group.
Risk and risk management
Westpac also 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.
For a discussion of our risk management procedures, including the management of operational risk, refer to the 'Risk
management' section.
customer remediation activity
Operational risk, technology risk, conduct risk or compliance risk events could require Westpac to undertake
As Westpac relies on a large number of policies, processes, procedures, systems and people to conduct its business, a
breakdown or deficiency in one of these areas (which could arise from one or more operational risk, technology risk, conduct
risk or compliance risk events) could result in an adverse outcome for customers which Westpac would need to remediate. For
example, a breakdown in a process may result in a customer not receiving all of the benefits they were entitled to receive in
connection with a 'packaged account' product, or the poor conduct of a staff member in failing to properly follow internal policy
could result in a customer not receiving the products or services that we had agreed to provide or receiving products or
services that are not suitable for their needs.
These events could require the Group to incur significant remediation costs (which may include compensation payments to
customers and costs associated with correcting the underlying issue) and could result in reputational damage.
There are also significant challenges and risks involved in executing a customer remediation activity. For example, depending
on the nature of the issue, particularly legacy issues spanning beyond our record retention period, it may be difficult to quantify
and scope the remediation activity, Determining how to properly and fairly compensate customers can also be a complicated
exercise involving numerous stakeholders, such as regulators and industry bodies. In some instances, these stakeholders may
have the power to require that a particular approach to remediation is taken, for example the Australian Financial Complaints
Authority can monitor remedial action until a resolution has been achieved which is acceptable to them. These factors may
impact the timeframe for completing the remediation activity with the potential for remediation costs actually incurred being
higher than those initially estimated by the Group.
If the Group cannot effectively scope, quantify or implement a remediation activity in a timely way, there could be a negative
impact on our business, prospects, reputation, financial performance or financial condition.
We could suffer losses due to litigation (including class action proceedings)
The Group (and individual entities within the Group) may, from time to time, be involved in legal proceedings, regulatory actions
or arbitration arising from the conduct of their business and the performance of their legal and regulatory obligations.
Proceedings could be commenced against the Group by a range of potential plaintiffs, such as our customers, shareholders,
suppliers and counterparties. These plaintiffs may commence proceedings individually or they may commence class action
proceedings.
In recent years, there has been an increase in the number of class action proceedings brought against financial services
companies (and other organisations more broadly), many of which have resulted in significant monetary settlements. The risk
of class action proceedings being commenced is heightened by findings from regulatory investigations or inquiries (such as the
Royal Commission into Misconduct in the Financial Services Industry), adverse media, an adverse judgment or the settlement
of proceedings brought by a regulator. Furthermore, there is a risk that class action proceedings commenced against a
competitor could lead to similar class action proceedings being commenced against the Group. In recent months, class actions
have been commenced against financial services providers in relation to matters such as the sale of Consumer Credit
Insurance and the investment decisions of Superannuation Fund trustees.
The growth in third party litigation funding in Australia has also contributed to a recent increase in the number of class actions
being commenced in Australia.
From time to time, class action proceedings are commenced against the Group. For example:
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 the bank bill
swap reference rate. These proceedings are at an early stage and the level of damages sought has not been specified.
Westpac is defending these proceedings.
On 12 October 2017 a class action against Westpac and Westpac Life Insurance Services Limited (WLIS) was filed in the
Federal Court of Australia. The class action was filed on behalf of customers who, since October 2011, obtained insurance
issued by WLIS on the recommendation of certain financial advisers employed within the Westpac Group. The plaintiffs
have alleged that aspects of the financial advice provided by those advisers breached fiduciary and statutory duties owed
to the advisers' clients, including the duty to act in the best interests of the client, and that WLIS was knowingly involved in
those alleged breaches. Westpac and WLIS are defending the proceedings. These proceedings are currently stayed by
order of the court, pending the outcome of an appeal concerning a procedural issue unrelated to the substantive claims
made in the class action.
116
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
117
Risk and risk management
Risk and risk management
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,
Westpac also 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.
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.
Changes in market factors could be driven by a number of developments. As an example, in July 2017, the FCA, which
regulates the London Interbank Offered Rate ("LIBOR"), announced that it would not require panel banks to continue to submit
rates for the calculation of the LIBOR benchmark after 2021. Accordingly, the continuation of LIBOR in its current form will not
be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021. Any such developments or
future changes in the administration of LIBOR or any other benchmarks could result in adverse consequences to the return on,
value of and market for, securities and other instruments whose returns are linked to any such benchmark, including those
securities or other instruments issued by the Group.
If we were to suffer substantial losses due to any market volatility (including changes in the return on, value of or market for,
securities or other instruments) 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, reputational risk, 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 or that a particular action or activity was undertaken. 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.
Accurate and complete data is critical to ensuring that Westpac's systems (both customer facing and back-office), risk
management frameworks, and financial reporting processes operate effectively. Poor data quality could arise in a number of
ways, including through inadequacies in systems, processes and policies, which could lead to deficiencies or failings in
customer service, risk management, financial reporting (including in the calculation of risk weighted assets) and result in poor
decision making. In addition, Westpac is exposed to model risk, being the risk of loss arising from errors or inadequacies in
data or a model, or in the control and use of a model.
Westpac is required to retain and access data and documentation for specific retention periods in order to satisfy its compliance
obligations. In some cases, Westpac also retains data to enable it to demonstrate that a past decision was appropriate at the
time it was made. Failings in systems, processes and policies could all adversely affect Westpac's ability to retain and access
data.
In recent times, financial services entities have been increasingly sharing data with third parties, such as suppliers and
regulators (both domestic and offshore), in order to conduct their business activities and meet regulatory obligations. A
breakdown in a process or control related to the transfer, storage or protection of data transferred to a third party, or the failure
of a third party to use and handle this data correctly, could result in the Group failing to meet a compliance obligation and/or
have an adverse impact on our customers and the Group.
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.
For a discussion of our risk management procedures, including the management of operational risk, refer to the 'Risk
management' section.
Operational risk, technology risk, conduct risk or compliance risk events could require Westpac to undertake
customer remediation activity
As Westpac relies on a large number of policies, processes, procedures, systems and people to conduct its business, a
breakdown or deficiency in one of these areas (which could arise from one or more operational risk, technology risk, conduct
risk or compliance risk events) could result in an adverse outcome for customers which Westpac would need to remediate. For
example, a breakdown in a process may result in a customer not receiving all of the benefits they were entitled to receive in
connection with a 'packaged account' product, or the poor conduct of a staff member in failing to properly follow internal policy
could result in a customer not receiving the products or services that we had agreed to provide or receiving products or
services that are not suitable for their needs.
2
These events could require the Group to incur significant remediation costs (which may include compensation payments to
customers and costs associated with correcting the underlying issue) and could result in reputational damage.
There are also significant challenges and risks involved in executing a customer remediation activity. For example, depending
on the nature of the issue, particularly legacy issues spanning beyond our record retention period, it may be difficult to quantify
and scope the remediation activity, Determining how to properly and fairly compensate customers can also be a complicated
exercise involving numerous stakeholders, such as regulators and industry bodies. In some instances, these stakeholders may
have the power to require that a particular approach to remediation is taken, for example the Australian Financial Complaints
Authority can monitor remedial action until a resolution has been achieved which is acceptable to them. These factors may
impact the timeframe for completing the remediation activity with the potential for remediation costs actually incurred being
higher than those initially estimated by the Group.
If the Group cannot effectively scope, quantify or implement a remediation activity in a timely way, there could be a negative
impact on our business, prospects, reputation, financial performance or financial condition.
We could suffer losses due to litigation (including class action proceedings)
The Group (and individual entities within the Group) may, from time to time, be involved in legal proceedings, regulatory actions
or arbitration arising from the conduct of their business and the performance of their legal and regulatory obligations.
Proceedings could be commenced against the Group by a range of potential plaintiffs, such as our customers, shareholders,
suppliers and counterparties. These plaintiffs may commence proceedings individually or they may commence class action
proceedings.
In recent years, there has been an increase in the number of class action proceedings brought against financial services
companies (and other organisations more broadly), many of which have resulted in significant monetary settlements. The risk
of class action proceedings being commenced is heightened by findings from regulatory investigations or inquiries (such as the
Royal Commission into Misconduct in the Financial Services Industry), adverse media, an adverse judgment or the settlement
of proceedings brought by a regulator. Furthermore, there is a risk that class action proceedings commenced against a
competitor could lead to similar class action proceedings being commenced against the Group. In recent months, class actions
have been commenced against financial services providers in relation to matters such as the sale of Consumer Credit
Insurance and the investment decisions of Superannuation Fund trustees.
The growth in third party litigation funding in Australia has also contributed to a recent increase in the number of class actions
being commenced in Australia.
From time to time, class action proceedings are commenced against the Group. For example:
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 the bank bill
swap reference rate. These proceedings are at an early stage and the level of damages sought has not been specified.
Westpac is defending these proceedings.
On 12 October 2017 a class action against Westpac and Westpac Life Insurance Services Limited (WLIS) was filed in the
Federal Court of Australia. The class action was filed on behalf of customers who, since October 2011, obtained insurance
issued by WLIS on the recommendation of certain financial advisers employed within the Westpac Group. The plaintiffs
have alleged that aspects of the financial advice provided by those advisers breached fiduciary and statutory duties owed
to the advisers' clients, including the duty to act in the best interests of the client, and that WLIS was knowingly involved in
those alleged breaches. Westpac and WLIS are defending the proceedings. These proceedings are currently stayed by
order of the court, pending the outcome of an appeal concerning a procedural issue unrelated to the substantive claims
made in the class action.
116
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
117
Risk and risk management
Litigation (including class action proceedings) may, either individually or in aggregate, adversely affect the Group's business,
operations, prospects, reputation or financial condition. Such matters are subject to many uncertainties (for example, the
outcome may not be able to be predicted accurately). Furthermore, the Group's ability to respond to and defend litigation may
be adversely affected by inadequate record keeping.
Depending on the outcome of any litigation,the Group may be required to comply with broad court orders, including
enforcement orders or otherwise 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.
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. 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, as well as the poor conduct of our employees, contractors, agents,
authorised representatives and external service providers. This could occur through a failure to meet professional obligations to
specific clients (including fiduciary and suitability requirements), poor product design and implementation, failure to adequately
consider customer needs or selling products and services outside of customer target markets. Conduct Risk may also arise
where there has been a failure to adequately provide a product or services that we had agreed to provide a customer. As an
example, Westpac has undertaken a review of financial advice provided by salaried planners and identified numerous
instances where customers were paying ongoing advice fees but the advice services were not provided or we were unable to
sufficiently verify that the advice services were provided. Westpac has also commenced a review of ongoing advice services
provided by planners operating in aligned dealer groups which may result in the discovery of additional misconduct. More detail
on this review of ongoing advice services provided by planners operating in aligned dealer groups is set out in Note 31 to the
financial statements.
While we have frameworks, policies, processes and controls 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 and controls may not be effective.
The Group is also required to periodically review its risk management framework to determine whether it remains appropriate
having regard to the nature, size and complexity of our business. If it is determined that a risk framework, process or system is
no longer appropriate, the Group may be required to undertake considerable work to remedy this. The failure to do so could
result in increased scrutiny from regulators, the failure to meet a compliance obligation and/or financial losses.
The effectiveness of risk management frameworks is also connected to the establishment and maintenance of a sound risk
management culture. The development of appropriate remuneration structures can play an important role in supporting the
establishment of, and contributing to the maintenance, of a sound risk culture. However, if there is a deficiency in the design or
operation of our remuneration structures, this could have a negative effect on our risk culture. This could occur in
circumstances where variable reward structures encourage excessive risk taking or other conduct inconsistent with a sound
risk culture. This, in turn, may have an adverse impact on the effectiveness of our risk management frameworks.
Following APRA's request to major financial institutions to undertake a written self-assessment having regard to the findings in
the Commonwealth Bank of Australia Prudential Inquiry Final Report, Westpac is currently undertaking a Culture, Governance
and Accountability Self-Assessment. The Self-Assessment will consider key themes such as remuneration, accountability and
culture (as it pertains to risk and compliance). APRA requires a Board endorsed written assessment to be submitted by 30
November. Further details about the Culture, Governance and Accountability assessment are found in 'Significant
Developments' in Section 1.
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.
Risk and risk management
The Group's failure to recruit and retain key executives, employees and Directors may have adverse effects on our
business
Key executives, employees and Directors play an integral role in the operation of Westpac's business and its pursuit of its
strategic objectives. The unexpected departure of an individual in a key role, or the Group's failure to recruit and retain
appropriately skilled and qualified persons into these roles, could each have an adverse effect on our business, prospects,
reputation, financial performance or financial condition.
Climate change may have adverse effects on our business
We, our customers and external suppliers, 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 effects, whether acute or chronic in nature, may directly impact us and our customers through reputational
damage, environmental factors, insurance risk and business disruption and may have an adverse impact on financial
performance (including through 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 business, prospects, reputation, 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) 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.
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 in our licensed regulated insurance entities of the costs of claims being greater than expected due to a
failure in product design, underwriting, reinsurance arrangements or an increase in the severity and/or frequency of insured
events.
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 downturns in economic conditions
leading to higher levels of mortgage defaults from unemployment or other economic factors.
If our reinsurance arrangements are ineffective, this could lead to greater risk, and more losses than anticipated. There is also
a risk that we will not be able to renew an expiring reinsurance arrangement on similar terms, including in relation to the cost,
duration and amount of reinsurance cover provided under that arrangement.
Changes in critical accounting estimates and judgements could expose the Group to losses
The Group is required to make estimates, assumptions and judgements when applying accounting policies and preparing its
financial statements, particularly in connection with the calculation of provisions (including those related to credit losses) and
the determination of the fair value of financial instruments. A change in a critical accounting estimate, assumption and/or
judgement resulting from new information or from changes in circumstances or experience could result in the Group incurring
losses greater than those anticipated or provided for. This may have an adverse effect on the Group's financial performance,
financial condition and reputation. The Group's financial performance and financial condition may also be impacted by changes
to accounting standards or to generally accepted accounting principles.
118
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
119
Risk and risk management
Litigation (including class action proceedings) may, either individually or in aggregate, adversely affect the Group's business,
operations, prospects, reputation or financial condition. Such matters are subject to many uncertainties (for example, the
outcome may not be able to be predicted accurately). Furthermore, the Group's ability to respond to and defend litigation may
be adversely affected by inadequate record keeping.
Depending on the outcome of any litigation,the Group may be required to comply with broad court orders, including
enforcement orders or otherwise 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.
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. 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, as well as the poor conduct of our employees, contractors, agents,
authorised representatives and external service providers. This could occur through a failure to meet professional obligations to
specific clients (including fiduciary and suitability requirements), poor product design and implementation, failure to adequately
consider customer needs or selling products and services outside of customer target markets. Conduct Risk may also arise
where there has been a failure to adequately provide a product or services that we had agreed to provide a customer. As an
example, Westpac has undertaken a review of financial advice provided by salaried planners and identified numerous
instances where customers were paying ongoing advice fees but the advice services were not provided or we were unable to
sufficiently verify that the advice services were provided. Westpac has also commenced a review of ongoing advice services
provided by planners operating in aligned dealer groups which may result in the discovery of additional misconduct. More detail
on this review of ongoing advice services provided by planners operating in aligned dealer groups is set out in Note 31 to the
financial statements.
While we have frameworks, policies, processes and controls 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 and controls may not be effective.
The Group is also required to periodically review its risk management framework to determine whether it remains appropriate
having regard to the nature, size and complexity of our business. If it is determined that a risk framework, process or system is
no longer appropriate, the Group may be required to undertake considerable work to remedy this. The failure to do so could
result in increased scrutiny from regulators, the failure to meet a compliance obligation and/or financial losses.
The effectiveness of risk management frameworks is also connected to the establishment and maintenance of a sound risk
management culture. The development of appropriate remuneration structures can play an important role in supporting the
establishment of, and contributing to the maintenance, of a sound risk culture. However, if there is a deficiency in the design or
operation of our remuneration structures, this could have a negative effect on our risk culture. This could occur in
circumstances where variable reward structures encourage excessive risk taking or other conduct inconsistent with a sound
risk culture. This, in turn, may have an adverse impact on the effectiveness of our risk management frameworks.
Following APRA's request to major financial institutions to undertake a written self-assessment having regard to the findings in
the Commonwealth Bank of Australia Prudential Inquiry Final Report, Westpac is currently undertaking a Culture, Governance
and Accountability Self-Assessment. The Self-Assessment will consider key themes such as remuneration, accountability and
culture (as it pertains to risk and compliance). APRA requires a Board endorsed written assessment to be submitted by 30
November. Further details about the Culture, Governance and Accountability assessment are found in 'Significant
Developments' in Section 1.
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.
Risk and risk management
The Group's failure to recruit and retain key executives, employees and Directors may have adverse effects on our
business
Key executives, employees and Directors play an integral role in the operation of Westpac's business and its pursuit of its
strategic objectives. The unexpected departure of an individual in a key role, or the Group's failure to recruit and retain
appropriately skilled and qualified persons into these roles, could each have an adverse effect on our business, prospects,
reputation, financial performance or financial condition.
Climate change may have adverse effects on our business
We, our customers and external suppliers, 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 effects, whether acute or chronic in nature, may directly impact us and our customers through reputational
damage, environmental factors, insurance risk and business disruption and may have an adverse impact on financial
performance (including through 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 business, prospects, reputation, financial
performance or financial condition.
2
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) 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.
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 in our licensed regulated insurance entities of the costs of claims being greater than expected due to a
failure in product design, underwriting, reinsurance arrangements or an increase in the severity and/or frequency of insured
events.
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 downturns in economic conditions
leading to higher levels of mortgage defaults from unemployment or other economic factors.
If our reinsurance arrangements are ineffective, this could lead to greater risk, and more losses than anticipated. There is also
a risk that we will not be able to renew an expiring reinsurance arrangement on similar terms, including in relation to the cost,
duration and amount of reinsurance cover provided under that arrangement.
Changes in critical accounting estimates and judgements could expose the Group to losses
The Group is required to make estimates, assumptions and judgements when applying accounting policies and preparing its
financial statements, particularly in connection with the calculation of provisions (including those related to credit losses) and
the determination of the fair value of financial instruments. A change in a critical accounting estimate, assumption and/or
judgement resulting from new information or from changes in circumstances or experience could result in the Group incurring
losses greater than those anticipated or provided for. This may have an adverse effect on the Group's financial performance,
financial condition and reputation. The Group's financial performance and financial condition may also be impacted by changes
to accounting standards or to generally accepted accounting principles.
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Risk and risk management
We could suffer losses due to impairment of capitalised software, goodwill and other intangible assets that may
adversely affect our business, operations or financial condition
In certain circumstances Westpac may be exposed to a reduction in the value of intangible assets. As at 30 September 2018,
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.
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.
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.
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.
Westpac also acquires and invests in businesses owned and operated by external parties. These transactions involve a
number of risks for the Group. For example, Westpac may incur financial losses if a business it invests in does not perform as
anticipated or subsequently proves to be overvalued at the time that the transaction was entered into.
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, reputation,
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, the strength of our balance sheet, 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).
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.
Risk and risk management
Credit risk
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac.
We have a framework and supporting policies for managing the credit risk associated with lending across our business
divisions. The framework and policies encompass all stages of the credit cycle – origination, evaluation, approval,
documentation, settlement, ongoing administration and problem management. For example, we have established product-
based standards for lending to individuals, with key controls including minimum serviceability standards and maximum loan to
security value ratios. We offer residential property loans to both owner-occupiers and investors at both fixed and variable rates,
secured by a mortgage over the property or other acceptable collateral. Where we lend to higher loan to value ratios, we
typically also require lenders mortgage insurance. Similarly, we have established criteria for business, commercial, corporate
and institutional lending, which can vary by industry segment. In this area we focus on the performance of key financial risk
ratios, including interest coverage, debt serviceability and balance sheet structure. When providing finance to smaller business,
commercial and corporate borrowers we typically obtain security, such as a mortgage over property and/or a general security
agreement over business assets. For larger corporates and institutions, we typically also require compliance with selected
financial ratios and undertakings and may hold security. In respect of commercial property lending, we maintain loan origination
and ongoing risk management standards, including specialised management for higher value loans. We consider factors such
as the nature, location, quality and expected demand for the asset, tenancy profile and experience and quality of management.
We actively monitor the Australian and New Zealand property markets and the composition of our commercial property loan
book across the Group.
The extension of credit is underpinned by the Group’s Principles of Responsible Lending. This is reflected in our commitment to
comply with all local legislation, codes of practice and relevant guidelines and obligations to market our products responsibly
and stay in touch with the expectations of customers and the community.
Refer to Note 22 to the financial statements for details of our credit risk management policies.
Provisions for impairment charges on loans
Credit risk concentrations
We monitor our credit portfolio to manage risk concentrations. At 30 September 2018, our exposure to consumers comprised
72% (2017: 72%, 2016: 72%) of our on-balance sheet loans and 59% (2017: 59%, 2016: 58%) of total credit commitments. At
30 September 2018, 92% (2017: 92%, 2016: 91%) of our exposure to consumers was supported by residential real estate
mortgages. The consumer category includes owner-occupier and investment property loans to individuals, credit cards,
personal loans, overdrafts and lines of credit. Our consumer credit risks are diversified, with substantial consumer market share
in every state and territory in Australia, New Zealand and the Pacific region. Moreover, these customers service their debts with
incomes derived from a wide range of occupations, in city as well as country areas.
Exposures to businesses, government and other financial institutions are classified into a number of industry clusters based on
groupings of related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored against
industry risk limits. The level of industry risk is measured and monitored on a dynamic basis. We also control the concentration
risks that can arise from large exposures to individual borrowers.
Liquidity risk
potentially arise as a result of:
price.
Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due. This risk could
an inability to meet both expected and unexpected current and future 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 market risk position at the market
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 Liquidity
Coverage Ratio and Net Stable Funding Ratio.
Refer to Note 22 to the financial statements for a more detailed discussion of our liquidity risk management policies.
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121
Risk and risk management
We could suffer losses due to impairment of capitalised software, goodwill and other intangible assets that may
adversely affect our business, operations or financial condition
In certain circumstances Westpac may be exposed to a reduction in the value of intangible assets. As at 30 September 2018,
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.
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.
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.
Westpac also acquires and invests in businesses owned and operated by external parties. These transactions involve a
number of risks for the Group. For example, Westpac may incur financial losses if a business it invests in does not perform as
anticipated or subsequently proves to be overvalued at the time that the transaction was entered into.
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, reputation,
engagement with regulators, financial performance or financial condition.
Risk management
prosper and grow.
all levels of the Group.
Westpac’s vision is to be one of the world’s great service companies, helping our customers, communities and people to
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, the strength of our balance sheet, 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
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).
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.
Risk and risk management
Credit risk
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac.
We have a framework and supporting policies for managing the credit risk associated with lending across our business
divisions. The framework and policies encompass all stages of the credit cycle – origination, evaluation, approval,
documentation, settlement, ongoing administration and problem management. For example, we have established product-
based standards for lending to individuals, with key controls including minimum serviceability standards and maximum loan to
security value ratios. We offer residential property loans to both owner-occupiers and investors at both fixed and variable rates,
secured by a mortgage over the property or other acceptable collateral. Where we lend to higher loan to value ratios, we
typically also require lenders mortgage insurance. Similarly, we have established criteria for business, commercial, corporate
and institutional lending, which can vary by industry segment. In this area we focus on the performance of key financial risk
ratios, including interest coverage, debt serviceability and balance sheet structure. When providing finance to smaller business,
commercial and corporate borrowers we typically obtain security, such as a mortgage over property and/or a general security
agreement over business assets. For larger corporates and institutions, we typically also require compliance with selected
financial ratios and undertakings and may hold security. In respect of commercial property lending, we maintain loan origination
and ongoing risk management standards, including specialised management for higher value loans. We consider factors such
as the nature, location, quality and expected demand for the asset, tenancy profile and experience and quality of management.
We actively monitor the Australian and New Zealand property markets and the composition of our commercial property loan
book across the Group.
2
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 2018, our exposure to consumers comprised
72% (2017: 72%, 2016: 72%) of our on-balance sheet loans and 59% (2017: 59%, 2016: 58%) of total credit commitments. At
30 September 2018, 92% (2017: 92%, 2016: 91%) of our exposure to consumers was supported by residential real estate
mortgages. The consumer category includes owner-occupier and 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 market risk 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 Liquidity
Coverage Ratio and Net Stable Funding Ratio.
Refer to Note 22 to the financial statements for a more detailed discussion of our liquidity risk management policies.
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121
Risk and risk management
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 2018:
Program Limit
Issuer(s)
Program/Issuing Shelf Type
Australia
No limit
Euro Market
USD 2.5 billion
USD 20 billion
USD 70 billion
USD 10 billion
USD 40 billion
EUR 5 billion
Japan
JPY 750 billion
JPY 750 billion
United States
USD 45 billion
USD 10 billion
USD 35 billion
USD 15 billion
No limit
No limit
New Zealand
No limit
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
WNZL
US Securities and Exchange Commission registered shelves
Medium Term Note and Registered Certificate of Deposit Program
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.
Risk and risk management
The table below depicts the aggregate Value at Risk (VaR), by risk type, for traded risk for the respective year ended 30
September:
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
Consolidated and Parent Entity
2018
2017
2016
Low Average
Low Average
High
Low Average
High
15.6
6.9
1.0
24.3
5.8
n/a
28.1
5.1
0.7
0.0
1.7
1.4
n/a
6.7
8.6
3.0
0.1
6.5
3.8
(8.6)
13.4
High
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
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 the regulatory (Basel II) definition, including legal and regulatory risk but excluding strategic
risk. It also includes, among other things, technology risk, model risk, outsourcing risk and reputational 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 adhere to the
compliance obligations required of the Group.
available at www.westpac.com.au/corpgov.
For information on our management of operational and compliance risk, refer to Westpac’s Corporate Governance Statement,
The Group’s Operational Risk Management Framework and Compliance Management Framework (CMF) 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
operational risk policies. CMF sets out the approach of the Westpac Group to managing compliance obligations and mitigating
compliance risk, in order to achieve our compliance objective. The CMF is an integral part of the Board-approved Risk
Management Strategy and is supported by a number of key policies and frameworks. This is discussed in further detail in Note
22 to the financial statements.
1 Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its 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.
Includes electricity risk.
1
2
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating brands).
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123
Risk and risk management
Westpac debt programs and issuing shelves
and issuing shelves as at 30 September 2018:
Access in a timely and flexible manner to a diverse range of debt markets and investors is provided by the following programs
Program Limit
Issuer(s)
Program/Issuing Shelf Type
WBC/WSNZL1
Euro Commercial Paper and Certificate of Deposit Program
Euro Transferable Certificate of Deposit Program
Debt Issuance Program
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
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
No limit
Market risk
WBC
WBC
WBC
WSNZL1
WBC2
WSNZL3
WBC
WBC
WBC
WSNZL1
WBC
WBC
WNZL
WBC (NY Branch)
US Medium Term Deposit Note Program
WBC (NY Branch)
Certificate of Deposit Program
US Securities and Exchange Commission registered shelves
Medium Term Note and Registered Certificate of Deposit Program
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.
Risk and risk management
The table below depicts the aggregate Value at Risk (VaR), by risk type, for traded risk for the respective 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
2018
Low Average
5.1
0.7
0.0
1.7
1.4
n/a
6.7
8.6
3.0
0.1
6.5
3.8
(8.6)
13.4
High
15.6
6.9
1.0
24.3
5.8
n/a
28.1
High
16.0
9.4
0.4
14.1
5.1
n/a
22.9
2017
2016
Low Average
High
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
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
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 the regulatory (Basel II) definition, including legal and regulatory risk but excluding strategic
risk. It also includes, among other things, technology risk, model risk, outsourcing risk and reputational risk.
2
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 adhere to the
compliance obligations required of the Group.
For information on our management of operational and compliance risk, refer to Westpac’s Corporate Governance Statement,
available at www.westpac.com.au/corpgov.
The Group’s Operational Risk Management Framework and Compliance Management Framework (CMF) 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
operational risk policies. CMF sets out the approach of the Westpac Group to managing compliance obligations and mitigating
compliance risk, in order to achieve our compliance objective. The CMF is an integral part of the Board-approved Risk
Management Strategy and is supported by a number of key policies and frameworks. This is discussed in further detail in Note
22 to the financial statements.
1 Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its 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.
1
2
Includes electricity risk.
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating brands).
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123
Risk and risk management
Other risks
Business risk
The risks arising from the strategic objectives and business plans.
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 Conduct Framework sets out our approach to Conduct and Conduct Risk Management. We establish an
umbrella view of Conduct Risk by leveraging existing risk frameworks, in particular operational, compliance, reputation and
sustainability risk to improve customer outcomes. Conduct also underpins Our Compass, which brings together our Vision,
Values, Code of Conduct and Service Promise to provide our people with a consistent understanding of what it means to ‘Do
the Right Thing’.
Sustainability risk
The risk of reputation 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 Board-approved Sustainability Risk Management Framework (Framework) that is supported by a
suite of key policies and position statements. These include Our 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, sensitive sector position statements and Responsible Sourcing
Code of Conduct, many of which are publicly available. The Sustainability Risk Management Framework was reviewed and
updated in 2018.
Westpac is also a signatory to a number of voluntary principles-based frameworks that guide the integration of ESG-related
issues to banking, lending and investment analysis. These include the Equator Principles, covering project finance activities,
the Principles for Responsible Investments, covering investment analysis and the Task Force on Climate-related Financial
Disclosures (TCFD).
Climate change risk
Within this framework climate change-related risks are managed by the Group in the same way as any other transformational
issue facing the economy. The Group examines the policy, regulatory, technology and market changes related to climate
change (‘transition risks’), and the financial impacts of changes in climate patterns and extreme weather events (‘physical
risks’).
Through its Climate Change Position Statement, Westpac has an enhanced approach to lending to emissions-intensive
sectors, supporting customers that are in or reliant on these sectors and who assess the financial implications of climate
change on their business, including how their strategies are likely to perform under various forward-looking scenarios, and
demonstrate a rigorous approach to governance, strategy setting, risk management and reporting.
Westpac uses scenario analysis to identify and assess climate-related risks over short, medium and long-term horizons. The
findings of our scenario analysis in 2016 were reflected in Westpac's latest Climate Change Position Statement and 2020
Action Plan which outlined enhanced lending standards for lending to the thermal coal mining and energy sectors. These
lending parameters have been included in our Group Risk Appetite Statement and, where appropriate, are applied at the
portfolio, customer and transaction level.
Westpac uses scenario analysis to guide its climate change strategy and to analyse the implications of climate-related factors
to its business. In 2018 the Group undertook further scenario analysis to assess:
The resilience of Westpac’s Australian Business and institutional lending1 to transition risks (policy, legal, technology and
market changes related to climate change) brought about by rapid decarbonisation of the Australian economy under 2
degree scenarios (building on work first undertaken in 2016); and
The impact of climate-related physical risks (the financial impacts of changes in climate patterns and extreme weather
events) on the Australian mortgage portfolio2 arising from global warming scenarios of both 2 and 4 degrees.
Risk and risk management
The results of this analysis are summarised below and further detail can be found in ‘Climate-related financial disclosures’ and
in the Westpac Sustainability Performance Report.
Summary findings – scenario analysis
2 degrees1: Westpac’s exposure to sectors that may face growth constraints under a range of 2 degree scenarios to 2030
is approximately 4% of our Business and Institutional lending - unchanged since 2016. Higher risk sectors may be subject
to enhanced due diligence under the parameters laid out in the CCPS. Westpac expects to be well positioned to capitalise
on opportunities arising out of growth in sectors benefiting from a transition to a low carbon economy over the short and
medium term. The Group has lending targets to climate change solutions of $10 billion by 2020 and $25 billion by 2030.
4 degrees2: Under a 4 degree scenario to 2050, we believe the Australian mortgage portfolio is broadly resilient to physical
risks3. The Group mapped its Australian mortgage portfolio to postcodes which under a 4 degree scenario are at greatest
risk of increased frequency and intensity of natural perils, and where annual average losses are most likely to increase.
The findings highlighted the importance of both climate mitigation and adaptation efforts, including government planning
measures, and the benefits of climate-resilient building characteristics to reduce property damage and impacts on
customers and communities. Along with our broader commitment to a 2-degree economy, Westpac expects to continue to
help individual customers respond to climate change, and continue to advocate for more research and investment into
helping communities adapt and become resilient to climate-related impacts.
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 claims cost being greater than expected, due to a failure in product design,
underwriting, reinsurance arrangements or an increase in severity and frequency of insured events.
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
parent entity support, plus requirements related to control of Group badging, product distribution, promotional material, service-
level agreements and managing potential conflicts of interest.
1 Excludes retail, sovereign and bank exposures.
2 Excludes RAMS.
1 2 degree scenarios: See Westpac’s Sustainability Performance Report, 2016 (p52). Data presented above is from the Global Cooperation Scenario.
2 4 degrees scenario: Based on data from IPCC’s RCP8.5 scenario.
3 Selected perils: Inundation (sea level rise and storm surge), soil contraction due to increased heat and reduced rainfall, floods, wind and cyclones,
and bushfires.
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Summary findings – scenario analysis
The results of this analysis are summarised below and further detail can be found in ‘Climate-related financial disclosures’ and
in the Westpac Sustainability Performance Report.
Risk and risk management
The risk that our provision of services and products results in unsuitable or unfair outcomes for our stakeholders or undermines
The Westpac Group Conduct Framework sets out our approach to Conduct and Conduct Risk Management. We establish an
umbrella view of Conduct Risk by leveraging existing risk frameworks, in particular operational, compliance, reputation and
sustainability risk to improve customer outcomes. Conduct also underpins Our Compass, which brings together our Vision,
Values, Code of Conduct and Service Promise to provide our people with a consistent understanding of what it means to ‘Do
2 degrees1: Westpac’s exposure to sectors that may face growth constraints under a range of 2 degree scenarios to 2030
is approximately 4% of our Business and Institutional lending - unchanged since 2016. Higher risk sectors may be subject
to enhanced due diligence under the parameters laid out in the CCPS. Westpac expects to be well positioned to capitalise
on opportunities arising out of growth in sectors benefiting from a transition to a low carbon economy over the short and
medium term. The Group has lending targets to climate change solutions of $10 billion by 2020 and $25 billion by 2030.
4 degrees2: Under a 4 degree scenario to 2050, we believe the Australian mortgage portfolio is broadly resilient to physical
risks3. The Group mapped its Australian mortgage portfolio to postcodes which under a 4 degree scenario are at greatest
risk of increased frequency and intensity of natural perils, and where annual average losses are most likely to increase.
The findings highlighted the importance of both climate mitigation and adaptation efforts, including government planning
measures, and the benefits of climate-resilient building characteristics to reduce property damage and impacts on
customers and communities. Along with our broader commitment to a 2-degree economy, Westpac expects to continue to
help individual customers respond to climate change, and continue to advocate for more research and investment into
helping communities adapt and become resilient to climate-related impacts.
Risk and risk management
The risks arising from the strategic objectives and business plans.
Other risks
Business risk
Conduct risk
market integrity.
the Right Thing’.
Sustainability risk
updated in 2018.
Disclosures (TCFD).
Climate change risk
risks’).
The risk of reputation 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 Board-approved Sustainability Risk Management Framework (Framework) that is supported by a
suite of key policies and position statements. These include Our 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, sensitive sector position statements and Responsible Sourcing
Code of Conduct, many of which are publicly available. The Sustainability Risk Management Framework was reviewed and
Westpac is also a signatory to a number of voluntary principles-based frameworks that guide the integration of ESG-related
issues to banking, lending and investment analysis. These include the Equator Principles, covering project finance activities,
the Principles for Responsible Investments, covering investment analysis and the Task Force on Climate-related Financial
Within this framework climate change-related risks are managed by the Group in the same way as any other transformational
issue facing the economy. The Group examines the policy, regulatory, technology and market changes related to climate
change (‘transition risks’), and the financial impacts of changes in climate patterns and extreme weather events (‘physical
Through its Climate Change Position Statement, Westpac has an enhanced approach to lending to emissions-intensive
sectors, supporting customers that are in or reliant on these sectors and who assess the financial implications of climate
change on their business, including how their strategies are likely to perform under various forward-looking scenarios, and
demonstrate a rigorous approach to governance, strategy setting, risk management and reporting.
Westpac uses scenario analysis to identify and assess climate-related risks over short, medium and long-term horizons. The
findings of our scenario analysis in 2016 were reflected in Westpac's latest Climate Change Position Statement and 2020
Action Plan which outlined enhanced lending standards for lending to the thermal coal mining and energy sectors. These
lending parameters have been included in our Group Risk Appetite Statement and, where appropriate, are applied at the
portfolio, customer and transaction level.
Westpac uses scenario analysis to guide its climate change strategy and to analyse the implications of climate-related factors
to its business. In 2018 the Group undertook further scenario analysis to assess:
The resilience of Westpac’s Australian Business and institutional lending1 to transition risks (policy, legal, technology and
market changes related to climate change) brought about by rapid decarbonisation of the Australian economy under 2
degree scenarios (building on work first undertaken in 2016); and
The impact of climate-related physical risks (the financial impacts of changes in climate patterns and extreme weather
events) on the Australian mortgage portfolio2 arising from global warming scenarios of both 2 and 4 degrees.
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 claims cost being greater than expected, due to a failure in product design,
underwriting, reinsurance arrangements or an increase in severity and frequency of insured events.
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
parent entity support, plus requirements related to control of Group badging, product distribution, promotional material, service-
level agreements and managing potential conflicts of interest.
1 Excludes retail, sovereign and bank exposures.
2 Excludes RAMS.
1 2 degree scenarios: See Westpac’s Sustainability Performance Report, 2016 (p52). Data presented above is from the Global Cooperation Scenario.
2 4 degrees scenario: Based on data from IPCC’s RCP8.5 scenario.
3 Selected perils: Inundation (sea level rise and storm surge), soil contraction due to increased heat and reduced rainfall, floods, wind and cyclones,
and bushfires.
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2
Risk and risk management
Risk and risk management
Reputation risk
Reputation risk is the risk of the loss of reputation, stakeholder confidence, or public trust and standing.
Customer funding conduits
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 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 Framework is being reviewed and updated in
2018.
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 2018, the carrying value of assets pledged for the covered bond programs for the Group was $43.1 billion
(2017: $42.1 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 2018, our assets securitised through a combination of privately or publicly placed issuances to a
combination of domestic and offshore investors were $7.6 billion (2017: $8.2 billion).
Under AAS, 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.
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 of the
financial statements. Westpac has now stopped providing undrawn liquidity facilities to the customer conduits in the financial
year ended 30 September 2018. (2017: $392 million).
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.
Refer to Note 38 to the financial statements for details of our superannuation plans and Note 31 for details of our contingent
Other off-balance sheet arrangements
liabilities, contingent assets and credit commitments.
Financial reporting
Internal control over financial reporting
The US Congress passed the Public Company Accounting Reform and Investor Protection Act in July 2002, which is commonly
known as the Sarbanes-Oxley Act of 2002 (SOx). SOx is a wide ranging piece of US legislation concerned largely with financial
reporting and corporate governance. We are obligated to comply with SOx by virtue of being a foreign registrant with the SEC
and we have established procedures designed to comply with all applicable requirements of SOx.
Disclosure controls and procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the US Securities Exchange Act of 1934) as of
30 September 2018.
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 2018.
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 2018 that has been identified and that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
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Risk and risk management
Reputation risk
Reputation risk is 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 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 Framework is being reviewed and updated in
2018.
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
As at 30 September 2018, the carrying value of assets pledged for the covered bond programs for the Group was $43.1 billion
documents.
(2017: $42.1 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 2018, our assets securitised through a combination of privately or publicly placed issuances to a
combination of domestic and offshore investors were $7.6 billion (2017: $8.2 billion).
Under AAS, 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.
Risk and risk management
Customer funding 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 of the
financial statements. Westpac has now stopped providing undrawn liquidity facilities to the customer conduits in the financial
year ended 30 September 2018. (2017: $392 million).
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.
2
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 2018.
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 2018.
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 2018 that has been identified and that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
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Westpac’s approach to sustainability
Sustainability performance
Westpac’s approach to sustainability
As one of Australia’s largest companies, Westpac Group can play a role in helping to create positive social, economic and
environmental impact, for the benefit of all. At a time of great scrutiny of the financial services sector and the Royal
Commission, it is particularly important that we work in an open and transparent way to build a strong banking system that
delivers good outcomes for customers and the economy as a whole. Where mistakes are identified we put it right and seek to
remediate the situation.
The Group’s approach to sustainability 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, and contribute to the United Nation’s Sustainable Development Goals. 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 which 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 meets four
times a year and 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). Westpac’s sustainability performance is
regularly benchmarked by a number of third-party ratings and awards, including the Dow Jones Sustainability Indices (DJSI),
where the group has been recognised as global leader as a member of DJSI World for 17 years in a row and this year ranked
17th in the global banking group.
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 governance and risk management. Collectively, they help to
guide decisions, manage risk and drive action. Key frameworks and policies include:
Principles for Doing Business – which set 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;
Sustainability Risk Management Framework – which sets out how the Group manages sustainability risks in operations,
lending and investment decisions and the supply chain, providing a 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 in day-to-day operations, including our Code
of Conduct, divisional ESG policies, and position statements on sensitive sectors and issues.
Westpac’s approach to sustainability
Material sustainability topics
Informed by engagement with internal and external stakeholders, including the Group’s Stakeholder Advisory Council, review of
policies, industry trends, peer analysis and regulatory and non-regulatory requirements, Westpac’s materiality process is
aligned with the Global Reporting Initiative Standards (2016) and the AA1000 AccountAbility Principles Standard (2008).
Prioritisation of material topics is subject to annual independent external assurance. Westpac’s response to its most material
topics is contained in the summary of full year performance, below.
Material sustainability topic
Conduct and culture
services sector, driving an increased
Governance, risk and
remuneration
Instances of poor conduct have
eroded public trust in the financial
focus on corporate culture and
improved outcomes for customers
Customers’ needs are becoming
Customer satisfaction
more complex, and at the same time
Financial and
and experience
their expectations around how they
want to engage with us are evolving
economic performance
Customer vulnerability
and hardship
Our ability to support customers in
times of financial hardship and
anticipating times when they can
become vulnerable allows us to help
when it matters most
Climate change
transition and
opportunities
Information security
and data privacy
Maintaining customer confidentiality
and the security of our systems is
paramount to maintaining trust and
confidence
Value chain
sustainability risks
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, we have
an important role to play in supporting
the transition to an economy that limits
global warming to less than two
degrees and ensuring clarity around our
scientific and principles-based
approach to assessing customers and
projects
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
Having a workforce that reflects the
broader community in which we
operate, as well as delivering a better
service experience for our customers
Digital product and
service transformation
Changing regulatory
landscape
Digitisation offers opportunities to
improve efficiency and deliver new
and better customer experiences
when, how and where customers
choose to engage with us
Supervision and regulation in
jurisdictions that the Group operate in
continue to evolve, creating
uncertainty in the operating
environment
Inclusion and diversity
Talent attraction and
retention
Attracting, retaining and developing our
people and helping them to build skills
for the future
For further detail, please see our Annual Review and Sustainability Report and Sustainability Performance Report at
www.westpac.com.au/sustainability.
128
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2018 Westpac Group Annual Report
129
Westpac’s approach to sustainability
Sustainability performance
Westpac’s approach to sustainability
As one of Australia’s largest companies, Westpac Group can play a role in helping to create positive social, economic and
environmental impact, for the benefit of all. At a time of great scrutiny of the financial services sector and the Royal
Commission, it is particularly important that we work in an open and transparent way to build a strong banking system that
delivers good outcomes for customers and the economy as a whole. Where mistakes are identified we put it right and seek to
remediate the situation.
The Group’s approach to sustainability 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, and contribute to the United Nation’s Sustainable Development Goals. 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 which 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 meets four
times a year and 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). Westpac’s sustainability performance is
regularly benchmarked by a number of third-party ratings and awards, including the Dow Jones Sustainability Indices (DJSI),
where the group has been recognised as global leader as a member of DJSI World for 17 years in a row and this year ranked
17th in the global banking group.
Our sustainability principles
Sustainability materiality; and
identified – Responsiveness.
Frameworks and policies
In line with AA1000, Westpac has adopted the Standard’s three key principles:
Involving all stakeholders in identifying topics and developing strategy – Inclusivity;
Evaluating all topics identified to determine the impact they may have on stakeholders and the Group’s operations –
Ensuring decisions, actions and performance, as well as communication with stakeholders, is responsive to the topics
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 governance and risk management. Collectively, they help to
guide decisions, manage risk and drive action. Key frameworks and policies include:
Principles for Doing Business – which set 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;
Sustainability Risk Management Framework – which sets out how the Group manages sustainability risks in operations,
lending and investment decisions and the supply chain, providing a 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 in day-to-day operations, including our Code
of Conduct, divisional ESG policies, and position statements on sensitive sectors and issues.
Westpac’s approach to sustainability
Material sustainability topics
Informed by engagement with internal and external stakeholders, including the Group’s Stakeholder Advisory Council, review of
policies, industry trends, peer analysis and regulatory and non-regulatory requirements, Westpac’s materiality process is
aligned with the Global Reporting Initiative Standards (2016) and the AA1000 AccountAbility Principles Standard (2008).
Prioritisation of material topics is subject to annual independent external assurance. Westpac’s response to its most material
topics is contained in the summary of full year performance, below.
Material sustainability topic
Conduct and culture
Customer satisfaction
and experience
Instances of poor conduct have
eroded public trust in the financial
services sector, driving an increased
focus on corporate culture and
improved outcomes for customers
Customers’ needs are becoming
more complex, and at the same time
their expectations around how they
want to engage with us are evolving
Governance, risk and
remuneration
Clear governance practices, active
management of risk, commitment to
compliance, and fair remuneration in
our operations, supplier and partner
relationships is critical to the longevity
and financial wellbeing of the Group
Financial and
economic performance
Maintaining a healthy financial
performance and strong balance sheet
is vital to the Group’s long term
sustainability
2
Customer vulnerability
and hardship
Our ability to support customers in
times of financial hardship and
anticipating times when they can
become vulnerable allows us to help
when it matters most
Climate change
transition and
opportunities
Information security
and data privacy
Maintaining customer confidentiality
and the security of our systems is
paramount to maintaining trust and
confidence
Value chain
sustainability risks
Digital product and
service transformation
Changing regulatory
landscape
Digitisation offers opportunities to
improve efficiency and deliver new
and better customer experiences
when, how and where customers
choose to engage with us
Supervision and regulation in
jurisdictions that the Group operate in
continue to evolve, creating
uncertainty in the operating
environment
Inclusion and diversity
Talent attraction and
retention
Attracting, retaining and developing our
people and helping them to build skills
for the future
As a major financial institution, we have
an important role to play in supporting
the transition to an economy that limits
global warming to less than two
degrees and ensuring clarity around our
scientific and principles-based
approach to assessing customers and
projects
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
Having a workforce that reflects the
broader community in which we
operate, as well as delivering a better
service experience for our customers
For further detail, please see our Annual Review and Sustainability Report and Sustainability Performance Report at
www.westpac.com.au/sustainability.
128
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
129
Westpac’s approach to sustainability
Sustainability goals
Our 2018-2020 Sustainability Strategy, informed by our materiality assessments, sets measurable goals against the following
priority areas:
Helping people make better financial decisions;
Helping people by being there when it matters most to them; and
Helping people create a prosperous nation.
Underpinning these three priority areas is a commitment to fostering a culture of care and doing the right thing, and continuing
to lead on the sustainability fundamentals – policies, action plans, frameworks and metrics reporting, in particular building on
the climate change, human rights and reconciliation action plans.
Performance against sustainability goals
Priority
areas
Goals
Helping
people make
better
financial
decisions
Help more people better
understand their financial
position, improving their financial
confidence
Help people recover from
financial hardship
Help people lift out of a difficult
time and recover stronger
Helping our most vulnerable
customers
Helping
people by
being there
when it
matters most
to them
Full Year 2018 performance
Continued to offer a range of products and services, including Westpac
SmartPlan, an online tool to help customers manage their credit card balance and
pay down their debts more easily; and Westpac Life, a flexible savings account
that supports customers’ savings goals;
Delivered financial literacy programs to individuals, businesses, not-for-profit
organisations and community groups through Davidson Institute in Australia and
the Managing Your Money program in New Zealand; and
Delivered communications promoting financial capability for different customer
segments, including 512,000 children through Mathspace and Year 13
partnerships, 1.5 million young Australians via The Cusp, 229,000 women through
Ruby Connection and 2.5 million Australians aged 65+ via Starts at 60.
Helped customers experiencing financial hardship, issuing over 37,000 financial
assistance packages; and
Established a specialist team, with experience in areas such as health and social
work, to help customers in highly complex vulnerable circumstances.
Announced a $100 million Drought Assistance Package including a range of
lending support options such as discounted loans, deferring repayments and
adjusted interest rates for customers with Farm Management Deposit (FMD);
Donated $100,000 to the Salvation Army Rural Support Services Program and a
further $100,000 in Community Recovery Resilience grants;
Provided 104 relief packages for customers impacted by natural disasters across
Australia; and
Donated $50,000 to the PNG Salvation Army to assist with relief efforts following
a magnitude 7.5 earthquake in Papua New Guinea.
Convened the Vulnerable Customer Council which brings together
representatives from customer advocate groups, financial counsellors and
community organisations to understand their views and perspectives on our
approach to issues impacting vulnerable customers;
Established processes to assist customers in vulnerable situations earlier in the
complaints process for escalation to a high priority resolution team;
Announced ‘Loss of a loved one’ tools and resources to help customers and their
family managing a deceased estate;
Introduced the option for credit cardholders to block transactions with gambling
merchants to support customers vulnerable to a gambling problem manage their
credit card spend;
Commenced preparations to establish a dedicated customer care team to provide
specialist support for remote and Indigenous communities; and
Expanded dementia-friendly banking to BankSA and Bank of Melbourne.
Westpac’s approach to sustainability
Performance against sustainability goals (continued)
Priority
areas
Goals
Full Year 2018 performance
Build the workforce of the future
emerging leaders; and
Launched additional learning and development offerings as part of our focus on
the future of work to assist employees to develop ‘skills for life’;
Introduced a Young Leader Program to develop and support high-potential
Published our Science, Technology, Engineering and Mathematics (STEM)
Commitment, a series of initiatives and programs centred on investing in and
inspiring the next generation, talent incubation, championing change and fostering
Invest and back the people and
ideas shaping Australia
Westpac Bicentennial Foundation paid $3.7 million in educational scholarships to
100 scholars during Full Year 2018, bringing the total cohort of Westpac Scholars
innovation.
to 330;
Westpac Foundation Social Scale-up Grants supported social enterprises to
create 513 jobs1 for vulnerable Australians;
Westpac Foundation awarded $2 million in Community Grants to support 200
not-for-profit organisations;
275 businesses established through our Many Rivers partnership. Since its
establishment, the partnership has created jobs for 1,949 people, with 718
identifying as Indigenous;
Westpac has directly invested in 8 early stage companies;
To date, committed $150 million to Reinventure as part of its investment in three
funds, supporting 23 early stage companies;
Announced 200 Business of Tomorrow program recipients, including a two week
study tour to Silicon Valley, $50,000 professional services package and a mentor
matching program with notable Australian business leaders offered to the top 20
businesses; and
Supported eight early-stage companies through the FUELD accelerator program
by supporting them with Data Republic’s data-sharing platform, helping to develop
ideas to solve customer and business problems across a range of industries.
Increased committed exposure to climate change solutions relative to Full Year
2017, taking total committed exposure to more than $9 billion, progressing
towards our 2020 target of $10 billion;
Arranged and issued climate-related bonds of $1.7 billion supporting the Group’s
$3 billion funding for climate change solutions; and
Undertook analysis to understand the implications of 2-degree and 4-degree
climate scenarios on our business.
at 30 September 2017; and
Lent $1.36 billion to the social and affordable housing sector, up from $1.32 billion
Conducted an extensive review of the housing affordability challenge, exploring
support for innovative housing solutions such as build-to-rent, shared equity and
backed emerging charity HeadStart Homes to help Australians living in social
housing take steps towards owning their own home.
Joined 28 banks in co-founding and drafting the Principles for Responsible
Banking, a UNEP-FI initiative to promote alignment of the global banking sector,
in making progress on the Sustainable Development Goals and Paris Climate
Agreement;
Supported dialogue across institutional customers and Westpac experts to
collaborate on initiatives towards eradicating modern slavery and other severe
human rights issues; and
Hosted Westpac’s first Sustainable & Inclusive Sourcing Forum to encourage
cross-sector collaboration.
Maintained 50% Women in Leadership roles;
Indigenous Australian new hires as a percentage of total hiring was 4.3%;
Developed a customised recruitment program – Tailored Talent – to remove some
of the traditional barriers to work for people on the autism spectrum;
Named as Employer of Choice for Gender Equality by the Workplace Gender
Equality Agency for the 8th consecutive year; and
Became one of six employers to attain the highest Platinum status in the
Australian Workplace Equality Index for LGBTI inclusion.
Established a new Customer and Corporate Relations Division, bringing together
customer complaints teams from across the Group to complement the role of the
Customer Advocate office.
Helping
people
creating a
prosperous
nation
Back the growth of climate
change solutions
Back the growth of housing
affordability solutions
Bring together partners and
harness the Group capacity to
tackle pressing social issues that
matter most to the nation
Promote an inclusive society,
where our workforce reflects our
customers
A culture that
is caring,
inclusive and
innovative
Increase channels where
customers can provide feedback
1 All results as at 30 September 2018 except jobs created through the Westpac Foundation Social Scale-up grant is as at 30 June 2018. Refer to
www.westpac.com.au/sustainabilty for glossary of terms and metrics definitions.
130
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
131
Westpac’s approach to sustainability
Sustainability goals
priority areas:
Helping people make better financial decisions;
Helping people by being there when it matters most to them; and
Helping people create a prosperous nation.
Underpinning these three priority areas is a commitment to fostering a culture of care and doing the right thing, and continuing
to lead on the sustainability fundamentals – policies, action plans, frameworks and metrics reporting, in particular building on
the climate change, human rights and reconciliation action plans.
Performance against sustainability goals
Priority
areas
Goals
Full Year 2018 performance
Helping
people make
better
financial
decisions
Help more people better
understand their financial
position, improving their financial
confidence
Help people recover from
financial hardship
Help people lift out of a difficult
time and recover stronger
Helping
people by
being there
when it
matters most
to them
Continued to offer a range of products and services, including Westpac
SmartPlan, an online tool to help customers manage their credit card balance and
pay down their debts more easily; and Westpac Life, a flexible savings account
that supports customers’ savings goals;
Delivered financial literacy programs to individuals, businesses, not-for-profit
organisations and community groups through Davidson Institute in Australia and
the Managing Your Money program in New Zealand; and
Delivered communications promoting financial capability for different customer
segments, including 512,000 children through Mathspace and Year 13
partnerships, 1.5 million young Australians via The Cusp, 229,000 women through
Ruby Connection and 2.5 million Australians aged 65+ via Starts at 60.
Helped customers experiencing financial hardship, issuing over 37,000 financial
assistance packages; and
Established a specialist team, with experience in areas such as health and social
work, to help customers in highly complex vulnerable circumstances.
Announced a $100 million Drought Assistance Package including a range of
lending support options such as discounted loans, deferring repayments and
adjusted interest rates for customers with Farm Management Deposit (FMD);
Donated $100,000 to the Salvation Army Rural Support Services Program and a
further $100,000 in Community Recovery Resilience grants;
Provided 104 relief packages for customers impacted by natural disasters across
Australia; and
Donated $50,000 to the PNG Salvation Army to assist with relief efforts following
a magnitude 7.5 earthquake in Papua New Guinea.
Convened the Vulnerable Customer Council which brings together
representatives from customer advocate groups, financial counsellors and
community organisations to understand their views and perspectives on our
approach to issues impacting vulnerable customers;
Established processes to assist customers in vulnerable situations earlier in the
complaints process for escalation to a high priority resolution team;
Introduced the option for credit cardholders to block transactions with gambling
merchants to support customers vulnerable to a gambling problem manage their
credit card spend;
Commenced preparations to establish a dedicated customer care team to provide
specialist support for remote and Indigenous communities; and
Expanded dementia-friendly banking to BankSA and Bank of Melbourne.
Helping our most vulnerable
Announced ‘Loss of a loved one’ tools and resources to help customers and their
customers
family managing a deceased estate;
Our 2018-2020 Sustainability Strategy, informed by our materiality assessments, sets measurable goals against the following
Performance against sustainability goals (continued)
Priority
areas
Goals
Full Year 2018 performance
Westpac’s approach to sustainability
Build the workforce of the future
Invest and back the people and
ideas shaping Australia
Launched additional learning and development offerings as part of our focus on
the future of work to assist employees to develop ‘skills for life’;
Introduced a Young Leader Program to develop and support high-potential
emerging leaders; and
Published our Science, Technology, Engineering and Mathematics (STEM)
Commitment, a series of initiatives and programs centred on investing in and
inspiring the next generation, talent incubation, championing change and fostering
innovation.
Westpac Bicentennial Foundation paid $3.7 million in educational scholarships to
100 scholars during Full Year 2018, bringing the total cohort of Westpac Scholars
to 330;
Westpac Foundation Social Scale-up Grants supported social enterprises to
create 513 jobs1 for vulnerable Australians;
Westpac Foundation awarded $2 million in Community Grants to support 200
not-for-profit organisations;
275 businesses established through our Many Rivers partnership. Since its
establishment, the partnership has created jobs for 1,949 people, with 718
identifying as Indigenous;
2
Helping
people
creating a
prosperous
nation
Back the growth of climate
change solutions
Back the growth of housing
affordability solutions
Bring together partners and
harness the Group capacity to
tackle pressing social issues that
matter most to the nation
Westpac has directly invested in 8 early stage companies;
To date, committed $150 million to Reinventure as part of its investment in three
funds, supporting 23 early stage companies;
Announced 200 Business of Tomorrow program recipients, including a two week
study tour to Silicon Valley, $50,000 professional services package and a mentor
matching program with notable Australian business leaders offered to the top 20
businesses; and
Supported eight early-stage companies through the FUELD accelerator program
by supporting them with Data Republic’s data-sharing platform, helping to develop
ideas to solve customer and business problems across a range of industries.
Increased committed exposure to climate change solutions relative to Full Year
2017, taking total committed exposure to more than $9 billion, progressing
towards our 2020 target of $10 billion;
Arranged and issued climate-related bonds of $1.7 billion supporting the Group’s
$3 billion funding for climate change solutions; and
Undertook analysis to understand the implications of 2-degree and 4-degree
climate scenarios on our business.
Lent $1.36 billion to the social and affordable housing sector, up from $1.32 billion
at 30 September 2017; and
Conducted an extensive review of the housing affordability challenge, exploring
support for innovative housing solutions such as build-to-rent, shared equity and
backed emerging charity HeadStart Homes to help Australians living in social
housing take steps towards owning their own home.
Joined 28 banks in co-founding and drafting the Principles for Responsible
Banking, a UNEP-FI initiative to promote alignment of the global banking sector,
in making progress on the Sustainable Development Goals and Paris Climate
Agreement;
Supported dialogue across institutional customers and Westpac experts to
collaborate on initiatives towards eradicating modern slavery and other severe
human rights issues; and
Hosted Westpac’s first Sustainable & Inclusive Sourcing Forum to encourage
cross-sector collaboration.
Promote an inclusive society,
where our workforce reflects our
customers
A culture that
is caring,
inclusive and
innovative
Increase channels where
customers can provide feedback
Maintained 50% Women in Leadership roles;
Indigenous Australian new hires as a percentage of total hiring was 4.3%;
Developed a customised recruitment program – Tailored Talent – to remove some
of the traditional barriers to work for people on the autism spectrum;
Named as Employer of Choice for Gender Equality by the Workplace Gender
Equality Agency for the 8th consecutive year; and
Became one of six employers to attain the highest Platinum status in the
Australian Workplace Equality Index for LGBTI inclusion.
Established a new Customer and Corporate Relations Division, bringing together
customer complaints teams from across the Group to complement the role of the
Customer Advocate office.
130
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
131
1 All results as at 30 September 2018 except jobs created through the Westpac Foundation Social Scale-up grant is as at 30 June 2018. Refer to
www.westpac.com.au/sustainabilty for glossary of terms and metrics definitions.
Westpac’s approach to sustainability
Performance against sustainability goals (continued)
Priority
areas
Goals
Full Year 2018 performance
Employees
Human rights
Continuing to
lead on the
Sustainability
Fundamentals
Sustainability lending and
investment
Environment2
Responsible Sourcing
Community & social impact
Held Group-wide Navigate training to reinforce ‘Our Compass’ – a framework
which brings together our vision, service promise, values and Code of Conduct;
Implemented recommendations of the Sedgwick Review two years earlier than
required by changing remuneration structures for customer-facing employees in
Business and Consumer bank;
Promoted wellbeing initiatives throughout the year including Men’s Health Week,
RUOK? Day, Mental Health Week, Women’s Health Week and White Ribbon
Day;
Continued to increase awareness through campaigns and training to ensure all
employees are familiar with our Whistleblower Protection Policy;
Completed the Group roll-out of Motivate, our new approach to performance,
development and reward; and
Achieved total recordable injury frequency rate (TRIFR) of 3.9 and lost time injury
frequency rate (LTIFR) of 0.4.
Determined Westpac’s salient1 human rights issues;
Released 2017 UK Slavery and Human Trafficking Statement;
Supported the introduction of comparable Australian legislation to the UK Modern
Slavery Act;
Continued to invest in cybersecurity capability to protect the privacy,
confidentiality, integrity and availability of customer information and sensitive
commercial data;
Delivered cybersecurity information sessions for business customers across
Australian capital cities, as well as security advice via our digital communications
channels; and
Continued to enhance our data breach management procedures and
strengthened our privacy management framework to protect customer data and
minimise the impact on affected individuals and the wider community.
Released BTFG’s Sustainable Investment Approach, which addresses ESG
issues in our internally managed funds as well as expanding the BT Financial
Group ESG exclusions framework, along with removing investment in tobacco
and controversial weapons to all funds managed by our internal teams;
Strengthened management of climate change risk, establishing a cross-functional
committee to oversee initiatives to address the credit, regulatory and legal risks of
climate change, including scenario analysis; and
Signed the UNEP-FI Tobacco-Free Finance Pledge.
Maintained carbon neutral status;
Achieved a 4.4% reduction in GHG emissions compared to Full Year 2017 and
18.1% compared to Full Year 2016;
Achieved a 19.7% reduction in Group paper consumption compared to Full Year
2017 and on track to achieve a 40% reduction in Full Year 2020 since 2016;
Water consumption in all Australian workplaces on track for a 15% reduction by
2020, consuming 409,944 kL in Full Year 2018;
Achieved 73% diversion of waste from landfill in Australian offices; and
Aligned climate reporting with the recommendations of the Task Force on
Climate-Financial Disclosures (TCFD).
$17.7 million sourced from diverse suppliers, including $3.8 million from
Indigenous suppliers.
Contributed over $131 million to community investment excluding commercial
sponsorships across the Group; and
16% employees participated in our volunteering programs.
Five year non-financial summary1
Key trends across a range of non-financial areas of performance are provided in the following five year non-financial
summary.with a more detailed account of sustainability performance included in our Annual Review and Sustainability Report
and Sustainability Performance Report
Westpac’s approach to sustainability
Customer
Total customers (millions)2
Digitally active customers (millions)3
Branches
Branches with 24/7 capability (%)4
ATMs
Smart ATMs (%)5
Change in consumer compliments (%) - Australia
Change in consumer complaints (%) - Australia2
Change in consumer complaints (%) - NZ
Employees
Total employees (full-time equivalent)6
Employee voluntary attrition (%)7
New starter retention (%)8
Employee engagement index (%)9
Lost Time Injury Frequency Rate (LTIFR)10
Women as percentage of the total workforce (%)
Women in leadership (%)11
Environment
Total Scope 1 and 2 emissions - Aust and NZ (tonnes CO2-e)12
Total Scope 3 emissions - Aust and NZ (tonnes CO2-e)13
Paper consumption - Aust and NZ (tonnes)14
Sustainable lending and investment
Proportion of electricity generation financing in renewables including
hydro - Aust and NZ (%)16
Electricity generation portfolio emissions intensity
(tonnes CO2-e/MWh)17
Finance assessed under the Equator Principles - Group ($m)18
Social impact
Community investment excluding commercial sponsorship ($m)19
Community investment as a percentage of pre-tax profits - Group (%)19
Community investment as a percentage of pre-tax operating profit
(cash earnings basis)19
Financial education (participants)20
Supply chain
2018
2017
2016
2015
2014
14.2
5.6
13.9
5.3
13.4
4.9
13.2
4.9
1,204
1,251
1,310
1,429
33
29
27
22
3,222
3,665
3,757
3,850
47
(23)
12
(16)
10.0
84.1
-
0.4
57
50
44
19
(18)
(21)
9.6
84.7
79
0.6
58
50
37
38
(31)
(7)
10.6
85.5
69
0.8
58
48
31
-
(28)
(18)
10.6
85.3
-
0.8
59
46
12.9
4.7
1,534
15
3,890
24
-
(20)
(16)
9.8
88.0
-
1.1
59
44
35,029
35,096
35,580
35,484
36,596
125,973
131,723
154,339
173,437
175,855
64,804
68,415
63,016
67,899
2,189
2,706
3,304
4,857
73,871
5,334
71
65
59
61
59
0.28
773
0.36
891
0.38
617
0.38
1,065
0.41
851
131
1.11
164
1.42
148
1.39
149
1.30
217
2.02
1.12
1.41
1.32
1.33
1.99
133,844
112,263
59,596
65,538
49,812
Climate change solutions attributable financing - Aust and NZ ($m)15
9,113
6,979
6,193
6,054
7,978
Top suppliers assessed against Responsible Sourcing Program
Spend with Indigenous Australian suppliers - Australia ($m)21
100
3.8
31
2.5
-
1.6
-
1.2
-
-
1 UN language for human rights ‘at risk of most severe negative impact’ through a company’s activities and business relationship.
2 All results as at 30 September 2018 except environmental footprint which is as at 30 June 2018. Refer to www.westpac.com.au/sustainability for
glossary of terms and metric definitions.
132
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2018 Westpac Group Annual Report
133
Westpac’s approach to sustainability
Performance against sustainability goals (continued)
Priority
areas
Goals
Full Year 2018 performance
Employees
Day;
Human rights
commercial data;
Continuing to
lead on the
Sustainability
Fundamentals
Held Group-wide Navigate training to reinforce ‘Our Compass’ – a framework
which brings together our vision, service promise, values and Code of Conduct;
Implemented recommendations of the Sedgwick Review two years earlier than
required by changing remuneration structures for customer-facing employees in
Business and Consumer bank;
Promoted wellbeing initiatives throughout the year including Men’s Health Week,
RUOK? Day, Mental Health Week, Women’s Health Week and White Ribbon
Continued to increase awareness through campaigns and training to ensure all
employees are familiar with our Whistleblower Protection Policy;
Completed the Group roll-out of Motivate, our new approach to performance,
development and reward; and
Achieved total recordable injury frequency rate (TRIFR) of 3.9 and lost time injury
frequency rate (LTIFR) of 0.4.
Determined Westpac’s salient1 human rights issues;
Released 2017 UK Slavery and Human Trafficking Statement;
Supported the introduction of comparable Australian legislation to the UK Modern
Slavery Act;
Continued to invest in cybersecurity capability to protect the privacy,
confidentiality, integrity and availability of customer information and sensitive
Delivered cybersecurity information sessions for business customers across
Australian capital cities, as well as security advice via our digital communications
channels; and
Continued to enhance our data breach management procedures and
strengthened our privacy management framework to protect customer data and
minimise the impact on affected individuals and the wider community.
Released BTFG’s Sustainable Investment Approach, which addresses ESG
issues in our internally managed funds as well as expanding the BT Financial
Group ESG exclusions framework, along with removing investment in tobacco
climate change, including scenario analysis; and
Signed the UNEP-FI Tobacco-Free Finance Pledge.
Maintained carbon neutral status;
Achieved a 4.4% reduction in GHG emissions compared to Full Year 2017 and
18.1% compared to Full Year 2016;
Achieved a 19.7% reduction in Group paper consumption compared to Full Year
2017 and on track to achieve a 40% reduction in Full Year 2020 since 2016;
Water consumption in all Australian workplaces on track for a 15% reduction by
2020, consuming 409,944 kL in Full Year 2018;
Achieved 73% diversion of waste from landfill in Australian offices; and
Aligned climate reporting with the recommendations of the Task Force on
Climate-Financial Disclosures (TCFD).
$17.7 million sourced from diverse suppliers, including $3.8 million from
Environment2
Responsible Sourcing
Indigenous suppliers.
Community & social impact
sponsorships across the Group; and
16% employees participated in our volunteering programs.
Contributed over $131 million to community investment excluding commercial
Sustainability lending and
and controversial weapons to all funds managed by our internal teams;
investment
Strengthened management of climate change risk, establishing a cross-functional
committee to oversee initiatives to address the credit, regulatory and legal risks of
Five year non-financial summary1
Key trends across a range of non-financial areas of performance are provided in the following five year non-financial
summary.with a more detailed account of sustainability performance included in our Annual Review and Sustainability Report
and Sustainability Performance Report
Westpac’s approach to sustainability
Customer
Total customers (millions)2
Digitally active customers (millions)3
Branches
Branches with 24/7 capability (%)4
ATMs
Smart ATMs (%)5
Change in consumer compliments (%) - Australia
Change in consumer complaints (%) - Australia2
Change in consumer complaints (%) - NZ
Employees
Total employees (full-time equivalent)6
Employee voluntary attrition (%)7
New starter retention (%)8
Employee engagement index (%)9
Lost Time Injury Frequency Rate (LTIFR)10
Women as percentage of the total workforce (%)
Women in leadership (%)11
Environment
Total Scope 1 and 2 emissions - Aust and NZ (tonnes CO2-e)12
Total Scope 3 emissions - Aust and NZ (tonnes CO2-e)13
Paper consumption - Aust and NZ (tonnes)14
Sustainable lending and investment
Climate change solutions attributable financing - Aust and NZ ($m)15
Proportion of electricity generation financing in renewables including
hydro - Aust and NZ (%)16
Electricity generation portfolio emissions intensity
(tonnes CO2-e/MWh)17
Finance assessed under the Equator Principles - Group ($m)18
Social impact
Community investment excluding commercial sponsorship ($m)19
Community investment as a percentage of pre-tax profits - Group (%)19
Community investment as a percentage of pre-tax operating profit
(cash earnings basis)19
Financial education (participants)20
Supply chain
2018
2017
2016
2015
2014
14.2
5.6
13.9
5.3
13.4
4.9
13.2
4.9
1,204
1,251
1,310
1,429
33
29
27
22
3,222
3,665
3,757
3,850
47
(23)
12
(16)
44
19
(18)
(21)
37
38
(31)
(7)
31
-
(28)
(18)
12.9
4.7
1,534
15
3,890
24
-
(20)
(16)
2
35,029
35,096
35,580
35,484
36,596
10.0
84.1
-
0.4
57
50
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
125,973
131,723
154,339
173,437
175,855
64,804
68,415
63,016
67,899
2,189
2,706
3,304
4,857
73,871
5,334
9,113
6,979
6,193
6,054
7,978
71
65
59
61
59
0.28
773
0.36
891
0.38
617
0.38
1,065
0.41
851
131
1.11
164
1.42
148
1.39
149
1.30
217
2.02
1.12
1.41
1.32
1.33
1.99
133,844
112,263
59,596
65,538
49,812
Top suppliers assessed against Responsible Sourcing Program
Spend with Indigenous Australian suppliers - Australia ($m)21
100
3.8
31
2.5
-
1.6
-
1.2
-
-
1 UN language for human rights ‘at risk of most severe negative impact’ through a company’s activities and business relationship.
2 All results as at 30 September 2018 except environmental footprint which is as at 30 June 2018. Refer to www.westpac.com.au/sustainability for
glossary of terms and metric definitions.
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133
Westpac’s approach to sustainability
1
2
All data represents Group performance as at 30 September unless otherwise stated.
All customers with an active relationship (excludes channel only and potential relationships). FY17 restated from 13.8 to 13.9, FY15 from
13.1 to 13.2 and FY14 from 12.8 to 12.9. FY15 Change in consumer complaints for Australia restated from (31) to (28) and FY14 from
(27) to (20).
Unique customers who have successfully authenticated (including Quickzone) into the digital banking platforms within 90 days. Figures
prior to 2016 are not comparable.
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.
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.
New starter retention over the 12 month rolling new starter headcount for the period (includes full time and part time permanent
employees). Westpac Pacific figures included since FY15.
New employee engagement survey conducted from 2016 and prior data not included due to change in survey methodology. From 2017
the survey is conducted every two years and the next survey will be in 2019.
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.
3
4
5
6
7
8
9
10
11 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.
12 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.
13 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.
Indicator name changed from ‘CleanTech and environmental services attributable financing - Aust and NZ ($m)’ to ‘Climate change and
solutions attributable financing - Aust and NZ ($m)’ in 2018.
16 Measured as the percentage of indirect and direct financing (total committed exposure) to energy generation assets in the Australian and
14
15
New Zealand electricity markets.
17 Data is based on the reported exposures to energy generation (AUD lending only). The average financed emissions intensity is calculated
18
19
by weighting each loan (total committed exposures) by the emissions intensity of each company.
The Equator Principles is a voluntary set of standards for determining, assessing and managing social and environmental risk in project
financing.
Indicator name changed from ‘Community investment ($m)’ to ‘Community investment excluding commercial sponsorships ($m)’ in 2018.
2017 figures were restated to be comparable with 2018. 2018 and 2017 figures include monetary contributions, time contributions,
management costs and in-kind contributions comprising gifts and foregone fee revenue. 2016 and prior periods were not restated, and
also include commercial sponsorships. The 2014 figures includes Westpac's $100 million contribution to the Westpac Bicentennial
Foundation.
Total number of employees, customers and general public engaging with financial education materials offered by the Westpac Group
during the year. 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, delivered through webinars and face to face. New Zealand and Pacific businesses deliver locally tailored programs.
21 Annual spend with businesses that are 51% or more owned and operated by an Aboriginal or Torres Strait Islander person and certified
20
with a relevant member organisation.
Westpac uses scenario analysis to guide its climate change strategy and to analyse the implications of climate-related factors
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135
Westpac’s approach to sustainability
2.6.1
Climate-related financial disclosures
The Group has long recognised that climate change is one of the most significant issues that will impact the long- term
prosperity of the economy and way of life. Westpac was the first Australian bank to recognise the importance of limiting global
warming to less than two degrees and that to do this, global emissions need to reach net zero in the second half of this century.
2018 marks a decade since we released our first climate change position statement.
Westpac continues to integrate the consideration of climate-related risks and opportunities into business operations. This
includes alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which the
Group has publically committed to support. The Westpac Group’s performance against the recommendations of the TCFD is
summarised below.
Governance
The highest level of direct responsibility for climate change at Westpac Group sits with the Board. The Group’s third Climate
Change Position Statement and 2020 Action Plan (CCPS) was approved by the Group Executive and the Board in 2017. It
covers the management of Westpac’s direct carbon footprint, criteria to manage the carbon impact of lending to emissions
intensive sectors, measuring and reporting of performance, and the incorporation of climate change considerations into the
Group’s risk management framework.
Management of climate change at the Board level is cascaded to Group Executives. The Sustainability Council formed in 2008,
and Chaired by Group Executive – Customer & Corporate Relations, brings together senior leaders from across the Group with
the explicit responsibility for managing our sustainability agenda including climate change. The Council meets at least quarterly
and has climate change as a fixed agenda item. The Council reports to the Board through twice-yearly updates.
The Council has oversight of committees established to oversee particular aspects of the Group’s CCPS. This includes the
Climate Change Solutions Committee which meets at least quarterly and is focused on initiatives to achieve Westpac’s targets
for lending to and facilitating climate change solutions. The Climate Change Risk Committee oversees initiatives to address
credit, regulatory and legal risks of climate change, including scenario analysis, and reports to the Council on a quarterly basis.
The Environment Management Committee oversees strategies and initiatives to reduce the Group’s direct environmental
footprint, particularly targets around energy and emissions, and reports to the Council on a quarterly basis.
Strategy
The Group’s 2018-2020 Sustainability Strategy and Climate Change Position Statement and 2020 Action Plan (CCPS) describe
Westpac’s climate change strategy. The strategy is underpinned by principles which recognise that:
The CCPS identifies 5 focus areas where the Group is expected to direct its attention over the short, medium and long term:
A transition to a net zero economy is required;
Economic growth and emissions reductions are complementary goals;
Addressing climate change creates financial opportunities;
Climate-related risk is a financial risk; and
Transparency and disclosure matters.
Provide finance to back climate change solutions;
Support businesses that manage their climate-related risks;
Help individual customers respond to climate change;
Improve and disclose our climate change performance; and
Advocate for policies that stimulate investment in climate change solutions.
to its business.
Risk management and scenario analysis
Further details about Westpac’s approach to climate related risks and its use of scenario analysis to help guide its climate
change strategy and analyse the implications of climate-related factors to its business is set out in the ‘Risk and risk
management’ section. Updates on work to assess the implications of the Intergovernmental Panel on Climate Change report on
Global Warming of 1.5 degrees will be released in 2019.
Westpac’s approach to sustainability
1
2
3
4
5
6
7
8
9
10
14
15
18
19
20
All data represents Group performance as at 30 September unless otherwise stated.
All customers with an active relationship (excludes channel only and potential relationships). FY17 restated from 13.8 to 13.9, FY15 from
13.1 to 13.2 and FY14 from 12.8 to 12.9. FY15 Change in consumer complaints for Australia restated from (31) to (28) and FY14 from
Unique customers who have successfully authenticated (including Quickzone) into the digital banking platforms within 90 days. Figures
(27) to (20).
prior to 2016 are not comparable.
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.
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.
New starter retention over the 12 month rolling new starter headcount for the period (includes full time and part time permanent
employees). Westpac Pacific figures included since FY15.
New employee engagement survey conducted from 2016 and prior data not included due to change in survey methodology. From 2017
the survey is conducted every two years and the next survey will be in 2019.
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.
11 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.
12 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.
13 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.
Indicator name changed from ‘CleanTech and environmental services attributable financing - Aust and NZ ($m)’ to ‘Climate change and
solutions attributable financing - Aust and NZ ($m)’ in 2018.
16 Measured as the percentage of indirect and direct financing (total committed exposure) to energy generation assets in the Australian and
New Zealand electricity markets.
17 Data is based on the reported exposures to energy generation (AUD lending only). The average financed emissions intensity is calculated
by weighting each loan (total committed exposures) by the emissions intensity of each company.
The Equator Principles is a voluntary set of standards for determining, assessing and managing social and environmental risk in project
Indicator name changed from ‘Community investment ($m)’ to ‘Community investment excluding commercial sponsorships ($m)’ in 2018.
2017 figures were restated to be comparable with 2018. 2018 and 2017 figures include monetary contributions, time contributions,
management costs and in-kind contributions comprising gifts and foregone fee revenue. 2016 and prior periods were not restated, and
also include commercial sponsorships. The 2014 figures includes Westpac's $100 million contribution to the Westpac Bicentennial
financing.
Foundation.
Total number of employees, customers and general public engaging with financial education materials offered by the Westpac Group
during the year. 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, delivered through webinars and face to face. New Zealand and Pacific businesses deliver locally tailored programs.
21 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.
Westpac’s approach to sustainability
2.6.1
Climate-related financial disclosures
The Group has long recognised that climate change is one of the most significant issues that will impact the long- term
prosperity of the economy and way of life. Westpac was the first Australian bank to recognise the importance of limiting global
warming to less than two degrees and that to do this, global emissions need to reach net zero in the second half of this century.
2018 marks a decade since we released our first climate change position statement.
Westpac continues to integrate the consideration of climate-related risks and opportunities into business operations. This
includes alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which the
Group has publically committed to support. The Westpac Group’s performance against the recommendations of the TCFD is
summarised below.
Governance
The highest level of direct responsibility for climate change at Westpac Group sits with the Board. The Group’s third Climate
Change Position Statement and 2020 Action Plan (CCPS) was approved by the Group Executive and the Board in 2017. It
covers the management of Westpac’s direct carbon footprint, criteria to manage the carbon impact of lending to emissions
intensive sectors, measuring and reporting of performance, and the incorporation of climate change considerations into the
Group’s risk management framework.
2
Management of climate change at the Board level is cascaded to Group Executives. The Sustainability Council formed in 2008,
and Chaired by Group Executive – Customer & Corporate Relations, brings together senior leaders from across the Group with
the explicit responsibility for managing our sustainability agenda including climate change. The Council meets at least quarterly
and has climate change as a fixed agenda item. The Council reports to the Board through twice-yearly updates.
The Council has oversight of committees established to oversee particular aspects of the Group’s CCPS. This includes the
Climate Change Solutions Committee which meets at least quarterly and is focused on initiatives to achieve Westpac’s targets
for lending to and facilitating climate change solutions. The Climate Change Risk Committee oversees initiatives to address
credit, regulatory and legal risks of climate change, including scenario analysis, and reports to the Council on a quarterly basis.
The Environment Management Committee oversees strategies and initiatives to reduce the Group’s direct environmental
footprint, particularly targets around energy and emissions, and reports to the Council on a quarterly basis.
Strategy
The Group’s 2018-2020 Sustainability Strategy and Climate Change Position Statement and 2020 Action Plan (CCPS) describe
Westpac’s climate change strategy. The strategy is underpinned by principles which recognise that:
A transition to a net zero economy is required;
Economic growth and emissions reductions are complementary goals;
Addressing climate change creates financial opportunities;
Climate-related risk is a financial risk; and
Transparency and disclosure matters.
The CCPS identifies 5 focus areas where the Group is expected to direct its attention over the short, medium and long term:
Provide finance to back climate change solutions;
Support businesses that manage their climate-related risks;
Help individual customers respond to climate change;
Advocate for policies that stimulate investment in climate change solutions.
Improve and disclose our climate change performance; and
Westpac uses scenario analysis to guide its climate change strategy and to analyse the implications of climate-related factors
to its business.
Risk management and scenario analysis
Further details about Westpac’s approach to climate related risks and its use of scenario analysis to help guide its climate
change strategy and analyse the implications of climate-related factors to its business is set out in the ‘Risk and risk
management’ section. Updates on work to assess the implications of the Intergovernmental Panel on Climate Change report on
Global Warming of 1.5 degrees will be released in 2019.
134
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135
Westpac’s approach to sustainability
Metrics and targets
Metrics
Support for climate solutions
Lending exposure to climate solutions
Facilitation of climate solutions
Energy generation
Emission intensity of power generation portfolio
Energy mix of electricity generation exposure (WIB only)
Coal mining
Coal extraction (TCE)
Thermal coal portfolio quality
Direct footprint
Total Scope 1, 2 & 3 emissions (tCO2e)
Carbon neutral operations
Climate change portfolio resilience (metrics tbc)
Transition risk - 2 degree scenario to 2030
Physical risk - 4 degree scenario to 2050
Further Information
Full Year 2018 performance
$9.1 billion vs 2020 target - $10bn
$1.7 billion climate-related bonds vs 2020 target - $3bn
0.28 (tCO2e/MWh)1 vs 2020 target 0.30 (tCO2e/MWh)
71% renewable versus 29% non-renewables.
$1.4 billion in coal (metallurgical and thermal)
representing 1% of the Group’s total committed exposure
(TCE)
Existing projects > 5,700 kCal/kg – Compliant
New projects > 6,300 kCal/Kg - Compliant
193,588 tCO2e1 - an annual reduction of 4.4% towards
2020 target of 9%
Carbon neutrality maintained
Approximately 4% of total business lending exposed to
sectors that may experience higher risk in a transition to a
2 degree economy
Approximately 1.7% of Australian mortgage portfolio in
postcodes which may be exposed to higher physical risks
at 4 degrees of warming
Further details on Westpac’s climate change reporting can be found across the Group’s annual reporting suite:
TCFD recommendation
Governance
Strategy
Risk Management including
scenario analysis
Metrics and Targets
Location
Annual Report Climate-related financial disclosures
Sustainability Performance Report – The fundamentals
Climate Change Position Statement & 2020 Action Plan
Annual Report – Climate-related financial disclosures
Sustainability Performance Report – Value chain risk
Climate Change Position Statement & 2020 Action Plan
Annual Report – Risk and risk management
Sustainability Performance Report – Value chain risk
Climate Change Position Statement & 2020 Action Plan
Annual Report - Climate-related financial disclosures Sustainability Performance
Report – Value chain risk
Westpac’s approach to sustainability
2.6.2 Westpac’s commitment to human rights
Westpac recognises that respecting and advancing human rights helps us to achieve our vision to help our customers,
communities and employees to prosper and grow. Westpac is a signatory of the United Nations Global Compact and supporter
of the UN’s ‘Protect, Respect, Remedy’ framework. The Group’s implementation of the framework is guided by the UN Guiding
Principles on Business and Human Rights (UNGP).
The Group’s Human Rights Position Statement and 2020 Action Plan (HRPS) covers Westpac’s human rights-related
commitments, principles, focus, approach, governance and related policies, statements, frameworks and action plans;
considering its role as an employer, a customer services provider, a buyer, a financial services provider, a supporter of
communities and a responsible business.
Implementation of Westpac’s commitment to human rights
The highest level of responsibility for human rights at Westpac Group lies with the Board. The HRPS was approved by the
Group Executive and the Board in 2017. Management of human rights is cascaded to Group Executives. The Sustainability
Council provides strategic advice to Group Executives and brings together senior leaders from across the Group with explicit
responsibility for managing Westpac’s sustainability agenda including human rights. The Council meets at least quarterly and
has human rights as a fixed agenda item. The Council reports to the Board through twice-yearly updates.
The Council has oversight of the Human Rights Working Group which meets quarterly to implement the consideration of human
rights into day to day decision-making. This year the Working Group considered human rights in relation to:
Customer and employee privacy;
Sensitive sectors such as gambling and franchise based business models;
Integration of human rights risk assessments in lending, partnerships and supplier arrangements; and
Defining the Group’s salient human rights issues1.
Salient human rights issues
The Group continued to refine its approach to report and assess its salient human rights issues in 2018. Stakeholder
consultations with the assistance of third-party experts, as well as the Group’s Stakeholder Advisory Council, determined the
following salient issues for the Group:
Salient issue
Stakeholders at risk of being
Potential impacts
Respecting people’s privacy
Customer vulnerability
impacted
Retail and business customers,
employees, contractors, suppliers
Customers and wider customer value
Economic and social disadvantage of
Abuse, loss and breach of personal data
and privacy
customers
Exclusion and discrimination in
Current and prospective employees and
Inability to have full and equal
employment
participation in employment
Unfair wages and conditions for workers
in the value chain
Suppliers, third-party service providers
Impact to an individual’s health and
and corporate, institutional and
safety, prosperity, security and standard
government customers
of living
chain
contractors
Management of salient human rights issues
A range of policies and strategies outlined in the Statement guide the Group’s response to human rights issues. Westpac’s
approach to engagement with stakeholders is set out in the Group’s Stakeholder Engagement Framework and is aligned to the
AA1000 Stakeholder Engagement Standard. This year the Group engaged with stakeholders in a number of ways to validate
and improve its approach, including through:
Discussions with the Group’s Stakeholder Advisory Council to determine salient issues and to develop new and refine
existing policies;
Providing perspectives to NGOs on grievance mechanisms in the banking sector; and
Participating in government consultations on the development of an Australian Modern Slavery Act.
Westpac has a range of mechanisms such as its Whistleblower hotline, Office of the Customer Advocate, feedback and
complaints webpages and phone lines to protect the interests of our people and customers across the Group. Where
appropriate some of these mechanisms are equipped to remediate human rights issues.
The Group reports further detail on its Human Rights performance in its 2018 Sustainability Performance Report. It also
produces a slavery and human trafficking statement in line with its obligations under the United Kingdom’s Modern Slavery Act.
1 Total Scope 1, 2, and 3 emissions are as at 30 June 2018. Refer to www.westpac.com.au / sustainability for glossary of terms and metric definitions.
1 UN language for Human Rights ‘at risk of most severe negative impact through a company’s activities and business relationships’.
136
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137
Westpac’s approach to sustainability
Metrics and targets
Metrics
Support for climate solutions
Lending exposure to climate solutions
Facilitation of climate solutions
Energy generation
Emission intensity of power generation portfolio
Energy mix of electricity generation exposure (WIB only)
Coal mining
Coal extraction (TCE)
Thermal coal portfolio quality
Direct footprint
Total Scope 1, 2 & 3 emissions (tCO2e)
Carbon neutral operations
Climate change portfolio resilience (metrics tbc)
Transition risk - 2 degree scenario to 2030
Physical risk - 4 degree scenario to 2050
Full Year 2018 performance
$9.1 billion vs 2020 target - $10bn
$1.7 billion climate-related bonds vs 2020 target - $3bn
0.28 (tCO2e/MWh)1 vs 2020 target 0.30 (tCO2e/MWh)
71% renewable versus 29% non-renewables.
$1.4 billion in coal (metallurgical and thermal)
representing 1% of the Group’s total committed exposure
(TCE)
Existing projects > 5,700 kCal/kg – Compliant
New projects > 6,300 kCal/Kg - Compliant
193,588 tCO2e1 - an annual reduction of 4.4% towards
2020 target of 9%
Carbon neutrality maintained
Approximately 4% of total business lending exposed to
sectors that may experience higher risk in a transition to a
2 degree economy
Approximately 1.7% of Australian mortgage portfolio in
postcodes which may be exposed to higher physical risks
at 4 degrees of warming
Further details on Westpac’s climate change reporting can be found across the Group’s annual reporting suite:
Further Information
TCFD recommendation
Location
Governance
Strategy
Risk Management including
scenario analysis
Annual Report Climate-related financial disclosures
Sustainability Performance Report – The fundamentals
Climate Change Position Statement & 2020 Action Plan
Annual Report – Climate-related financial disclosures
Sustainability Performance Report – Value chain risk
Climate Change Position Statement & 2020 Action Plan
Annual Report – Risk and risk management
Sustainability Performance Report – Value chain risk
Climate Change Position Statement & 2020 Action Plan
Metrics and Targets
Report – Value chain risk
Annual Report - Climate-related financial disclosures Sustainability Performance
Westpac’s approach to sustainability
2.6.2 Westpac’s commitment to human rights
Westpac recognises that respecting and advancing human rights helps us to achieve our vision to help our customers,
communities and employees to prosper and grow. Westpac is a signatory of the United Nations Global Compact and supporter
of the UN’s ‘Protect, Respect, Remedy’ framework. The Group’s implementation of the framework is guided by the UN Guiding
Principles on Business and Human Rights (UNGP).
The Group’s Human Rights Position Statement and 2020 Action Plan (HRPS) covers Westpac’s human rights-related
commitments, principles, focus, approach, governance and related policies, statements, frameworks and action plans;
considering its role as an employer, a customer services provider, a buyer, a financial services provider, a supporter of
communities and a responsible business.
Implementation of Westpac’s commitment to human rights
The highest level of responsibility for human rights at Westpac Group lies with the Board. The HRPS was approved by the
Group Executive and the Board in 2017. Management of human rights is cascaded to Group Executives. The Sustainability
Council provides strategic advice to Group Executives and brings together senior leaders from across the Group with explicit
responsibility for managing Westpac’s sustainability agenda including human rights. The Council meets at least quarterly and
has human rights as a fixed agenda item. The Council reports to the Board through twice-yearly updates.
2
The Council has oversight of the Human Rights Working Group which meets quarterly to implement the consideration of human
rights into day to day decision-making. This year the Working Group considered human rights in relation to:
Customer and employee privacy;
Sensitive sectors such as gambling and franchise based business models;
Defining the Group’s salient human rights issues1.
Integration of human rights risk assessments in lending, partnerships and supplier arrangements; and
Salient human rights issues
The Group continued to refine its approach to report and assess its salient human rights issues in 2018. Stakeholder
consultations with the assistance of third-party experts, as well as the Group’s Stakeholder Advisory Council, determined the
following salient issues for the Group:
Salient issue
Respecting people’s privacy
Customer vulnerability
Exclusion and discrimination in
employment
Unfair wages and conditions for workers
in the value chain
Stakeholders at risk of being
impacted
Retail and business customers,
employees, contractors, suppliers
Customers and wider customer value
chain
Potential impacts
Abuse, loss and breach of personal data
and privacy
Economic and social disadvantage of
customers
Current and prospective employees and
contractors
Suppliers, third-party service providers
and corporate, institutional and
government customers
Inability to have full and equal
participation in employment
Impact to an individual’s health and
safety, prosperity, security and standard
of living
Management of salient human rights issues
A range of policies and strategies outlined in the Statement guide the Group’s response to human rights issues. Westpac’s
approach to engagement with stakeholders is set out in the Group’s Stakeholder Engagement Framework and is aligned to the
AA1000 Stakeholder Engagement Standard. This year the Group engaged with stakeholders in a number of ways to validate
and improve its approach, including through:
Discussions with the Group’s Stakeholder Advisory Council to determine salient issues and to develop new and refine
existing policies;
Providing perspectives to NGOs on grievance mechanisms in the banking sector; and
Participating in government consultations on the development of an Australian Modern Slavery Act.
Westpac has a range of mechanisms such as its Whistleblower hotline, Office of the Customer Advocate, feedback and
complaints webpages and phone lines to protect the interests of our people and customers across the Group. Where
appropriate some of these mechanisms are equipped to remediate human rights issues.
The Group reports further detail on its Human Rights performance in its 2018 Sustainability Performance Report. It also
produces a slavery and human trafficking statement in line with its obligations under the United Kingdom’s Modern Slavery Act.
1 Total Scope 1, 2, and 3 emissions are as at 30 June 2018. Refer to www.westpac.com.au / sustainability for glossary of terms and metric definitions.
1 UN language for Human Rights ‘at risk of most severe negative impact through a company’s activities and business relationships’.
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137
Other Westpac business information
Auditor’s remuneration, including goods and services tax, to the external auditor for the years ended 30 September 2018 and
Auditor’s remuneration
2017 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 2018, there were no fees paid by Westpac to PwC that required approval by the BAC
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Other Westpac business information
Employees
The number of employees in each area of business as at 30 September:
Consumer Bank
Business Bank
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Group Businesses
Total Group businesses1
2018
2017
2016
10,158
10,162
3,092
3,860
2,649
4,182
11,088
35,029
3,136
4,175
2,682
4,328
10,613
35,096
9,207
3,186
4,153
2,693
4,445
11,896
35,580
2018 v 2017
FTE decreased 67 over the year. Delivery of productivity initiatives accelerated in the last quarter, more than offsetting the
additional resources required for regulatory and compliance related activities and the Group’s investment programs across the
year.
Property
We occupy premises primarily in Australia, New Zealand and the Pacific Islands including 1,204 branches (2017: 1,251) as at
30 September 2018. As at 30 September 2018, we owned approximately 1.5% (2017: 1.6%) of the premises we occupied in
Australia, none (2017: none) in New Zealand and 40% (2017: 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 2018, the carrying value of our
directly owned premises and sites was approximately $89 million (2017: $95 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 running 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. A lease commitment at this
site extends to 2021, with two six-year options to extend.
Significant long term agreements
Westpac has no individual contracts, other than contracts entered into in the ordinary course of business, that would constitute
a material contract.
Related party disclosures
Details of our related party disclosures are set out in Note 40 to the financial statements and details of Directors’ interests in
securities are set out in the Remuneration Report included in the Directors’ Report.
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.
1 Total employees include full-time, pro-rata part time, overtime, temporary and contract staff.
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139
2018
2017
2016
10,158
10,162
3,092
3,860
2,649
4,182
11,088
35,029
3,136
4,175
2,682
4,328
10,613
35,096
9,207
3,186
4,153
2,693
4,445
11,896
35,580
Other Westpac business information
Auditor’s remuneration
Auditor’s remuneration, including goods and services tax, to the external auditor for the years ended 30 September 2018 and
2017 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 2018, 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.
2
Other Westpac business information
Employees
The number of employees in each area of business as at 30 September:
Consumer Bank
Business Bank
BT Financial Group (Australia)
Westpac Institutional Bank
Westpac New Zealand
Group Businesses
Total Group businesses1
2018 v 2017
year.
Property
FTE decreased 67 over the year. Delivery of productivity initiatives accelerated in the last quarter, more than offsetting the
additional resources required for regulatory and compliance related activities and the Group’s investment programs across the
We occupy premises primarily in Australia, New Zealand and the Pacific Islands including 1,204 branches (2017: 1,251) as at
30 September 2018. As at 30 September 2018, we owned approximately 1.5% (2017: 1.6%) of the premises we occupied in
Australia, none (2017: none) in New Zealand and 40% (2017: 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 2018, the carrying value of our
directly owned premises and sites was approximately $89 million (2017: $95 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 running 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. A lease commitment at this
site extends to 2021, with two six-year options to extend.
Westpac has no individual contracts, other than contracts entered into in the ordinary course of business, that would constitute
Significant long term agreements
a material contract.
Related party disclosures
Details of our related party disclosures are set out in Note 40 to the financial statements and details of Directors’ interests in
securities are set out in the Remuneration Report included in the Directors’ Report.
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.
1 Total employees include full-time, pro-rata part time, overtime, temporary and contract staff.
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139
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140
2018 Westpac Group Annual Report
03
Note 9 Average balance sheet and interest rates
Note 30 Operating lease commitments
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
Note 6
Note 7
Impairment charges
Income tax
Note 8 Earnings per share
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 17 Deposits and other borrowings
Note 18
income statement
Note 19 Debt issues
Note 20 Loan capital
Note 21 Derivative financial instruments
Note 22 Financial risk
Note 23 Fair values of financial assets and financial
Note 23
liabilities
Statutory statements
Directors’ declaration
Management’s report on internal control over financial reporting
Independent auditor’s report to the members of Westpac Banking Corporation
Report of independent registered public accounting firm
Note 24 Offsetting financial assets and financial liabilities
Note 25 Securitisation, covered bonds and other
Note 25
transferred assets
Other assets, other liabilities, commitments and
contingencies
Note 26
Intangible assets
Note 27 Other assets
Note 28 Provisions
Note 29 Other liabilities
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
Investments in subsidiaries and associates
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
Note 16 Payables due to other financial institutions
Note 36 Structured entities
Note 18 Other financial liabilities at fair value through
Employee benefits
This page has been intentionally left blank.
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
03
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
3
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
140
2018 Westpac Group Annual Report
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
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
Net profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
Earnings per share (cents)
Basic
Diluted
Consolidated
Note
2018
2017
2016
Parent Entity
2018
2017
$m
Statements of comprehensive income for the years ended 30 September
Westpac Banking Corporation
3
3
4
5
6
7
8
8
32,571
31,232
31,822
32,830
30,865
Net profit for the year
(16,066)
(15,716)
(16,674)
(18,977)
(17,765)
Other comprehensive income
16,505
15,516
15,148
13,853
13,100
Items that may be reclassified subsequently to profit or loss
5,628
6,286
5,837
5,825
6,131
Gains/(losses) on available-for-sale securities:
22,133
21,802
20,985
19,678
19,231
(9,692)
(9,434)
(9,217)
(8,101)
(7,898)
Gains/(losses) on cash flow hedging instruments:
(710)
(853)
(1,124)
(682)
(870)
Recognised in equity
Recognised in equity
Transferred to income statements
11,731
11,515
10,644
10,895
10,463
(3,632)
(3,518)
(3,184)
(2,751)
(2,620)
8,099
7,997
7,460
8,144
7,843
(4)
(7)
(15)
-
-
8,095
7,990
7,445
8,144
7,843
237.5
230.1
238.0
229.3
224.6
217.8
The above income statements should be read in conjunction with the accompanying notes.
Financial statements
Consolidated
Parent Entity
2018
2017
2016
2018
2017
8,099
7,997
7,460
8,144
7,843
(102)
66
(161)
203
181
(3)
9
(13)
-
-
75
(3)
(91)
115
56
(8)
(32)
(33)
(304)
21
(125)
160
(116)
(238)
-
-
(18)
(6)
(13)
85
174
-
19
(10)
3
9
(17)
-
-
-
88
(3)
(42)
19
(77)
-
(25)
7
-
-
43
(164)
(54)
43
(164)
45
268
190
(6)
(47)
(519)
47
243
182
(15)
8,367
7,991
6,941
8,387
7,828
8,363
7,984
6,926
8,387
7,828
4
7
15
-
-
8,367
7,991
6,941
8,387
7,828
Transferred to income statements
Movement in foreign currency translation reserve:
Exchange differences on translation of foreign operations
Transferred to income statements
Income tax on items taken to or transferred from equity:
Available-for-sale securities reserve
Cash flow hedge reserve
Share of associates' other comprehensive income:
Recognised in equity (net of tax)
Transferred to income statements
Items that will not be reclassified subsequently to profit or loss
Own credit adjustment on financial liabilities designated at
fair value (net of tax)
equity (net of tax)
Remeasurement of defined benefit obligation recognised in
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Attributable to:
Owners of Westpac Banking Corporation
Non-controlling interests
Total comprehensive income for the year
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
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143
Financial statements
Income statements for the years ended 30 September
Westpac Banking Corporation
Net operating income before operating expenses
$m
Interest income
Interest expense
Net interest income
Non-interest income
and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net profit for the year
Earnings per share (cents)
Basic
Diluted
3
3
4
5
6
7
8
8
Net profit attributable to non-controlling interests
Net profit attributable to owners of Westpac Banking Corporation
8,095
7,990
7,445
8,144
7,843
11,731
11,515
10,644
10,895
10,463
(3,632)
(3,518)
(3,184)
(2,751)
(2,620)
8,099
7,997
7,460
8,144
7,843
(4)
(7)
(15)
-
-
237.5
230.1
238.0
229.3
224.6
217.8
The above income statements should be read in conjunction with the accompanying notes.
Statements of comprehensive income for the years ended 30 September
Westpac Banking Corporation
Financial statements
Consolidated
Parent Entity
Note
2018
2017
2016
2018
2017
$m
32,571
31,232
31,822
32,830
30,865
Net profit for the year
(16,066)
(15,716)
(16,674)
(18,977)
(17,765)
Other comprehensive income
16,505
15,516
15,148
13,853
13,100
Items that may be reclassified subsequently to profit or loss
5,628
6,286
5,837
5,825
6,131
Gains/(losses) on available-for-sale securities:
22,133
21,802
20,985
19,678
19,231
Recognised in equity
Transferred to income statements
(9,692)
(9,434)
(9,217)
(8,101)
(7,898)
Gains/(losses) on cash flow hedging instruments:
(710)
(853)
(1,124)
(682)
(870)
Recognised in equity
Transferred to income statements
Movement in foreign currency translation reserve:
Exchange differences on translation of foreign operations
Transferred to income statements
Income tax on items taken to or transferred from equity:
Available-for-sale securities reserve
Cash flow hedge reserve
Share of associates' other comprehensive income:
Recognised in equity (net of tax)
Transferred to income statements
Items that will not be reclassified subsequently to profit or loss
Own credit adjustment on financial liabilities designated at
Consolidated
2017
2018
2016
Parent Entity
2018
2017
8,099
7,997
7,460
8,144
7,843
(102)
66
(161)
203
181
(3)
9
(13)
-
-
75
(3)
(91)
115
56
(8)
(32)
(33)
(304)
21
(125)
160
(116)
(238)
-
-
(18)
(6)
(13)
85
174
-
19
(10)
3
9
(17)
-
-
-
88
(3)
(42)
19
(77)
-
(25)
7
-
-
fair value (net of tax)
43
(164)
(54)
43
(164)
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
45
268
190
(6)
(47)
(519)
47
243
182
(15)
8,367
7,991
6,941
8,387
7,828
8,363
4
8,367
7,984
7
7,991
6,926
15
6,941
8,387
-
8,387
7,828
-
7,828
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
3
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143
Financial statements
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 assets
Intangible assets
Other assets
Total assets
Liabilities
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Debt issues
Current tax liabilities
Life insurance liabilities
Due to subsidiaries
Provisions1
Deferred tax liabilities
Other liabilities1
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
Consolidated
Note
2018
2017
Parent Entity
2018
2017
Statements of changes in equity for the years ended 30 September
Westpac Banking Corporation
Consolidated
26,431
18,397
24,726
16,405
5,790
7,128
5,711
6,357
22,134
25,324
20,417
22,946
24,101
24,033
23,562
23,823
61,119
60,710
56,513
55,800
709,690
684,919 630,168 606,237
9,450
10,643
-
1,355
1,048
1,248
-
945
- 140,597 142,455
-
-
115
1,329
1,180
-
60
1,487
1,112
11,763
11,652
5,135
5,362
4,508
3,975
76
1,120
1,102
9,494
3,988
46
1,250
1,053
9,259
4,318
879,592
851,875 923,230 894,869
18,137
21,907
17,682
21,775
559,285
533,591 500,468 477,693
4,297
4,056
4,297
4,038
24,407
25,375
24,229
24,911
172,596
168,356 152,288 144,116
10
11
21
12
13
15
35
7
26
27
16
17
18
21
19
296
308
15
7,597
9,019
184
-
234
-
-
- 142,400 143,834
28
7
29
1,928
1,639
1,766
1,472
18
10
3
-
9,193
8,606
7,292
6,949
797,754
772,867 850,609 825,022
20
17,265
17,666
17,265
17,666
815,019
790,533 867,874 842,688
64,573
61,342
55,356
52,181
32
32
32
32
36,054
34,889
36,054
34,889
(493)
1,077
(495)
794
(508)
1,114
(437)
858
27,883
26,100
18,696
16,871
64,521
61,288
55,356
52,181
52
64,573
54
61,342
-
55,356
-
52,181
The above balance sheets should be read in conjunction with the accompanying notes.
1 Comparatives have been revised to reclassify compliance, regulation and remediation provisions.
144
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
145
Financial statements
capital
Reserves
Retained
Banking
(Note 32)
(Note 32)
profits
Corporation
interests
(Note 32)
Total equity
attributable
to owners
Total
shareholders'
Non-
equity and
of Westpac
controlling
non-
controlling
interests
53,915
Share
28,895
-
-
-
-
726
3,510
-
2
(49)
(70)
-
4,119
33,014
-
-
-
-
1,452
1,380
34,394
-
11
(43)
(40)
-
-
-
-
-
631
566
(35)
-
3
2
-
1,031
-
(418)
(418)
-
-
-
-
-
-
116
(2)
114
727
-
(32)
(32)
-
-
98
-
-
-
1
99
794
-
180
180
103
-
-
-
-
-
-
-
23,172
7,445
(101)
7,344
(6,128)
(9)
(6,137)
24,379
7,990
26
8,016
(6,291)
(4)
(6,295)
26,100
8,095
88
8,183
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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)
(4,816)
61,288
8,095
268
8,363
631
566
103
3
(35)
2
-
(6,400)
(6,400)
(771)
(771)
61
817
15
-
15
-
-
-
-
-
-
-
7
-
7
-
-
-
-
-
-
(14)
(14)
54
4
-
4
-
-
-
-
-
-
-
(6)
(6)
52
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
8,099
268
8,367
(6,400)
631
566
103
3
(35)
2
(6)
(5,136)
64,573
$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
Other equity movements
Share-based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
Net (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)
Net (acquisition)/disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2017
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
Conversion of Convertible Preference Shares
Other equity movements
Share-based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2018
1,167
35,561
103
1,077
(6,400)
27,883
(5,130)
64,521
The above statements of changes in equity should be read in conjunction with the accompanying notes.
1 2018 comprises 2018 interim dividend 94 cents per share ($3,213 million) and 2017 final dividend 94 cents per share ($3,187 million) (2017: 2017
interim dividend 94 cents per share ($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 per share ($2,998 million)), all fully franked at 30%.
2 On 30 June 2016 the 2006 TPS were redeemed in full.
Statements of changes in equity for the years ended 30 September
Westpac Banking Corporation
Financial statements
Financial statements
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
Payables due to other financial institutions
Deposits and other borrowings
Other financial liabilities at fair value through income statement
Derivative financial instruments
Due from subsidiaries
Investment in subsidiaries
Investment in associates
Property and equipment
Deferred tax assets
Intangible assets
Other assets
Total assets
Liabilities
Debt issues
Current tax liabilities
Life insurance liabilities
Due to subsidiaries
Provisions1
Deferred tax liabilities
Other liabilities1
Loan capital
Total liabilities
Net assets
Shareholders' equity
Share capital:
Ordinary share capital
Reserves
Retained profits
Total liabilities excluding loan capital
Treasury shares and RSP treasury shares
Total equity attributable to owners of Westpac Banking Corporation
64,521
61,288
55,356
52,181
Non-controlling interests
32
52
54
-
-
The above balance sheets should be read in conjunction with the accompanying notes.
Consolidated
Parent Entity
Consolidated
Note
2018
2017
2018
2017
10
11
21
12
13
15
35
7
26
27
16
17
18
21
19
28
7
29
32
32
32
26,431
18,397
24,726
16,405
5,790
7,128
5,711
6,357
22,134
25,324
20,417
22,946
24,101
24,033
23,562
23,823
61,119
60,710
56,513
55,800
709,690
684,919 630,168 606,237
9,450
10,643
-
1,355
1,048
1,248
-
945
-
-
115
1,329
1,180
-
60
1,487
1,112
11,763
11,652
5,135
5,362
- 140,597 142,455
4,508
3,975
76
1,120
1,102
9,494
3,988
46
1,250
1,053
9,259
4,318
879,592
851,875 923,230 894,869
18,137
21,907
17,682
21,775
559,285
533,591 500,468 477,693
4,297
4,056
4,297
4,038
24,407
25,375
24,229
24,911
172,596
168,356 152,288 144,116
296
308
15
7,597
9,019
184
-
234
-
-
- 142,400 143,834
1,928
1,639
1,766
1,472
18
10
3
-
9,193
8,606
7,292
6,949
797,754
772,867 850,609 825,022
20
17,265
17,666
17,265
17,666
815,019
790,533 867,874 842,688
64,573
61,342
55,356
52,181
36,054
34,889
36,054
34,889
(493)
1,077
(495)
794
(508)
1,114
(437)
858
27,883
26,100
18,696
16,871
$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
Other equity movements
Share-based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
Net (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)
Net (acquisition)/disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2017
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
Conversion of Convertible Preference Shares
Other equity movements
Share-based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2018
Share
capital
(Note 32)
Reserves
(Note 32)
Retained
profits
Total equity
attributable
to owners
of Westpac
Banking
Corporation
28,895
-
-
-
-
726
3,510
-
2
(49)
(70)
-
4,119
33,014
-
-
-
-
1,452
-
11
(43)
(40)
-
1,380
34,394
-
-
-
-
631
566
-
3
(35)
2
-
1,167
35,561
1,031
-
(418)
(418)
-
-
-
116
-
-
-
(2)
114
727
-
(32)
(32)
-
-
98
-
-
-
1
99
794
-
180
180
-
-
-
103
-
-
-
-
103
1,077
23,172
7,445
(101)
7,344
(6,128)
-
-
-
-
-
-
(9)
(6,137)
24,379
7,990
26
8,016
(6,291)
-
-
-
-
-
(4)
(6,295)
26,100
8,095
88
8,183
(6,400)
-
-
-
-
-
-
-
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)
(4,816)
61,288
8,095
268
8,363
(6,400)
631
566
103
3
(35)
2
-
(6,400)
27,883
(5,130)
64,521
Non-
controlling
interests
(Note 32)
Total
shareholders'
equity and
non-
controlling
interests
53,915
7,460
(519)
6,941
817
15
-
15
-
-
-
-
-
-
-
(771)
(771)
61
7
-
7
-
-
-
-
-
-
(14)
(14)
54
4
-
4
-
-
-
-
-
-
-
(6)
(6)
52
(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
8,099
268
8,367
(6,400)
631
566
103
3
(35)
2
(6)
(5,136)
64,573
3
Total shareholders' equity and non-controlling interests
64,573
61,342
55,356
52,181
The above statements of changes in equity should be read in conjunction with the accompanying notes.
1 Comparatives have been revised to reclassify compliance, regulation and remediation provisions.
2 On 30 June 2016 the 2006 TPS were redeemed in full.
1 2018 comprises 2018 interim dividend 94 cents per share ($3,213 million) and 2017 final dividend 94 cents per share ($3,187 million) (2017: 2017
interim dividend 94 cents per share ($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 per share ($2,998 million)), all fully franked at 30%.
144
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2018 Westpac Group Annual Report
145
Financial statements
Statements of changes in equity for the years ended 30 September (continued)
Westpac Banking Corporation
Parent Entity
$m
Balance at 1 October 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)
Net (acquisition)/disposal of treasury shares
Total contributions and distributions
Balance at 30 September 2017
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
Conversion of Convertible Preference Shares
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Total contributions and distributions
Balance at 30 September 2018
Share
capital
(Note 32)
Reserves
(Note 32)
Retained
profits
33,100
-
-
-
-
1,452
-
11
(43)
(68)
1,352
34,452
-
-
-
-
631
566
-
3
(35)
(71)
1,094
35,546
790
-
(33)
(33)
-
-
101
-
-
-
101
858
-
153
153
-
-
-
103
-
-
-
103
1,114
15,311
7,843
18
7,861
(6,301)
-
-
-
-
-
(6,301)
16,871
8,144
90
8,234
(6,409)
-
-
-
-
-
-
(6,409)
18,696
The above statements of changes in equity should be read in conjunction with the accompanying notes.
Total equity
attributable
to owners
of Westpac
Banking
Corporation
49,201
7,843
(15)
7,828
(6,301)
1,452
101
11
(43)
(68)
(4,848)
52,181
8,144
243
8,387
(6,409)
631
566
103
3
(35)
(71)
(5,212)
55,356
Cash flow statements for the years ended 30 September
Westpac Banking Corporation
Cash flows from operating activities
$m
Interest received
Interest paid
Dividends received excluding life business
Other non-interest income received
Operating expenses paid
Income tax paid excluding life business
Life business:
Receipts from policyholders and customers
Interest and other items of similar nature
Dividends received
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
Proceeds from sale of associates
Purchase of associates
Proceeds from disposal of property and equipment
Purchase of property and equipment
Purchase of intangible assets
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
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
Consolidated
Parent Entity
Note
2018
2017
2016
2018
2017
32,639
(15,789)
9
5,097
(7,991)
(3,585)
31,133
(15,415)
27
5,064
(7,966)
(3,388)
2,008
2,239
17
642
(2,089)
(143)
24
433
(1,861)
(164)
31,817
(16,721)
43
5,050
(8,106)
(3,373)
1,893
30
348
(1,642)
(96)
32,947
(18,728)
2,016
3,926
(6,637)
(3,349)
30,784
(17,458)
1,861
4,457
(6,748)
(3,192)
-
-
-
-
-
-
-
-
-
-
10,815
10,126
9,243
10,175
9,704
6,755
3,150
(38,082)
(23,661)
(5,194)
(27,677)
1,817
-
294
(5,378)
136
(325)
22,518
3,792
78
(235)
987
-
(299)
8,263
210
261
20,783
(4,396)
(196)
15,277
3,827
(24,740)
1,678
(230)
(303)
8,584
160
243
23,928
(4,072)
(88)
19,802
-
9
-
-
(30)
91
(310)
(882)
-
3
(8)
(27)
(71)
73
(6)
-
(11,092)
7,090
944
18,397
26,431
(5,054)
(26,815)
2,653
219
308
(5,042)
200
(681)
23,062
3,859
(15)
2,820
-
-
-
630
(52)
65
(264)
(766)
-
11
(17)
(27)
(68)
7
(13)
-
552
1,674
(292)
17,015
18,397
(896)
(253)
(209)
(5,107)
(476)
(4,488)
38,771
(73)
312
5,497
(104)
-
-
-
-
32
(521)
(707)
3,596
(1,444)
5,213
3,510
2
(24)
(27)
(62)
(8)
(18)
(763)
4,573
2,825
(580)
14,770
17,015
2,342
(2,387)
(5,242)
4,437
(2,188)
3,249
2,342
(2,387)
(565)
4,437
(2,188)
2,746
(5,769)
(4,839)
(5,402)
(5,778)
(4,849)
(577)
-
-
(30)
62
(251)
(823)
-
3
(8)
(27)
(71)
-
-
-
640
-
-
(46)
55
(203)
(692)
-
11
(17)
(27)
(68)
-
-
-
(6,491)
7,385
936
16,405
24,726
45
1,450
(231)
15,186
16,405
Net cash provided by/(used in) operating activities
41
Cash flows from investing activities
Proceeds from available-for-sale securities
Purchase of available-for-sale securities
Net movement in amounts due to/from controlled entities
Proceeds/(Payments) on disposal of controlled entities, net of cash disposed
41
Net (increase)/decrease in investments in controlled entities
23,878
(24,376)
25,717
(27,028)
18,779
(24,724)
21,525
(22,230)
923
23,707
(24,820)
2,999
Net cash provided by/(used in) investing activities
(1,620)
(1,698)
(7,245)
(1,401)
1,640
The above cash flow statements should be read in conjunction with the accompanying notes. Details of the reconciliation of net
cash provided by/(used in) operating activities to net profit are provided in Note 41.
1 2018 comprises 2018 interim dividend 94 cents per share ($3,218 million) and 2017 final dividend 94 cents per share ($3,191 million) (2017: 2017
interim dividend 94 cents per share ($3,156 million) and 2016 final dividend 94 cents per share ($3,145 million)), all fully franked at 30%.
146
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
147
Financial statements
Westpac Banking Corporation
Parent Entity
$m
Balance at 1 October 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)
Net (acquisition)/disposal of treasury shares
Total contributions and distributions
Balance at 30 September 2017
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
Conversion of Convertible Preference Shares
Other equity movements
Share based payment arrangements
Exercise of employee share options and rights
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Total contributions and distributions
Balance at 30 September 2018
Share
capital
(Note 32)
33,100
-
-
-
-
1,452
1,352
34,452
-
11
(43)
(68)
-
-
-
-
631
566
-
3
(35)
(71)
Total equity
attributable
to owners
of Westpac
Reserves
(Note 32)
Retained
Banking
profits
Corporation
790
-
(33)
(33)
101
-
-
-
-
-
101
858
-
153
153
-
-
-
-
-
-
103
15,311
7,843
18
7,861
(6,301)
(6,301)
16,871
8,144
90
8,234
(6,409)
-
-
-
-
-
-
-
-
-
-
-
49,201
7,843
(15)
7,828
(6,301)
1,452
101
11
(43)
(68)
(4,848)
52,181
8,144
243
8,387
(6,409)
631
566
103
3
(35)
(71)
(5,212)
55,356
The above statements of changes in equity should be read in conjunction with the accompanying notes.
1,094
35,546
103
1,114
(6,409)
18,696
Statements of changes in equity for the years ended 30 September (continued)
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 movement in amounts due to/from controlled entities
Proceeds/(Payments) on disposal of controlled entities, net of cash disposed
Net (increase)/decrease in investments in controlled entities
Proceeds from sale of associates
Purchase of associates
Proceeds from disposal of property and equipment
Purchase of property and equipment
Purchase of intangible assets
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
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
2017
2018
2016
Parent Entity
2018
2017
32,639
(15,789)
9
5,097
(7,991)
(3,585)
2,008
17
642
(2,089)
(143)
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)
32,947
(18,728)
2,016
3,926
(6,637)
(3,349)
30,784
(17,458)
1,861
4,457
(6,748)
(3,192)
-
-
-
-
-
-
-
-
-
-
10,815
10,126
9,243
10,175
9,704
3,827
(24,740)
1,678
(230)
(303)
8,584
160
243
23,928
(4,072)
(88)
19,802
23,878
(24,376)
-
9
-
-
(30)
91
(310)
(882)
(1,620)
2,342
(2,387)
(5,242)
-
3
(8)
(27)
(71)
73
(5,769)
(6)
-
(11,092)
7,090
944
18,397
26,431
(5,054)
(26,815)
2,653
219
308
(5,042)
200
(681)
23,062
3,859
(15)
2,820
25,717
(27,028)
-
-
-
630
(52)
65
(264)
(766)
(1,698)
4,437
(2,188)
3,249
-
11
(17)
(27)
(68)
7
(4,839)
(13)
-
552
1,674
(292)
17,015
18,397
6,755
(38,082)
(896)
(253)
(209)
(5,107)
(476)
(4,488)
38,771
(73)
312
5,497
18,779
(24,724)
-
(104)
-
-
-
32
(521)
(707)
(7,245)
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
3,150
(23,661)
987
-
(299)
8,263
210
261
20,783
(4,396)
(196)
15,277
21,525
(22,230)
923
-
(577)
-
(30)
62
(251)
(823)
(1,401)
2,342
(2,387)
(565)
-
3
(8)
(27)
(71)
-
(5,778)
-
-
(6,491)
7,385
936
16,405
24,726
(5,194)
(27,677)
1,817
-
294
(5,378)
136
(325)
22,518
3,792
78
(235)
23,707
(24,820)
2,999
-
640
-
(46)
55
(203)
(692)
1,640
4,437
(2,188)
2,746
-
11
(17)
(27)
(68)
-
(4,849)
-
-
45
1,450
(231)
15,186
16,405
3
41
41
1 2018 comprises 2018 interim dividend 94 cents per share ($3,218 million) and 2017 final dividend 94 cents per share ($3,191 million) (2017: 2017
interim dividend 94 cents per share ($3,156 million) and 2016 final dividend 94 cents per share ($3,145 million)), all fully franked at 30%.
146
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2018 Westpac Group Annual Report
147
The above cash flow statements should be read in conjunction with the accompanying notes. Details of the reconciliation of net
cash provided by/(used in) operating activities to net profit are provided in Note 41.
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 2018 was authorised for issue by the Board of Directors on 5 November 2018. 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) Standards adopted during the year ended 30 September 2018
The Group adopted the requirements of AASB 2016-2-Amendments to Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 107 which require additional disclosures regarding both cash and non-cash changes in liabilities arising
from financing activities. These disclosures have been made in Note 19 and Note 20. As permitted by the standard,
comparatives are not required on first application.
There were no other new standards applied in 2018.
(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.
Notes to the financial statements
Note 1. Financial statements preparation (continued)
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. Equity balances are translated at historical exchange rates. The resulting exchange differences are
recognised in the foreign currency translation reserve and in other comprehensive income.
On consolidation, exchange differences arising from the translation of borrowings and other foreign currency instruments
designated as hedges of the net investment in foreign operations are reflected in the foreign currency translation reserve and in
other comprehensive income. When all or part of a foreign operation is disposed or borrowings that are part of the net
investments are repaid, a proportionate share of such exchange differences is recognised in the income statement as part of
the gain or loss on disposal or repayment of borrowing.
b. Critical accounting assumptions and estimates
Applying the Group’s accounting policies requires the use of judgement, assumptions and estimates which impact the financial
information. The significant assumptions and estimates used are discussed in the relevant notes below:
Note 7
Note 14
Note 15
Note 23
Note 26
Note 28
Note 38
Income tax
Provisions for impairment charges
Life insurance assets and life insurance liabilities
Fair values of financial assets and financial liabilities
Intangible assets
Provisions
Superannuation commitments
c. Future developments in accounting standards
The following new standards and interpretations which may have a material impact on the Group have been issued but are not
yet effective, and 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 from 1 October 2018.
The adoption of AASB 9 is expected to reduce retained earnings at 1 October 2018 by approximately $709 million (net of tax)
primarily due to the increase in impairment provisions under the new standard. The Group continues to assess and refine
certain aspects of our impairment provision process and the opening adjustment may change. There is no significant impact to
our regulatory capital. These estimates are based on accounting policies, assumptions, judgements and estimation techniques
that remain subject to change until the Group finalises its financial statements for the year ending 30 September 2019.
The major changes under the standard and details of the implementation project are outlined below.
Impairment
AASB 9 introduces a revised impairment model which requires entities to recognise expected credit losses based on unbiased
forward looking information, replacing the existing incurred loss model in AASB 139 which only recognises impairment if there
is objective evidence that a loss has been incurred. This will result in the earlier recognition of impairment provisions. The
revised impairment model applies to all financial assets at amortised cost, lease receivables, debt securities measured at fair
value through other comprehensive income, loans commitments and financial guarantee contracts.
Key elements of the new impairment model are:
requires earlier 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);
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149
a. Basis of preparation
(i) Basis of accounting
(AASB); and
the Corporations Act 2001.
SEC).
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 2018 was authorised for issue by the Board of Directors on 5 November 2018. 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.
This financial report is a general purpose financial report prepared in accordance with:
the requirements for an authorised deposit-taking institution under the Banking Act 1959 (as amended);
Australian Accounting Standards (AAS) and Interpretations as issued by the Australian Accounting Standards Board
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
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
enhance comparability.
Comparative information has been revised where appropriate to conform to changes in presentation in the current year and to
(iv) Standards adopted during the year ended 30 September 2018
The Group adopted the requirements of AASB 2016-2-Amendments to Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 107 which require additional disclosures regarding both cash and non-cash changes in liabilities arising
from financing activities. These disclosures have been made in Note 19 and Note 20. As permitted by the standard,
comparatives are not required on first application.
There were no other new standards applied in 2018.
(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.
Notes to the financial statements
Note 1. Financial statements preparation (continued)
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. 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 from 1 October 2018.
The adoption of AASB 9 is expected to reduce retained earnings at 1 October 2018 by approximately $709 million (net of tax)
primarily due to the increase in impairment provisions under the new standard. The Group continues to assess and refine
certain aspects of our impairment provision process and the opening adjustment may change. There is no significant impact to
our regulatory capital. These estimates are based on accounting policies, assumptions, judgements and estimation techniques
that remain subject to change until the Group finalises its financial statements for the year ending 30 September 2019.
The major changes under the standard and details of the implementation project are outlined below.
3
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 in AASB 139 which only recognises impairment if there
is objective evidence that a loss has been incurred. This will result in the earlier recognition of impairment provisions. The
revised impairment model applies to all financial assets at amortised cost, lease receivables, debt securities measured at fair
value through other comprehensive income, loans commitments and financial guarantee contracts.
Key elements of the new impairment model are:
requires earlier 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);
148
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149
Notes to the financial statements
Note 1. Financial statements preparation (continued)
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 (i.e. stage
3). This will result in an increase in interest income and impairment charges as currently interest is calculated on the net
carrying value for all loans.
Implementation
Measurement
Models have been developed, tested and approved while certain aspects of the impairment provisioning process continue to be
assessed and refined. These models use three main components (as well as the time value of money) being:
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. The models incorporate past experience, current conditions and multiple probability-weighted macroeconomic scenarios
for reasonably supportable future economic conditions. Where appropriate, adjustments will be made to modelled outcomes to
reflect reasonable and supportable information not already incorporated in the models.
Significant increase in credit risk and movement between stages
An asset will move from stage 1 to stage 2 if there has been a significant increase in credit risk since origination.
Hedging
The judgement to determine this will be primarily based on changes in internal customer risk grades since origination of the
facility. The Group does not intend to rebut the presumption that instruments that are 30 days past due have experienced a
significant increase in risk but this will be used as a backstop rather than the primary indicator.
The Group will not be applying the low credit risk exemption which assumes investment grade facilities do not have a significant
increase in credit risk.
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.
Assets may move in both directions through the stages of the impairment model. Assets previously in stage 2 may move back
to stage 1 if it is no longer considered that there has been a significant deterioration of credit risk. Similarly, assets in stage 3
may move back to stage 2 if they are no longer assessed to be credit-impaired.
Forward looking information
The estimation of forward looking information is a key area requiring judgement. The Group intends to consider a minimum of
three future macroeconomic scenarios. These will include a base case scenario along with upside and downside scenarios.
The macroeconomic variables used in these scenarios, based on current economic forecasts, include (but are not limited to)
unemployment rates, gross domestic product growth rates and residential and commercial property price indices. The
macroeconomic variables and probability weightings of the three scenarios will be subject to the approval of the Group Chief
Financial Officer and the Chief Risk Officer with oversight from the Board of Directors (and its Committees).
Governance
The Group has established a governance framework and has implemented controls to address disclosure of the impact of 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 along with the controls addressing credit data and
systems and the expected credit loss models.
The AASB 9 provision calculation models have been independently reviewed in accordance with the Group's model risk
policies and approved by the Credit Risk Estimates Committee (CREC). The key judgements in relation to the new provisioning
methodology have been discussed and agreed with the Board Risk and Compliance Committee (BRCC) and the Board Audit
Committee.
Models and credit risk processes have been tested in parallel run since May 2018 to provide a better understanding of the
implications of the new impairment requirements. This included an evaluation of the effect on the Group’s results as well as
ongoing validation of the controls and effectiveness of the governance and operational processes. The control environment will
continue to evolve as the Group embeds processes and controls during the financial year ending 30 September 2019.
Notes to the financial statements
Note 1. Financial statements preparation (continued)
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.
Implementation
The Group's classification and measurement implementation project has identified approximately $800 million of available-for-
sale financial assets which will be reclassified to amortised cost under AASB 9 based on the hold to collect business model. In
addition, the Group identified some available-for-sale and amortised cost financial assets that will be reclassified to fair value
through profit and loss, however, the amounts being reclassified are not material.
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.
The Group will apply the option to continue hedge accounting under AASB 139, however will implement the amended AASB7
Financial Instruments: Disclosure (AASB7) hedge accounting disclosures as required.
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, with no restatement of comparatives as permitted by
the standard. However, detailed transitional disclosures will be provided in accordance with the amended requirements of
AASB 15 Revenue from Contracts with Customers (AASB 15) was issued on 28 May 2014 and will be effective from 1 October
2018. The standard replaces AASB 118 Revenue and related interpretations, and applies to all contracts with customers,
except leases, financial instruments and insurance contracts. The standard provides a systematic approach to revenue
recognition by introducing a five-step model governing revenue measurement and recognition. This includes:
Implementation
Transition
AASB 7.
identifying the contract with customer;
identifying each of the performance obligations included in the contract;
determining the amount of consideration in the contract;
allocating the consideration to each of the identified performance obligations; and
recognising revenue as each performance obligation is satisfied.
The Group will elect to apply AASB 15 retrospectively by adjusting the opening balance of retained earnings at the date of initial
application, 1 October 2018, with no comparatives restatement.
The Group has assessed the revenue streams existing at transition. Based on this assessment, the primary impacts from the
adoption of AASB 15 are expected to be a grossing up of some income and expenses which are currently reported on a net
basis. In addition, certain facility fees will be reclassified from non-interest income to interest income. These presentation
changes will not have a material impact on the Group’s net profit, retained earnings or capital position.
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Notes to the financial statements
Notes to the financial statements
Note 1. Financial statements preparation (continued)
Note 1. Financial statements preparation (continued)
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.
Implementation
The Group's classification and measurement implementation project has identified approximately $800 million of available-for-
sale financial assets which will be reclassified to amortised cost under AASB 9 based on the hold to collect business model. In
addition, the Group identified some available-for-sale and amortised cost financial assets that will be reclassified to fair value
through profit and loss, however, the amounts being reclassified are not material.
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 will apply the option to continue hedge accounting under AASB 139, however will implement the amended AASB7
Financial Instruments: Disclosure (AASB7) 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, with no restatement of comparatives as permitted by
the standard. However, detailed transitional disclosures will be provided in accordance with the amended requirements of
AASB 7.
carrying value for all loans.
Implementation
Measurement
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 (i.e. stage
3). This will result in an increase in interest income and impairment charges as currently interest is calculated on the net
Models have been developed, tested and approved while certain aspects of the impairment provisioning process continue to be
assessed and refined. These models use three main components (as well as the time value of money) being:
Probability of default (PD): the probability that a counterparty will default;
Loss given default (LGD): the loss that is expected to arise in the event of a default; and
Exposure at default (EAD): the estimated outstanding amount of credit exposure at the time of the default.
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. The models incorporate past experience, current conditions and multiple probability-weighted macroeconomic scenarios
for reasonably supportable future economic conditions. Where appropriate, adjustments will be made to modelled outcomes to
reflect reasonable and supportable information not already incorporated in the models.
Significant increase in credit risk and movement between stages
An asset will move from stage 1 to stage 2 if there has been a significant increase in credit risk since origination.
The judgement to determine this will be primarily based on changes in internal customer risk grades since origination of the
facility. The Group does not intend to rebut the presumption that instruments that are 30 days past due have experienced a
significant increase in risk but this will be used as a backstop rather than the primary indicator.
The Group will not be applying the low credit risk exemption which assumes investment grade facilities do not have a significant
increase in credit risk.
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.
Assets may move in both directions through the stages of the impairment model. Assets previously in stage 2 may move back
to stage 1 if it is no longer considered that there has been a significant deterioration of credit risk. Similarly, assets in stage 3
may move back to stage 2 if they are no longer assessed to be credit-impaired.
Forward looking information
The estimation of forward looking information is a key area requiring judgement. The Group intends to consider a minimum of
three future macroeconomic scenarios. These will include a base case scenario along with upside and downside scenarios.
The macroeconomic variables used in these scenarios, based on current economic forecasts, include (but are not limited to)
unemployment rates, gross domestic product growth rates and residential and commercial property price indices. The
macroeconomic variables and probability weightings of the three scenarios will be subject to the approval of the Group Chief
Financial Officer and the Chief Risk Officer with oversight from the Board of Directors (and its Committees).
Governance
Committee.
The Group has established a governance framework and has implemented controls to address disclosure of the impact of 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 along with the controls addressing credit data and
systems and the expected credit loss models.
The AASB 9 provision calculation models have been independently reviewed in accordance with the Group's model risk
policies and approved by the Credit Risk Estimates Committee (CREC). The key judgements in relation to the new provisioning
methodology have been discussed and agreed with the Board Risk and Compliance Committee (BRCC) and the Board Audit
Models and credit risk processes have been tested in parallel run since May 2018 to provide a better understanding of the
implications of the new impairment requirements. This included an evaluation of the effect on the Group’s results as well as
ongoing validation of the controls and effectiveness of the governance and operational processes. The control environment will
continue to evolve as the Group embeds processes and controls during the financial year ending 30 September 2019.
The Group will elect to apply AASB 15 retrospectively by adjusting the opening balance of retained earnings at the date of initial
application, 1 October 2018, with no comparatives restatement.
The Group has assessed the revenue streams existing at transition. Based on this assessment, the primary impacts from the
adoption of AASB 15 are expected to be a grossing up of some income and expenses which are currently reported on a net
basis. In addition, certain facility fees will be reclassified from non-interest income to interest income. These presentation
changes will not have a material impact on the Group’s net profit, retained earnings or capital position.
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AASB 15 Revenue from Contracts with Customers (AASB 15) was issued on 28 May 2014 and will be effective from 1 October
2018. The standard replaces AASB 118 Revenue and related interpretations, and applies to all contracts with customers,
except leases, financial instruments and insurance contracts. The standard provides a systematic approach to revenue
recognition by introducing a five-step model governing revenue measurement and recognition. This includes:
allocating the consideration to each of the identified performance obligations; and
identifying each of the performance obligations included in the contract;
recognising revenue as each performance obligation is satisfied.
determining the amount of consideration in the contract;
identifying the contract with customer;
3
Notes to the financial statements
Note 1. Financial statements preparation (continued)
AASB 16 Leases (AASB 16) was issued on 24 February 2016 and will be effective for the 30 September 2020 financial year.
The standard will not result in significant changes for lessor accounting. 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 by the lessee 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 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.
Alternative methods of calculating the right-of-use asset are allowed under AASB 16 which impact the size of the transition
adjustment. The Group is still evaluating which transition method to apply.
Current project implementation efforts are focused on the review and evaluation of contracts within scope of the standard.
AASB 17 Insurance Contracts (AASB 17) was issued on 19 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;
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 different 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 than in
profit and loss;
Business Bank (BB):
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 are 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.
Notes to the financial statements
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 the 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; 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.
The operating segments are defined by the customers they service and the services they provide:
Reportable operating segments
Consumer Bank (CB):
- responsible for sales and service of banking and financial products and services;
- customer base is consumer in Australia; and
- operates under the Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands.
- responsible for sales and service of banking and financial products and services;
- customer base is SME and commercial business customers in Australia for facilities up to approximately $150 million;
and
- operates under the Westpac, St.George, BankSA and Bank of Melbourne brands.
BT Financial Group (Australia) (BTFG):
- Westpac's Australian wealth management and insurance division;
- services include the manufacturing and distribution of investment, superannuation and retirement products, wealth
administration platforms, private wealth, margin lending and equities broking;
- BTFG's insurance business covers the manufacturing and distribution of life, general and lenders mortgage insurance;
- in addition to the BT brand, BTFG operates a range of financial services brands along with the banking brands of
Westpac, St.George, Bank of Melbourne and BankSA for Private Wealth and Insurance.
Westpac Institutional Bank (WIB):
- Westpac's institutional financial services division delivering a broad range of financial products and services;
- services include transactional banking, financial and debt capital markets, specialised capital, and alternative investment
solutions;
UK and Asia; and
- customer base includes commercial, corporate, institutional and government customers;
- customers are supported throughout Australia, as well as via branches and subsidiaries located in New Zealand, US,
- also responsible for Westpac Pacific, providing a range of banking services in Fiji and Papua New Guinea.
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153
compare performance across peer companies.
compare performance across business divisions; and
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;
Notes to the financial statements
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.
Notes to the financial statements
Note 1. Financial statements preparation (continued)
AASB 16 Leases (AASB 16) was issued on 24 February 2016 and will be effective for the 30 September 2020 financial year.
The standard will not result in significant changes for lessor accounting. 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 by the lessee 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 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.
Alternative methods of calculating the right-of-use asset are allowed under AASB 16 which impact the size of the transition
adjustment. The Group is still evaluating which transition method to apply.
Current project implementation efforts are focused on the review and evaluation of contracts within scope of the standard.
AASB 17 Insurance Contracts (AASB 17) was issued on 19 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;
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 different patterns of profit recognition compared to the current standards;
a narrower definition of what acquisition costs may be deferred;
profit and loss;
rather than through profit and loss;
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.
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 the 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; 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 in Australia; and
- operates under the Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands.
an election to recognise changes in assumptions regarding discount rate in other comprehensive income rather than in
Business Bank (BB):
an election to recognise changes in the fair value of assets supporting policy liabilities in other comprehensive income
- responsible for sales and service of banking and financial products and services;
- customer base is SME and commercial business customers in Australia for facilities up to approximately $150 million;
reinsurance contracts and the associated liability are to be determined separately to the gross contract liability and may
and
- operates under the Westpac, St.George, BankSA and Bank of Melbourne brands.
BT Financial Group (Australia) (BTFG):
- Westpac's Australian wealth management and insurance division;
- services include the manufacturing and distribution of investment, superannuation and retirement products, wealth
3
administration platforms, private wealth, margin lending and equities broking;
- BTFG's insurance business covers the manufacturing and distribution of life, general and lenders mortgage insurance;
- in addition to the BT brand, BTFG operates a range of financial services brands along with the banking brands of
Westpac, St.George, Bank of Melbourne and BankSA for Private Wealth and Insurance.
Westpac Institutional Bank (WIB):
- Westpac's institutional financial services division delivering a broad range of financial products and services;
- services include transactional banking, financial and debt capital markets, specialised capital, and alternative investment
solutions;
- customer base includes commercial, corporate, institutional and government customers;
- customers are supported throughout Australia, as well as via branches and subsidiaries located in New Zealand, US,
UK and Asia; and
- also responsible for Westpac Pacific, providing a range of banking services in Fiji and Papua New Guinea.
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153
Notes to the financial statements
Note 2. Segment reporting (continued)
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, human resources, and customer and corporate relations; and
- Group Businesses also includes earnings on capital not allocated to divisions, for certain intra-group transactions that
facilitate presentation of 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 segment allocations
In 2018, Westpac implemented a number of changes to the presentation of its divisional financial information. These changes
have no impact on the Group’s overall results or balance sheet but impact divisional results and balance sheets. Comparative
divisional financial information has been restated for these changes.
The changes include updates to the methodologies to allocate certain costs, revenues and capital to the divisions. These
changes can be summarised as:
1. Allocating additional capital from Group Businesses to operating divisions, following greater clarity from APRA on updates
to its capital framework;
2. Updating the Group’s cost of funds transfer pricing methodology, including the allocation of revenue from balance sheet
management activities;
3. Realigning divisional earnings and balance sheet disclosures for recent customer transfers; and
4. Refining expense allocations to improve the allocation of support costs to divisions.
Note 2. Segment reporting (continued)
The following tables present the segment results on a cash earnings basis for the Group:1
Notes to the financial statements
BT
Financial
Westpac Westpac
Consumer Business
Group Institutional
New
Group
Bank
7,748
746
Bank (Australia)
Bank Zealand Businesses
Total adjustment Statement
4,065
1,189
578
1,648
1,416
1,556
1,720
438
812
35
16,339
5,612
166
16
16,505
5,628
Net cash
earnings
Income
8,494
(3,542)
(451)
4,501
(1,361)
-
3,140
(15)
5,254
(1,876)
(291)
3,087
(928)
-
2,159
(2)
2,226
(1,291)
(6)
929
(284)
-
645
(73)
2,972
(1,446)
38
1,564
(473)
(5)
1,086
-
2,158
(860)
(2)
1,296
(362)
-
934
13
847
(571)
2
278
(178)
1
101
107
21,951
(9,586)
(710)
11,655
(3,586)
(4)
8,065
30
182
(106)
-
76
(46)
22,133
(9,692)
(710)
11,731
(3,632)
-
30
(4)
8,095
of Westpac Banking Corporation
3,125
2,157
572
1,086
947
208
8,095
(173)
(71)
(78)
(274)
(81)
(467)
(1,144)
392,495
156,523
212,472
114,137
34,923
42,500
102,380
126,620
82,424
72,078
110,847
247,212
879,592
815,019
equipment and intangible assets
363
94
96
88
99
452
1,192
BT
Financial Westpac Westpac
Consumer Business
Group Institutional
New
Group
Bank
Bank (Australia)
Bank
Zealand Businesses
Total adjustment Statement
7,638
813
3,885
1,141
511
1,744
1,328
1,707
1,629
480
713
(33)
15,704
5,852
(188)
434
15,516
6,286
Net cash
earnings
Income
8,451
(3,378)
(565)
4,508
(1,353)
-
3,155
(116)
5,026
(1,818)
(343)
2,865
(862)
-
2,003
(10)
2,255
(1,199)
(4)
1,052
(316)
-
736
160
3,035
(1,351)
(56)
1,628
(462)
(7)
1,159
-
2,109
(903)
72
1,278
(361)
-
917
(14)
680
(456)
43
267
(175)
-
92
(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
2018
$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
Net profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets
Total liabilities
Additions of property and
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
Net profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
Additional information
Depreciation, amortisation
and impairments1
Balance Sheet
Total assets
Total liabilities
Additions of property and
of Westpac Banking Corporation
3,039
1,993
896
1,159
903
-
7,990
(335)
(79)
(49)
(206)
(86)
(514)
(1,269)
377,457
153,078
35,237
103,080
81,285
101,738
202,689
111,385
41,431
118,875
71,432
244,721
851,875
790,533
equipment and intangible assets
276
54
93
55
85
442
1,005
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.
1 Comparatives have been revised for consistency.
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155
- 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, human resources, and customer and corporate relations; and
- Group Businesses also includes earnings on capital not allocated to divisions, for certain intra-group transactions that
facilitate presentation of 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 segment allocations
changes can be summarised as:
to its capital framework;
management activities;
In 2018, Westpac implemented a number of changes to the presentation of its divisional financial information. These changes
have no impact on the Group’s overall results or balance sheet but impact divisional results and balance sheets. Comparative
divisional financial information has been restated for these changes.
The changes include updates to the methodologies to allocate certain costs, revenues and capital to the divisions. These
1. Allocating additional capital from Group Businesses to operating divisions, following greater clarity from APRA on updates
2. Updating the Group’s cost of funds transfer pricing methodology, including the allocation of revenue from balance sheet
3. Realigning divisional earnings and balance sheet disclosures for recent customer transfers; and
4. Refining expense allocations to improve the allocation of support costs to divisions.
Notes to the financial statements
Note 2. Segment reporting (continued)
Westpac New Zealand:
Note 2. Segment reporting (continued)
The following tables present the segment results on a cash earnings basis for the Group:1
Notes to the financial statements
- responsible for sales and service of banking, wealth and insurance products to customers in New Zealand;
2018
BT
Financial
$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
Net 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
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
Net 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 impairments1
Balance Sheet
Total assets
Total liabilities
Additions of property and
equipment and intangible assets
Consumer Business
Group Institutional
Bank
7,748
746
Bank (Australia)
578
4,065
1,648
1,189
Westpac Westpac
Group
New
Bank Zealand Businesses
812
1,416
35
1,556
1,720
438
Net cash
Income
earnings
Total adjustment Statement
16,505
5,628
166
16
16,339
5,612
8,494
(3,542)
(451)
4,501
(1,361)
-
3,140
(15)
5,254
(1,876)
(291)
3,087
(928)
-
2,159
(2)
2,226
(1,291)
(6)
929
(284)
-
645
(73)
2,972
(1,446)
38
1,564
(473)
(5)
1,086
-
2,158
(860)
(2)
1,296
(362)
-
934
13
847
(571)
2
278
(178)
1
101
107
21,951
(9,586)
(710)
11,655
(3,586)
(4)
8,065
30
182
(106)
-
76
(46)
22,133
(9,692)
(710)
11,731
(3,632)
-
30
(4)
8,095
3,125
2,157
572
1,086
947
208
8,095
(173)
(71)
(78)
(274)
(81)
(467)
(1,144)
392,495
212,472
156,523
114,137
34,923
42,500
102,380
126,620
82,424
72,078
110,847
247,212
879,592
815,019
363
94
96
88
99
452
1,192
BT
Consumer Business
Financial Westpac Westpac
New
Group Institutional
Bank
Group
Zealand Businesses
Bank (Australia)
3,885
1,141
511
1,744
1,328
1,707
1,629
480
713
(33)
Net cash
Income
earnings
Total adjustment Statement
15,516
(188)
6,286
434
15,704
5,852
Bank
7,638
813
8,451
(3,378)
(565)
4,508
(1,353)
-
3,155
(116)
5,026
(1,818)
(343)
2,865
(862)
-
2,003
(10)
2,255
(1,199)
(4)
1,052
(316)
-
736
160
3,035
(1,351)
(56)
1,628
(462)
(7)
1,159
-
2,109
(903)
72
1,278
(361)
-
917
(14)
680
(456)
43
267
(175)
-
92
(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
3
3,039
1,993
896
1,159
903
-
7,990
(335)
(79)
(49)
(206)
(86)
(514)
(1,269)
377,457
153,078
35,237
103,080
81,285
101,738
202,689
111,385
41,431
118,875
71,432
244,721
851,875
790,533
276
54
93
55
85
442
1,005
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.
1 Comparatives have been revised for consistency.
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BT
Consumer Business
Financial Westpac Westpac
New
Group Institutional
Bank
Group
Zealand Businesses
Bank (Australia)
3,766
1,089
460
1,908
1,421
1,537
1,606
483
827
8
Net cash
Income
earnings
Total adjustment Statement
15,148
(200)
5,837
(51)
15,348
5,888
4,855
(1,774)
(386)
2,695
(810)
-
1,885
(10)
2,368
(1,184)
-
1,184
(352)
-
832
(32)
2,958
(1,374)
(177)
1,407
(421)
(7)
979
-
2,089
(889)
(54)
1,146
(321)
-
825
2
835
(398)
9
446
(148)
(8)
290
(221)
21,236
(8,931)
(1,124)
11,181
(3,344)
(15)
7,822
(377)
(251)
(286)
-
(537)
160
-
(377)
20,985
(9,217)
(1,124)
10,644
(3,184)
(15)
7,445
Notes to the financial statements
Note 2. Segment reporting (continued)
Bank
7,268
863
8,131
(3,312)
(516)
4,303
(1,292)
-
3,011
(116)
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
Net profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
of Westpac Banking Corporation
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets1
Total liabilities
Additions of property and
equipment and intangible assets
2,895
1,875
800
979
827
69
7,445
Revenue from products and services
(282)
(65)
(67)
(188)
(102)
(524)
(1,228)
359,228
148,904
38,217
110,616
82,071
100,166
191,027
106,046
40,792
125,931
72,408
244,817
839,202
781,021
178
83
88
459
96
417
1,321
Note 2. Segment reporting (continued)
Reconciliation of cash earnings to net profit
$m
Cash earnings for the year
Cash earning adjustments:
Adjustments relating to Pendal (BTIM)1
Amortisation of intangible assets
Acquisition, transaction and integration expenses
Fair value gain/(loss) on economic hedges
Ineffective hedges
Treasury shares
Total cash earnings adjustments
Notes to the financial statements
2018
2017
8,065
8,062
2016
7,822
(73)
(17)
-
126
(13)
7
30
171
(137)
-
(69)
(16)
(21)
(72)
-
(158)
(15)
(203)
9
(10)
(377)
7,445
Net profit attributable to owners of Westpac Banking Corporation
8,095
7,990
Further details of the above cash earnings adjustments, which are all net of tax, are provided in Divisional performance in
Section 2.
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
Other overseas2
Total
Australia
New Zealand
Other overseas2
Total
Non-current assets3
2018
$m
%
2017
$m
%
2016
$m
%
87.3
11.0
1.7
32,696
4,406
1,097
85.6
11.5
2.9
32,328
4,360
830
86.2
11.6
2.2
32,868
4,158
633
38,199
100.0
37,518
100.0
37,659
100.0
12,271
93.7
12,326
93.8
12,607
93.7
756
65
5.8
0.5
745
68
5.7
0.5
774
77
5.8
0.5
13,092
100.0
13,139
100.0
13,458
100.0
1 Total assets for BT Financial Group (Australia) include the equity accounted carrying value of the investment in Pendal Group Limited of $718 million.
1 Pendal Group Limited (Pendal), formerly BT Investment Management (BTIM).
2 Other included Pacific Islands, Asia, the Americas and Europe.
3 Non-current assets represent property and equipment and intangible assets.
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BT
Financial Westpac Westpac
Consumer Business
Group Institutional
New
Group
Bank
Bank (Australia)
Bank
Zealand Businesses
Total adjustment Statement
7,268
863
3,766
1,089
460
1,908
1,421
1,537
1,606
483
827
15,348
8
5,888
(200)
(51)
15,148
5,837
Net cash
earnings
Income
8,131
(3,312)
(516)
4,303
(1,292)
-
3,011
(116)
4,855
(1,774)
(386)
2,695
(810)
-
1,885
(10)
2,368
(1,184)
-
1,184
(352)
-
832
(32)
2,958
(1,374)
(177)
1,407
(421)
(7)
979
-
2,089
(889)
(54)
1,146
(321)
-
825
2
835
(398)
9
446
(148)
(8)
290
(221)
21,236
(8,931)
(1,124)
11,181
(3,344)
(15)
7,822
(377)
(251)
(286)
-
(537)
160
-
(377)
20,985
(9,217)
(1,124)
10,644
(3,184)
(15)
7,445
Notes to the financial statements
Note 2. Segment reporting (continued)
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
Net profit attributable to
non-controlling interests
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners
Additional information
Depreciation, amortisation
and impairments
Balance Sheet
Total assets1
Total liabilities
Additions of property and
of Westpac Banking Corporation
2,895
1,875
800
979
827
69
7,445
(282)
(65)
(67)
(188)
(102)
(524)
(1,228)
359,228
148,904
38,217
110,616
82,071
100,166
191,027
106,046
40,792
125,931
72,408
244,817
839,202
781,021
equipment and intangible assets
178
83
88
459
96
417
1,321
Note 2. Segment reporting (continued)
Reconciliation of cash earnings to net profit
$m
Cash earnings for the year
Cash earning adjustments:
Adjustments relating to Pendal (BTIM)1
Amortisation of intangible assets
Acquisition, transaction and integration expenses
Fair value gain/(loss) on economic hedges
Ineffective hedges
Treasury shares
Total cash earnings adjustments
Net profit attributable to owners of Westpac Banking Corporation
Notes to the financial statements
2018
2017
8,065
8,062
2016
7,822
(73)
(17)
-
126
(13)
7
30
8,095
171
(137)
-
(69)
(16)
(21)
(72)
7,990
-
(158)
(15)
(203)
9
(10)
(377)
7,445
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
Other overseas2
Total
Non-current assets3
Australia
New Zealand
Other overseas2
Total
2018
$m
%
2017
$m
%
2016
$m
32,696
4,406
1,097
85.6
11.5
2.9
32,328
4,360
830
86.2
11.6
2.2
32,868
4,158
633
%
87.3
11.0
1.7
38,199
100.0
37,518
100.0
37,659
100.0
12,271
93.7
12,326
93.8
12,607
756
5.8
745
5.7
774
65
13,092
0.5
100.0
68
13,139
0.5
100.0
77
13,458
93.7
5.8
0.5
100.0
3
1 Total assets for BT Financial Group (Australia) include the equity accounted carrying value of the investment in Pendal Group Limited of $718 million.
1 Pendal Group Limited (Pendal), formerly BT Investment Management (BTIM).
2 Other included Pacific Islands, Asia, the Americas and Europe.
3 Non-current assets represent property and equipment and intangible assets.
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157
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
completed.
2018
2017
2016
2018
2017
325
108
(18)
542
241
110
(22)
558
260
100
12
645
300
102
(22)
499
216
85
(13)
505
1,914
1,795
1,808
1,743
1,613
29,621
28,504
28,953
25,801
24,577
23
-
56
17
-
29
13
-
31
23
17
4,328
3,838
56
27
32,571
31,232
31,822
32,830
30,865
(319)
(9,021)
(959)
(4,480)
-
(774)
(378)
(135)
(279)
(8,868)
(2,065)
(3,585)
-
(693)
(95)
(131)
(345)
(9,369)
(2,520)
(3,737)
-
(589)
-
(114)
(314)
(7,817)
(754)
(3,958)
(4,851)
(774)
(378)
(131)
(278)
(7,680)
(1,646)
(3,034)
(4,211)
(693)
(95)
(128)
(16,066)
16,505
(15,716)
15,516
(16,674)
15,148
(18,977)
13,853
(17,765)
13,100
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
2017
2018
31,934
14,070
30,555
12,673
2016
30,941
13,101
Parent Entity
2018
2017
32,240
17,217
30,232
15,205
Notes to the financial statements
Note 4. Non-interest income
Accounting policy
Fees and commissions
Fees and commission income are recognised as follows:
facility fees are primarily earned for the provision of credit and other facilities to customers and are recognised as the
services are 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
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 fees earned for the ongoing management of customer funds and investments are recognised over the
Funds management income
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 include a management fee component which is recognised as funds management income over
the period the service is provided. The deposit components of life insurance and investment contracts are not revenue and
are treated as movements in life insurance policy liabilities;
general insurance premium comprises amounts charged to policyholders, 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
insurance liabilities.
Trading income
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
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);
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.
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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
Payables due to other financial institutions
Deposits and other borrowings
Due from subsidiaries
Other interest income
Total interest income
Interest expense
Trading liabilities
Debt issues
Due to subsidiaries
Loan capital
Bank levy
Other interest expense
Total interest expense
Net interest income
$m
Interest income
Interest expense
Consolidated
Parent Entity
2018
2017
2016
2018
2017
1,914
1,795
1,808
1,743
1,613
29,621
28,504
28,953
25,801
24,577
241
110
(22)
558
17
-
29
260
100
12
645
13
-
31
300
102
(22)
499
23
56
216
85
(13)
505
17
27
4,328
3,838
325
108
(18)
542
23
-
56
32,571
31,232
31,822
32,830
30,865
(319)
(9,021)
(959)
(4,480)
-
(774)
(378)
(135)
(279)
(8,868)
(2,065)
(3,585)
-
(693)
(95)
(131)
(345)
(9,369)
(2,520)
(3,737)
(589)
-
-
(114)
(314)
(7,817)
(754)
(3,958)
(4,851)
(774)
(378)
(131)
(16,066)
(15,716)
(16,674)
(18,977)
16,505
15,516
15,148
13,853
(278)
(7,680)
(1,646)
(3,034)
(4,211)
(693)
(95)
(128)
(17,765)
13,100
Consolidated
Parent Entity
2018
2017
2016
2018
2017
31,934
14,070
30,555
12,673
30,941
13,101
32,240
17,217
30,232
15,205
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:
Notes to the financial statements
Note 4. Non-interest income
Accounting policy
Fees and commissions
Fees and commission income are recognised as follows:
facility fees are primarily earned for the provision of credit and other facilities to customers and are recognised as the
services are 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 include a management fee component which is recognised as funds management income over
the period the service is provided. The deposit components of life insurance and investment contracts are not revenue and
are treated as movements in life insurance policy liabilities;
general insurance premium comprises amounts charged to policyholders, 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);
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.
3
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159
General insurance and lenders mortgage insurance net operating income
236
210
242
1,825
1,590
1,657
2,061
1,800
1,899
-
-
-
-
-
-
Notes to the financial statements
Note 4. Non-interest income (continued)
$m
Fees and commissions
Facility fees
Transaction fees and commissions
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
Other income
Dividends received from subsidiaries
Dividends received from other entities
Net gain on sale of associates3
Net gain on disposal of assets
Net gain/(loss) on hedging overseas operations
Net gain/(loss) on derivatives held for risk management purposes4
Net gain/(loss) on financial instruments designated at fair value
Net gain/(loss) on disposal of controlled entities
Rental income on operating leases
Share of associates' net profit/(loss)
Other5
Total other income
Transactions with subsidiaries
Total non-interest income
Consolidated
2017
2018
2016
Parent Entity
2018
2017
1,347
1,105
1,333
1,297
1,333
1,299
1,193
1,177
98
229
281
886
54
953
211
Employee remuneration, entitlements and on-costs
4,292
4,133
4,005
3,537
3,371
2,550
2,755
2,755
2,273
2,463
Note 5. Operating expenses
$m
Staff expenses
Superannuation expense1
Share-based payments
Restructuring costs
Total staff expenses
Occupancy expenses
Operating lease rentals
Other
Total occupancy expenses
Technology expenses
Amortisation and impairment of software assets
Depreciation and impairment of IT equipment
Technology services
Software maintenance and licences
Telecommunications
Data processing
Total technology expenses
Other expenses
Professional and processing services2
Postage and stationery
Advertising
Credit card loyalty programs
Non-lending losses
Other expenses
Total other expenses
Total operating expenses
Amortisation and impairment of intangible assets and deferred expenditure
Impairment/(reversal of impairment) on investments in subsidiaries
Notes to the financial statements
Consolidated
Parent Entity
2018
2017
2016
2018
2017
4,887
4,701
4,601
4,046
3,849
1,033
1,073
1,032
386
95
114
632
245
156
620
141
721
342
209
77
824
138
182
173
126
133
-
86
380
113
75
648
291
134
628
158
639
313
190
80
755
192
217
155
152
73
-
108
369
135
92
622
285
125
571
156
672
277
181
72
741
216
217
156
144
81
-
100
315
97
97
565
196
134
895
567
124
564
289
183
76
638
21
152
127
101
112
44
162
314
96
68
579
235
111
925
572
139
512
269
163
78
515
169
179
107
118
58
7
238
2,110
2,008
1,929
1,803
1,733
1,662
9,692
1,652
9,434
1,655
9,217
1,357
8,101
1,391
7,898
945
1,202
1,124
919
1,095
Depreciation of property and equipment
-
3
-
24
-
8
38
(9)
107
(10)
(89)
72
-
-
2
279
6
-
52
11
-
-
7
-
1
(6)
(88)
(6)
1
143
109
17
19
529
-
30
11
59
-
2,013
1,859
3
-
-
19
8
36
-
77
-
5
2
-
5
152
52
3
-
104
-
20
2,161
2,197
472
376
5,628
6,286
5,837
5,825
6,131
Wealth management and insurance income comprised
Funds management income
Life insurance premium income
Life insurance commissions, investment income and other income
1,145
1,410
666
Life insurance claims and changes in life insurance liabilities
(1,396)
(1,155)
General insurance and lenders mortgage insurance net premiums earned
472
451
General insurance and lenders mortgage insurance investment,
commissions and other income
50
77
70
General insurance and lenders mortgage insurance claims incurred,
underwriting and commission expenses
Total wealth management and insurance income
(286)
2,061
(318)
1,800
(283)
1,899
997
1,006
1,204
1,114
544
386
(849)
455
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 Wealth management and insurance income includes policy holder tax recoveries.
2 Trading income represents a component of total markets income from WIB markets business, Westpac Pacific and Treasury foreign exchange
operations in Australia and New Zealand.
3 On 26 May 2017, the Group sold 60 million (19% of Pendal’s shares on issue) Pendal shares. Refer to Note 35 for further details.
4
5 Other includes $104 million of impairment on the remaining shareholdings of Pendal for the Group and nil for Parent in 2018.
Income from derivatives held for risk management purposes reflects the impact of economic hedges of foreign currency capital and earnings.
1 Superannuation expense includes both defined contribution and defined benefit expense. Further details of the Group's defined benefit plans are in
Note 38.
2 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 (2018: $271 million, 2017: $268 million, 2016: $283 million);
- operations processing (2018: $195 million, 2017: $184 million, 2016: $196 million);
- consultants (2018: $151 million, 2017: $162 million, 2016: $120 million);
- credit assessment (2018: $58 million, 2017: $53 million, 2016: $60 million);
- legal and audit fees (2018: $111 million, 2017: $61 million, 2016: $51 million); and
- regulatory fees and share market related costs (2018: $38 million, 2017: $27 million, 2016: $31 million).
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161
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
945
1,202
1,124
919
1,095
Depreciation of property and equipment
Life insurance and funds management net operating income
1,825
1,590
1,657
General insurance and lenders mortgage insurance net operating income
236
210
242
Total wealth management and insurance income
2,061
1,800
1,899
Other
Total occupancy expenses
Technology expenses
Amortisation and impairment of software assets
Depreciation and impairment of IT equipment
Technology services
Software maintenance and licences
Telecommunications
Data processing
Total technology expenses
Other expenses
Professional and processing services2
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
Total other expenses
Total operating expenses
Notes to the financial statements
Note 4. Non-interest income (continued)
$m
Fees and commissions
Facility fees
Transaction fees and commissions
Other non-risk fee income
Total fees and commissions
Wealth management and insurance income1
Trading income2
Other income
Dividends received from subsidiaries
Dividends received from other entities
Net gain on sale of associates3
Net gain on disposal of assets
Net gain/(loss) on hedging overseas operations
Net gain/(loss) on derivatives held for risk management purposes4
Net gain/(loss) on financial instruments designated at fair value
Net gain/(loss) on disposal of controlled entities
Rental income on operating leases
Share of associates' net profit/(loss)
Other5
Total other income
Transactions with subsidiaries
Total non-interest income
Funds management income
Life insurance premium income
Wealth management and insurance income comprised
Consolidated
Parent Entity
2018
2017
2016
2018
2017
1,347
1,105
1,333
1,297
1,333
1,299
1,193
1,177
98
229
281
886
54
953
211
2,550
2,755
2,755
2,273
2,463
-
3
-
24
-
8
38
(9)
107
(10)
(89)
72
-
-
2
279
6
-
52
11
-
17
19
529
-
143
109
-
7
-
1
(6)
(88)
(6)
1
30
11
59
-
386
(849)
455
1,145
1,410
666
997
1,006
1,204
1,114
544
5,628
6,286
5,837
5,825
6,131
2,161
2,197
472
376
2,013
1,859
-
-
-
3
-
-
19
8
36
-
77
-
5
-
-
-
-
-
-
-
-
-
-
-
2
-
5
152
52
3
-
104
-
20
-
-
-
-
-
-
-
-
Life insurance commissions, investment income and other income
Life insurance claims and changes in life insurance liabilities
(1,396)
(1,155)
General insurance and lenders mortgage insurance net premiums earned
472
451
General insurance and lenders mortgage insurance investment,
commissions and other income
50
77
70
General insurance and lenders mortgage insurance claims incurred,
underwriting and commission expenses
Total wealth management and insurance income
(286)
2,061
(318)
(283)
1,800
1,899
Notes to the financial statements
Consolidated
2017
2018
2016
Parent Entity
2018
2017
4,292
4,133
4,005
3,537
3,371
386
95
114
380
113
75
369
135
92
315
97
97
314
96
68
4,887
4,701
4,601
4,046
3,849
632
245
156
648
291
134
622
285
125
1,033
1,073
1,032
620
141
721
342
209
77
628
158
639
313
190
80
571
156
672
277
181
72
565
196
134
895
567
124
564
289
183
76
579
235
111
925
572
139
512
269
163
78
2,110
2,008
1,929
1,803
1,733
824
138
182
173
126
133
-
86
755
192
217
155
152
73
-
108
741
216
217
156
144
81
-
100
638
21
152
127
101
112
44
162
515
169
179
107
118
58
7
238
1,662
9,692
1,652
9,434
1,655
9,217
1,357
8,101
1,391
7,898
3
1 Wealth management and insurance income includes policy holder tax recoveries.
2 Trading income represents a component of total markets income from WIB markets business, Westpac Pacific and Treasury foreign exchange
operations in Australia and New Zealand.
3 On 26 May 2017, the Group sold 60 million (19% of Pendal’s shares on issue) Pendal shares. Refer to Note 35 for further details.
Income from derivatives held for risk management purposes reflects the impact of economic hedges of foreign currency capital and earnings.
5 Other includes $104 million of impairment on the remaining shareholdings of Pendal for the Group and nil for Parent in 2018.
4
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161
1 Superannuation expense includes both defined contribution and defined benefit expense. Further details of the Group's defined benefit plans are in
Note 38.
2 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 (2018: $271 million, 2017: $268 million, 2016: $283 million);
- operations processing (2018: $195 million, 2017: $184 million, 2016: $196 million);
- consultants (2018: $151 million, 2017: $162 million, 2016: $120 million);
- credit assessment (2018: $58 million, 2017: $53 million, 2016: $60 million);
- legal and audit fees (2018: $111 million, 2017: $61 million, 2016: $51 million); and
- regulatory fees and share market related costs (2018: $38 million, 2017: $27 million, 2016: $31 million).
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 the 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
2018
2017
2016
Parent Entity
2018
2017
371
(150)
(179)
668
710
610
(288)
(168)
699
853
727
(210)
(137)
744
1,124
341
(131)
(138)
610
682
581
(218)
(121)
628
870
Notes to the financial statements
Note 7. Income tax
Accounting policy
of other comprehensive income.
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
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.
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163
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 the principal or interest repayments may not be recoverable
and when the financial impact of the non-recoverable loan can be reliably measured.
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.
Individually assessed provisions raised
$m
Write-backs
Recoveries
Collectively assessed provisions raised
Impairment charges
Refer to Note 14 for further details on Provisions for impairment charges.
Consolidated
Parent Entity
2018
2017
2016
2018
371
(150)
(179)
668
710
610
(288)
(168)
699
853
727
(210)
(137)
744
1,124
341
(131)
(138)
610
682
2017
581
(218)
(121)
628
870
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
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.
Notes to the financial statements
Note 7. Income tax
Accounting policy
The tax expense for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement
of other comprehensive income.
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.
3
162
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163
Notes to the financial statements
Note 7. Income tax (continued)
Income tax expense
The income tax expense for the year reconciles to the profit before income tax as follows:
$m
Profit before income tax
Tax at the Australian company tax rate of 30%
The effect of amounts which are not deductible/
(assessable) in calculating taxable income
Hybrid capital distributions
Life insurance:
Tax adjustment on policyholder earnings
Adjustment for life business tax rates
Dividend adjustments
Other non-assessable items
Other non-deductible items
Adjustment for overseas tax rates
Income tax (over)/under provided in prior years
Other 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
Total Overseas
Total income tax expense1
Consolidated
2017
2018
2016
Parent Entity
2018
2017
11,731
11,515
10,644
10,895
10,463
3,519
3,455
3,193
3,269
3,139
69
64
50
69
64
-
-
-
-
(604)
(558)
Total amounts recognised in the income statements
1,792
1,708
1,599
1,499
Amounts recognised directly in other comprehensive income
24
(1)
(1)
(5)
64
(28)
9
(18)
8
(1)
(3)
(3)
32
(30)
4
(8)
(2)
-
(4)
(10)
35
(26)
(65)
13
3,632
3,518
3,184
2,751
(2)
34
(3)
-
(12)
(2)
25
(5)
1
(44)
2,620
3,704
3,404
3,351
2,806
2,367
(81)
9
3,632
3,178
454
3,632
110
4
3,518
3,072
446
3,518
(102)
(65)
3,184
2,835
349
3,184
(55)
-
2,751
2,677
74
2,751
252
1
2,620
2,544
76
2,620
The effective tax rate was 30.96% in 2018 (2017: 30.55%, 2016: 29.91%).
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.
1 Comparatives have been revised for consistency.
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165
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
Cash flow hedges1
Defined benefit
Net deferred tax assets
Movements
Opening balance
Total amounts recognised directly in other comprehensive income1
Gross deferred tax assets1
Set-off of deferred tax assets and deferred tax liabilities1
Recognised in the income statements
Recognised in other comprehensive income1
Set-off of deferred tax assets and deferred tax liabilities1
Closing balance
Deferred tax liabilities
The balance comprises temporary differences attributable to:
$m
Amounts recognised in the income statements
Financial instruments
Finance lease transactions
Property and equipment
Life insurance assets
Other assets
Available-for-sale securities1
Defined benefit
Total amounts recognised in the income statements
Amounts recognised directly in other comprehensive income
Total amounts recognised directly in other comprehensive income1
Gross deferred tax liabilities1
Set-off of deferred tax assets and deferred tax liabilities1
Net deferred tax liabilities
Movements
Opening balance
Recognised in the income statements
Recognised in other comprehensive income1
Set-off of deferred tax assets and deferred tax liabilities1
Closing balance
Notes to the financial statements
Consolidated
Parent Entity
2018
2017
2018
2017
1,180
1,112
1,102
Consolidated
Parent Entity
2018
2017
2018
2017
827
323
5
196
322
119
50
-
50
1,842
(662)
1,180
1,112
84
(16)
-
-
158
135
51
312
656
10
14
24
680
(662)
18
10
3
5
-
18
847
321
3
198
239
100
63
3
66
1,774
(662)
1,112
1,351
(387)
(85)
233
3
106
162
47
335
653
19
-
19
672
(662)
10
36
(277)
18
233
10
708
301
2
177
299
112
31
-
31
1,630
(528)
1,102
1,053
100
(13)
(38)
-
161
135
-
213
509
7
15
22
531
(528)
3
-
45
(4)
(38)
3
701
292
4
180
223
99
41
3
44
1,543
(490)
1,053
1,399
(313)
(69)
36
1,053
3
83
163
-
215
464
26
-
26
490
(490)
-
-
(61)
25
36
-
Notes to the financial statements
Note 7. Income tax (continued)
Income tax expense
The income tax expense for the year reconciles to the profit before income tax as follows:
$m
Profit before income tax
Tax at the Australian company tax rate of 30%
The effect of amounts which are not deductible/
(assessable) in calculating taxable income
Hybrid capital distributions
Life insurance:
Tax adjustment on policyholder earnings
Adjustment for life business tax rates
Dividend adjustments
Other non-assessable items
Other non-deductible items
Adjustment for overseas tax rates
Income tax (over)/under provided in prior years
Other items
Total income tax expense
Income tax analysis
Income tax expense comprises:
Current income tax
Movement in deferred tax
Total income tax expense
Total Australia
Total Overseas
Total income tax expense1
Income tax (over)/under provision in prior years
The effective tax rate was 30.96% in 2018 (2017: 30.55%, 2016: 29.91%).
Consolidated
Parent Entity
2018
2017
2016
2018
2017
11,731
11,515
10,644
10,895
10,463
3,519
3,455
3,193
3,269
3,139
69
64
50
69
64
(604)
(558)
24
(1)
(1)
(5)
64
(28)
9
(18)
8
(1)
(3)
(3)
32
(30)
4
(8)
(2)
-
(4)
(10)
35
(26)
(65)
13
-
-
(2)
34
(3)
-
(12)
3,632
3,518
3,184
2,751
3,704
3,404
3,351
2,806
2,367
(81)
9
3,632
3,178
454
110
4
3,518
3,072
446
(102)
(65)
3,184
2,835
349
(55)
-
2,751
2,677
74
3,632
3,518
3,184
2,751
-
-
(2)
25
(5)
1
(44)
2,620
252
1
2,620
2,544
76
2,620
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
Total amounts recognised in the income statements
Amounts recognised directly in other comprehensive income
Cash flow hedges1
Defined benefit
Total amounts recognised directly in other comprehensive income1
Gross deferred tax assets1
Set-off of deferred tax assets and deferred tax liabilities1
Net deferred tax assets
Movements
Opening balance
Recognised in the income statements
Recognised in other comprehensive income1
Set-off of deferred tax assets and deferred tax liabilities1
Closing balance
Deferred tax liabilities
The balance comprises temporary differences attributable to:
$m
Amounts recognised in the income statements
Financial instruments
Finance lease transactions
Property and equipment
Life insurance assets
Other assets
Total amounts recognised in the income statements
Amounts recognised directly in other comprehensive income
Available-for-sale securities1
Defined benefit
Total amounts recognised directly in other comprehensive income1
Gross deferred tax liabilities1
Set-off of deferred tax assets and deferred tax liabilities1
Net deferred tax liabilities
Movements
Opening balance
Recognised in the income statements
Recognised in other comprehensive income1
Set-off of deferred tax assets and deferred tax liabilities1
Closing balance
Notes to the financial statements
Consolidated
2018
2017
Parent Entity
2018
2017
827
323
5
196
322
119
847
321
3
198
239
100
708
301
2
177
299
112
701
292
4
180
223
99
1,792
1,708
1,599
1,499
50
-
50
1,842
(662)
1,180
1,112
84
(16)
-
1,180
63
3
66
1,774
(662)
1,112
1,351
(387)
(85)
233
1,112
31
-
31
1,630
(528)
1,102
1,053
100
(13)
(38)
1,102
41
3
44
1,543
(490)
1,053
1,399
(313)
(69)
36
1,053
Consolidated
2018
2017
Parent Entity
2018
2017
-
158
135
51
312
656
10
14
24
680
(662)
18
10
3
5
-
18
3
106
162
47
335
653
19
-
19
672
(662)
10
36
(277)
18
233
10
-
161
135
-
213
509
7
15
22
531
(528)
3
-
45
(4)
(38)
3
3
83
163
-
215
464
26
-
26
490
(490)
-
-
(61)
25
36
-
3
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.
1 Comparatives have been revised for consistency.
164
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2018 Westpac Group Annual Report
165
Notes to the financial statements
Note 7. Income tax (continued)
Unrecognised deferred tax balances
The following potential deferred tax balances have not been recognised. The values shown are the gross balances and not tax
effected. The tax effected balances would be approximately 30% of the values shown.
$m
Unrecognised deferred tax asset
Tax losses on revenue account
Unrecognised deferred tax liability
Consolidated
2018
2017
Parent Entity
2018
2017
190
213
151
162
Gross retained earnings of subsidiaries which the Parent Entity does
not intend to distribute in the foreseeable future
58
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 Restricted Share Plan (RSP) dividends1
Adjustment for potential dilution:
Distributions to convertible loan capital holders2
2018
2017
2016
Basic
Diluted Basic
Diluted Basic
Diluted
8,095
8,095
7,990
7,990
7,445
7,445
(5)
-
(6)
-
(5)
-
-
283
-
253
-
222
Adjusted net profit attributable to shareholders
8,090
8,378
7,984
8,243
7,440
7,667
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares on issue
3,414
3,414
3,364
3,364
3,322
3,322
Treasury shares (including RSP share rights)
(8)
(8)
(9)
(9)
(9)
(9)
Adjustment for potential dilution:
Share-based payments
Convertible loan capital2
-
-
3
232
-
-
4
236
-
-
Adjusted weighted average number of ordinary shares
Earnings per ordinary share (cents)
3,406
237.5
3,641
230.1
3,355
238.0
3,595
229.3
3,313
224.6
4
203
3,520
217.8
Notes to the financial statements
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
2018
2017
2016
Average Interest Average Average Interest Average Average Interest Average
Balance Income
Rate Balance Income
Rate Balance Income
Rate
$m
$m
%
$m
$m
%
$m
$m
%
Assets
Interest earning assets
Receivables due from other
financial institutions:
Trading securities and financial
assets designated at fair value:
Available-for-sale securities:
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Regulatory deposits with central
banks overseas
Other overseas
Loans and other receivables1:
Australia
New Zealand
Other overseas
Total interest earning assets
4,169
350
1,046
77
6
25
1.8
1.7
2.4
7,422
850
851
82
8
20
1.1
0.9
2.4
9,616
449
1,292
17,420
423
2.4
18,418
416
2.3
18,632
3,538
2,286
80
39
2.3
1.7
4,238
3,214
96
46
2.3
1.4
4,105
3,339
55,458
1,692
3.1
52,457
1,573
3.0
48,151
1,581
3,304
2,778
136
86
4.1
3.1
3,479
2,272
147
75
4.2
3.3
3,193
2,710
141
86
1,040
23
2.2
1,035
17
1.6
1,197
13
1.1
579,749 25,709
4.4 557,865 24,772
4.4 532,172 25,162
73,804
3,514
4.8
72,938
3,460
4.7
68,370
3,617
30,002
761
2.5
27,255
520
1.9
28,617
477
84
6
10
481
118
46
0.9
1.3
0.8
2.6
2.9
1.4
3.3
4.4
3.2
4.7
5.3
1.7
4.4
and interest income
774,944 32,571
4.2 752,294 31,232
4.2 721,843 31,822
Non-Interest earning assets
Cash, receivables due from other
financial institutions and regulatory
deposits with central banks overseas
Derivative financial instruments
Life insurance assets
All other assets2
2,376
34,702
10,664
61,938
Total non-interest earning assets
109,680
Total assets
884,624
2,000
37,673
12,447
60,111
112,231
864,525
2,431
48,666
12,702
57,913
121,712
843,555
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.
2
assets.
banks and other interest earning assets.
1 Loans and other receivables are stated net of provisions for impairment charges on loans. Other receivables include cash and balances with central
Include property and equipment, intangible assets, deferred tax assets, non-interest bearing loans relating to mortgage offset accounts and other
166
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
167
Notes to the financial statements
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.
Consolidated
Parent Entity
2018
2017
2018
2017
190
213
151
162
Gross retained earnings of subsidiaries which the Parent Entity does
not intend to distribute in the foreseeable future
58
51
-
-
$m
Unrecognised deferred tax asset
Tax losses on revenue account
Unrecognised deferred tax liability
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 Restricted Share Plan (RSP) dividends1
Adjustment for potential dilution:
Distributions to convertible loan capital holders2
2018
2017
2016
Basic
Diluted Basic
Diluted Basic
Diluted
8,095
8,095
7,990
7,990
7,445
7,445
(5)
-
(6)
-
(5)
-
-
283
-
253
-
222
Adjusted net profit attributable to shareholders
8,090
8,378
7,984
8,243
7,440
7,667
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares on issue
3,414
3,414
3,364
3,364
3,322
3,322
Treasury shares (including RSP share rights)
(8)
(8)
(9)
(9)
(9)
(9)
Adjustment for potential dilution:
Share-based payments
Convertible loan capital2
Adjusted weighted average number of ordinary shares
Earnings per ordinary share (cents)
3,406
237.5
3,641
230.1
3,355
238.0
3,595
229.3
3,313
224.6
-
-
3
232
-
-
4
236
-
-
4
203
3,520
217.8
Note 9. Average balance sheet and interest rates
The daily average balances of the Group’s interest earning assets and interest bearing liabilities are shown below along with
their interest income or expense.
Notes to the financial statements
Consolidated
Assets
Interest earning assets
Receivables due from other
financial institutions:
Australia
New Zealand
Other overseas
Trading securities and financial
assets designated at fair value:
Australia
New Zealand
Other overseas
Available-for-sale securities:
Australia
New Zealand
Other overseas
Regulatory deposits with central
banks overseas
Other overseas
Loans and other receivables1:
Australia
New Zealand
Other overseas
Total interest earning assets
2018
2017
Average Interest Average Average Interest Average Average Interest Average
Rate
Balance Income
%
$m
Rate Balance Income
$m
Rate Balance Income
$m
2016
$m
$m
$m
%
%
4,169
350
1,046
77
6
25
1.8
1.7
2.4
7,422
850
851
82
8
20
1.1
0.9
2.4
9,616
449
1,292
17,420
423
2.4
18,418
416
2.3
18,632
3,538
2,286
80
39
2.3
1.7
4,238
3,214
96
46
2.3
1.4
4,105
3,339
84
6
10
481
118
46
55,458
1,692
3.1
52,457
1,573
3.0
48,151
1,581
3,304
2,778
136
86
4.1
3.1
3,479
2,272
147
75
4.2
3.3
3,193
2,710
141
86
0.9
1.3
0.8
2.6
2.9
1.4
3.3
4.4
3.2
1,040
23
2.2
1,035
17
1.6
1,197
13
1.1
579,749 25,709
4.4 557,865 24,772
4.4 532,172 25,162
73,804
3,514
4.8
72,938
3,460
4.7
68,370
3,617
30,002
761
2.5
27,255
520
1.9
28,617
477
and interest income
774,944 32,571
4.2 752,294 31,232
4.2 721,843 31,822
Non-Interest earning assets
Cash, receivables due from other
financial institutions and regulatory
deposits with central banks overseas
Derivative financial instruments
Life insurance assets
All other assets2
Total non-interest earning assets
Total assets
2,376
34,702
10,664
61,938
109,680
884,624
2,000
37,673
12,447
60,111
112,231
864,525
2,431
48,666
12,702
57,913
121,712
843,555
4.7
5.3
1.7
4.4
3
1 RSP share rights are explained in Note 37. Some RSP share rights have not vested and are not ordinary shares but do receive dividends. These
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.
1 Loans and other receivables are stated net of provisions for impairment charges on loans. Other receivables include cash and balances with central
2
banks and other interest earning assets.
Include property and equipment, intangible assets, deferred tax assets, non-interest bearing loans relating to mortgage offset accounts and other
assets.
166
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2018 Westpac Group Annual Report
167
Notes to the financial statements
Notes to the financial statements
Note 9. Average balance sheet and interest rates (continued)
Note 9. Average balance sheet and interest rates (continued)
Consolidated
Liabilities
Interest bearing liabilities
Payables due to other
financial institutions:
Australia
New Zealand
Other overseas
Deposits and other borrowings:
Australia
New Zealand
Other overseas
Loan capital:
Australia
New Zealand
Other overseas
Other interest bearing liabilities1:
Australia
New Zealand
Other overseas
Total interest bearing liabilities
Average
Balance Expense
$m
$m
2018
Interest Average Average
2017
Interest Average Average
Rate Balance Expense
$m
$m
%
Rate Balance Expense
$m
$m
%
2016
Interest Average
Rate
%
16,180
262
1.6
15,740
241
1.5
16,570
301
1,135
1,963
17
40
1.5
2.0
642
2,451
9
29
1.4
1.2
567
2,811
10
34
422,006
51,368
26,599
7,308
1,196
517
1.7 409,586
7,344
1.8 376,115
7,801
2.3
51,042
1,173
2.3
48,251
1,280
1.9
24,085
351
1.5
29,336
288
15,028
635
4.2
15,841
638
4.0
12,150
513
1,645
1,324
84
55
5.1
4.2
43
1,324
2
53
4.7
4.0
-
1,687
-
76
163,949
5,369
3.3 157,842
5,117
3.2 164,871
5,574
14,218
94
580
3
4.1
15,821
3.2
507
747
12
4.7
14,067
2.4
851
787
10
1.8
1.8
1.2
2.1
2.7
1.0
4.2
-
4.5
3.4
5.6
1.2
and interest expense
715,509
16,066
2.2 694,924
15,716
2.3 667,276
16,674
2.5
-
6
6
(2)
6
4
Non-interest bearing liabilities
Deposits and payables due to
other financial institutions:
Australia
New Zealand
Other overseas
Derivative financial instruments
Life insurance liabilities
All other liabilities2
Total non-interest bearing
liabilities
Total liabilities
Shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
42,377
5,289
824
37,504
8,874
12,199
107,067
822,576
62,017
31
62,048
884,624
40,514
4,716
869
42,780
10,560
11,586
111,025
805,949
58,556
20
58,576
36,594
4,105
1,023
55,956
10,985
11,145
119,808
787,084
55,896
575
56,471
864,525
843,555
1
2
Include net impact of Treasury balance sheet management activities and the Bank Levy.
Include other liabilities, provisions, current and deferred tax liabilities.
168
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169
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.
Trading securities and financial assets designated at fair value:
Consolidated
$m
Interest earning assets
Receivables due from other financial institutions:
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Available-for-sale securities:
Regulatory deposits with central banks overseas:
Other overseas
Loans and other receivables:
Australia
New Zealand
Other overseas
Total change in interest income
Interest bearing liabilities
Payables due to other financial institutions:
Deposits and other borrowings:
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Loan capital:
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Other interest bearing liabilities:
Total change in interest expense
Change in net interest income:
Total change in net interest income
2018
Change Due to
2017
Change Due to
Volume Rate
Total
Volume
Rate Total
937
54
241
1,217
(1,607)
242
(25)
(399)
68
1,339
1,551
(2,141)
(390)
(157)
43
(590)
(36)
(5)
5
(23)
(16)
(13)
90
(7)
17
972
41
52
1,077
7
7
(6)
(33)
75
-
198
(76)
(10)
429
-
40
648
31
3
-
30
-
6
29
(4)
(6)
(35)
13
189
262
14
1
17
30
7
2
54
(91)
1
(79)
79
46
341
223
(259)
7
37
16
129
608
216
(5)
(2)
5
7
(16)
(7)
119
(11)
11
21
8
11
(36)
23
166
(3)
82
2
252
(167)
(9)
350
824
79
86
989
(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)
(15)
1
(4)
693
75
(52)
156
2
(16)
(45)
(60)
(2)
(1)
(1)
(5)
(1,150)
(182)
115
(457)
(107)
63
(31)
-
(7)
125
2
(23)
(237)
98
(5)
(220)
(138)
7
(457)
(40)
2
696
(1,654)
(958)
736
88
31
855
(352)
(113)
(22)
(487)
384
(25)
9
368
Notes to the financial statements
Notes to the financial statements
Note 9. Average balance sheet and interest rates (continued)
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
Other overseas
Trading securities and financial assets designated at fair value:
Australia
New Zealand
Other overseas
Available-for-sale securities:
Australia
New Zealand
Other overseas
Regulatory deposits with central banks overseas:
Other overseas
Loans and other receivables:
Australia
New Zealand
Other overseas
Total change in interest income
Interest bearing liabilities
Payables due to other financial institutions:
Australia
New Zealand
Other overseas
Deposits and other borrowings:
Australia
New Zealand
Other overseas
Loan capital:
Australia
New Zealand
Other overseas
Other interest bearing liabilities:
Australia
New Zealand
Other overseas
Total change in interest expense
Change in net interest income:
Australia
New Zealand
Other overseas
Total change in net interest income
2018
Change Due to
2017
Change Due to
Volume Rate
Total
Volume
Rate Total
(36)
(5)
5
(23)
(16)
(13)
90
(7)
17
31
3
-
30
-
6
29
(4)
(6)
(5)
(2)
5
7
(16)
(7)
119
(11)
11
(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)
-
6
6
(2)
6
4
972
41
52
1,077
(35)
13
189
262
937
54
241
1,339
1,217
242
(25)
1,551
(1,607)
(399)
68
(2,141)
(390)
(157)
43
(590)
7
7
(6)
223
7
37
(33)
75
-
198
(76)
(10)
429
608
-
40
648
14
1
17
(259)
16
129
30
7
2
54
(91)
1
(79)
216
79
46
341
21
8
11
(36)
23
166
(3)
82
2
252
(167)
(9)
350
824
79
86
989
(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
3
(31)
-
(7)
(220)
(138)
7
(1,654)
(352)
(113)
(22)
(487)
125
2
(23)
(457)
(40)
2
(958)
384
(25)
9
368
169
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
Consolidated
2018
2017
2016
Average
Interest Average Average
Interest Average Average
Interest Average
Balance Expense
Rate Balance Expense
Rate Balance Expense
Rate
$m
$m
%
$m
$m
%
$m
$m
%
16,180
262
1.6
15,740
241
1.5
16,570
301
1,135
1,963
17
40
1.5
2.0
642
2,451
9
29
1.4
1.2
567
2,811
10
34
422,006
51,368
26,599
7,308
1,196
517
1.7 409,586
7,344
1.8 376,115
7,801
2.3
51,042
1,173
2.3
48,251
1,280
1.9
24,085
351
1.5
29,336
288
15,028
635
4.2
15,841
638
4.0
12,150
513
1,645
1,324
84
55
5.1
4.2
43
1,324
2
53
4.7
4.0
-
1,687
-
76
163,949
5,369
3.3 157,842
5,117
3.2 164,871
5,574
14,218
94
580
3
4.1
15,821
3.2
507
747
12
4.7
14,067
2.4
851
787
10
1.8
1.8
1.2
2.1
2.7
1.0
4.2
-
4.5
3.4
5.6
1.2
and interest expense
715,509
16,066
2.2 694,924
15,716
2.3 667,276
16,674
2.5
Liabilities
Interest bearing liabilities
Payables due to other
financial institutions:
Deposits and other borrowings:
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Loan capital:
Australia
New Zealand
Other overseas
Australia
New Zealand
Other overseas
Other interest bearing liabilities1:
Total interest bearing liabilities
Non-interest bearing liabilities
Deposits and payables due to
other financial institutions:
Australia
New Zealand
Other overseas
Derivative financial instruments
Life insurance liabilities
All other liabilities2
Total non-interest bearing
liabilities
Total liabilities
Shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
42,377
5,289
824
37,504
8,874
12,199
107,067
822,576
62,017
31
62,048
884,624
40,514
4,716
869
42,780
10,560
11,586
111,025
805,949
58,556
20
58,576
36,594
4,105
1,023
55,956
10,985
11,145
119,808
787,084
55,896
575
56,471
864,525
843,555
Include net impact of Treasury balance sheet management activities and the Bank Levy.
Include other liabilities, provisions, current and deferred tax liabilities.
1
2
168
Notes to the financial statements
Notes to the financial statements
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Note 11. Trading securities and financial assets designated at fair value
Accounting policy
Recognition
Purchases and sales of regular way 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
Interbank lending
Total receivables due from other financial institutions
Consolidated
2018
2017
Parent Entity
2018
2017
-
4,332
1,458
5,790
392
4,834
1,902
7,128
-
4,267
1,444
5,711
-
4,462
1,895
6,357
Accounting policy
Trading securities
the near term.
Trading securities include actively traded debt (government and other) and equity instruments and those acquired for sale in
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).
Total trading securities and financial assets designated at fair value
22,134
25,324
21,168
20,417
22,946
$m
Trading securities
Securities purchased under agreement to resell
Other financial assets designated at fair value
Trading securities include the following:
$m
Government and semi-government securities
Other debt securities
Equity securities
Other
Total trading securities
Other financial assets designated at fair value include:
$m
Other debt securities
Equity securities
Consolidated
Parent Entity
2018
2017
2016
2018
2017
17,779
15,860
15,288
16,673
14,151
1,379
2,976
6,887
2,577
3,260
2,620
1,379
2,365
6,887
1,908
Consolidated
Parent Entity
2018
2017
2016
2018
2017
13,062
11,339
9,267
12,253
10,452
4,622
4,453
5,960
4,325
3,631
8
87
11
57
7
54
8
87
11
57
17,779
15,860
15,288
16,673
14,151
Consolidated
Parent Entity
2018
2017
2016
2018
2017
2,715
2,259
2,319
2,302
1,848
261
318
301
63
60
Total other financial assets designated at fair value
2,976
2,577
2,620
2,365
1,908
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.
170
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171
Notes to the financial statements
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Accounting policy
Recognition
cash is advanced to the borrowers.
Financial liabilities are recognised when an obligation arises.
Classification and measurement
Purchases and sales of regular way 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
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
The Group’s policies for determining the fair value of financial assets and financial liabilities are set out in Note 23.
relevant item.
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
Receivables due from other financial institutions are recognised initially at fair value and subsequently at amortised cost using
Accounting policy
the effective interest rate method.
$m
Conduit assets1
Cash collateral
Interbank lending
Total receivables due from other financial institutions
Consolidated
Parent Entity
2018
2017
2018
2017
-
4,332
1,458
5,790
392
4,834
1,902
7,128
-
4,267
1,444
5,711
-
4,462
1,895
6,357
Notes to the financial statements
Note 11. Trading securities and financial assets designated at fair value
Accounting policy
Trading securities
Trading securities include actively traded debt (government and other) and equity instruments and those acquired for sale in
the near term.
As part of its trading activities, the Group also lends and borrows securities on a collateralised basis. Securities lent remain on
the Group’s balance sheet and securities borrowed are not reflected on the Group’s balance sheet, as the risk and rewards of
ownership remain with the initial holder. Where cash is provided as collateral, the amount advanced to or received from third
parties is recognised as a receivable in other assets (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
2018
2016
Parent Entity
2018
2017
17,779
15,860
15,288
16,673
14,151
1,379
6,887
3,260
1,379
6,887
Other financial assets designated at fair value
Total trading securities and financial assets designated at fair value
2,976
22,134
2,577
25,324
2,620
21,168
2,365
20,417
1,908
22,946
Trading securities include the following:
$m
Government and semi-government securities
Other debt securities
Equity securities
Other
Total trading securities
Other financial assets designated at fair value include:
$m
Other debt securities
Equity securities
Total other financial assets designated at fair value
Consolidated
2017
2018
2016
Parent Entity
2018
2017
13,062
11,339
9,267
12,253
10,452
4,622
4,453
5,960
4,325
3,631
8
11
7
8
11
87
17,779
57
15,860
54
15,288
87
16,673
57
14,151
3
Consolidated
2017
2018
2,715
261
2,976
2,259
318
2,577
2016
2,319
301
2,620
Parent Entity
2018
2017
2,302
63
2,365
1,848
60
1,908
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.
170
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171
Notes to the financial statements
Loans are financial assets initially recognised at fair value plus directly attributable transaction costs and fees. 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
The loan portfolio is disaggregated by location of booking office and product type, as follows:
Consolidated
Parent Entity
2018
2017
2018
2017
444,741
427,167
444,730
427,155
21,079
21,952
20,090
19,905
154,347
150,542
150,580
146,143
1,830
1,885
1,830
1,885
88
100
88
100
622,085
601,646
617,318
595,188
44,772
43,198
1,793
1,856
76
85
-
-
-
-
-
-
27,701
26,667
376
321
74,342
71,806
376
321
3,600
2,818
3,600
2,818
12,477
11,515
11,281
10,283
16,077
14,333
14,881
13,101
712,504
687,785
632,575
608,610
(2,814)
(2,866)
(2,407)
(2,373)
709,690
684,919
630,168
606,237
Note 13. Loans
Accounting policy
their present value.
Personal (loans and cards)
$m
Australia
Housing
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
Total net loans1,2
Notes to the financial statements
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:
dividends on equity securities; and
interest on debt securities;
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
Government and semi-government securities
Other debt securities
Equity securities1
Total available-for-sale securities
Consolidated
2017
2018
2016
Parent Entity
2018
2017
42,979
43,382
46,255
40,345
40,491
17,756
16,863
14,323
16,101
15,252
384
61,119
465
60,710
87
60,665
67
56,513
57
55,800
The following table shows the maturities of the Group’s available-for-sale securities as at 30 September 2018 and their
weighted-average yield. There are no tax-exempt securities.
2018
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
$m
%
Over 5 Years
to 10 Years
$m
%
Over
10 Years
$m %
No Specific
Maturity
$m %
Total
Weighted
Average
%
$m
4,780
2,118
-
6,898
3.1%
3.0%
-
25,126 3.3%
15,638 2.9%
-
-
40,764
13,073 2.9%
-
-
-
-
13,073
-
-
-
-
-
-
-
-
-
384
384
-
-
-
42,979
17,756
384
61,119
3.2%
2.9%
-
Provisions for impairment charges on loans (refer to Note 14)
The maturity profile is determined based upon contractual terms for available-for-sale instruments.
Available-for-sale securities include:
US Government treasury notes of $5,229 million (2017: $6,796 million, 2016: $6,413 million); and
total holdings of debt securities, where the aggregate book value exceeds 10% of equity attributable to Westpac's owners:
- Queensland Treasury Corporation totalling $11,144 million; and
- Australian Commonwealth Government totalling $10,657 million.
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
not available). 2018: nil for the Group (2017: nil, 2016: $59 million) and nil for the Parent Entity (2017: nil).
for both the Group and Parent Entity.
2 Total net loans include securitised loans of:
- Group - 2018 $7,135 million (2017: $7,651 million)
- Parent - 2018 $85,965 million (2017: $82,135 million)
1 Total net loans include $3,250 million (2017: $4,587 million) of fixed rate bills designated at fair value to reduce an accounting mismatch. The change
in fair value of fixed rate bills attributable to credit risk recognised during the year was $1 million (2017: $6 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 $22 million (2017: $23 million decrease)
172
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173
Notes to the financial statements
Note 12. Available-for-sale securities
Accounting policy
interest on debt securities;
dividends on equity securities; and
impairment charges.
when the instrument is disposed.
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:
The cumulative gain or loss recognised in other comprehensive income is subsequently recognised in the income statement
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
For equity securities, a significant or prolonged decline in the fair value of the security below its cost is considered evidence of
of an issuer.
impairment.
If impairment exists, the cumulative loss is removed from other comprehensive income and recognised in the income
statement. Any subsequent reversals of impairment on debt securities are also recognised in the income statement.
Subsequent reversal of impairment charges on equity instruments is not recognised in the income statement until the
instrument is disposed.
$m
Available-for-sale securities
Government and semi-government securities
Other debt securities
Equity securities1
Total available-for-sale securities
Consolidated
Parent Entity
2018
2017
2016
2018
2017
42,979
43,382
46,255
40,345
40,491
17,756
16,863
14,323
16,101
15,252
384
465
87
67
57
61,119
60,710
60,665
56,513
55,800
The following table shows the maturities of the Group’s available-for-sale securities as at 30 September 2018 and their
weighted-average yield. There are no tax-exempt securities.
2018
$m
%
$m
%
$m
%
$m %
$m %
$m
%
Within
1 Year
Over 1 Year
Over 5 Years
Over
No Specific
Weighted
to 5 Years
to 10 Years
10 Years
Maturity
Total
Average
Carrying amount
Government and semi-
government securities
Other debt securities
Equity securities
Total by maturity
4,780
2,118
3.1%
3.0%
25,126 3.3%
13,073 2.9%
15,638 2.9%
-
-
-
-
-
-
-
-
6,898
40,764
13,073
-
-
-
-
-
-
-
-
-
384
384
-
-
-
42,979
17,756
384
61,119
3.2%
2.9%
-
The maturity profile is determined based upon contractual terms for available-for-sale instruments.
Available-for-sale securities include:
US Government treasury notes of $5,229 million (2017: $6,796 million, 2016: $6,413 million); and
total holdings of debt securities, where the aggregate book value exceeds 10% of equity attributable to Westpac's owners:
- Queensland Treasury Corporation totalling $11,144 million; and
- Australian Commonwealth Government totalling $10,657 million.
Notes to the financial statements
Note 13. Loans
Accounting policy
Loans are financial assets initially recognised at fair value plus directly attributable transaction costs and fees. 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
Provisions for impairment charges on loans (refer to Note 14)
Total net loans1,2
Consolidated
2018
2017
Parent Entity
2018
2017
444,741
427,167
444,730
427,155
21,079
21,952
20,090
19,905
154,347
150,542
150,580
146,143
1,830
1,885
1,830
1,885
88
100
88
100
622,085
601,646
617,318
595,188
44,772
43,198
1,793
1,856
27,701
26,667
76
85
74,342
71,806
-
-
376
-
376
-
-
321
-
321
3,600
2,818
3,600
2,818
12,477
11,515
11,281
10,283
16,077
14,333
14,881
13,101
712,504
687,785
632,575
608,610
(2,814)
709,690
(2,866)
684,919
(2,407)
630,168
(2,373)
606,237
3
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
not available). 2018: nil for the Group (2017: nil, 2016: $59 million) and nil for the Parent Entity (2017: nil).
1 Total net loans include $3,250 million (2017: $4,587 million) of fixed rate bills designated at fair value to reduce an accounting mismatch. The change
in fair value of fixed rate bills attributable to credit risk recognised during the year was $1 million (2017: $6 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 $22 million (2017: $23 million decrease)
for both the Group and Parent Entity.
2 Total net loans include securitised loans of:
- Group - 2018 $7,135 million (2017: $7,651 million)
- Parent - 2018 $85,965 million (2017: $82,135 million)
172
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173
Notes to the financial statements
Note 13. Loans (continued)
Loans included the following finance lease receivables:
$m
Gross investment in finance lease receivables:
Due within one year
Due after one year but not later than five years
Due after five years
Unearned future finance income on finance lease receivables
Net investment in finance lease receivables
Accumulated allowance for uncollectable minimum lease payments
Consolidated
2018
2017
Parent Entity
2018
2017
692
661
473
433
4,866
4,619
3,804
3,349
595
(870)
301
(796)
563
(727)
237
(606)
5,283
4,785
4,113
3,413
(8)
(6)
(3)
(2)
Net investment in finance lease receivables after accumulated allowance
5,275
4,779
4,110
3,411
Property services and business services
The net investment in finance lease receivables 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 lease receivables
677
4,116
490
5,283
634
3,913
238
4,785
458
3,192
463
4,113
416
2,809
188
3,413
The following table shows loans presented based on their industry classification:
Note 13. Loans (continued)
Consolidated
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
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
Property services and business services
Mining
Property
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
Property services and business services
Mining
Property
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total loans
Provisions for impairment charges on loans
Total net loans
Notes to the financial statements
2018
2017
2016
2015
2014
14,059
12,923
14,298
13,175
12,202
8,297
8,642
6,751
628
9,298
3,311
45,471
13,477
12,158
16,501
8,853
4,350
8,177
8,182
6,043
554
9,054
3,025
43,220
12,050
12,950
16,063
8,624
5,237
7,536
7,953
5,797
675
9,140
3,641
44,785
11,674
12,362
16,044
9,015
4,025
7,490
7,667
5,596
796
9,342
4,415
44,667
10,703
10,798
15,484
9,940
3,554
463,609
451,315
429,522
400,441
376,662
6,680
4,229
2,777
1,587
1,247
622,085
601,646
579,244
545,655
511,255
46,613
45,190
45,011
40,277
-
-
-
-
74,342
71,806
72,495
63,729
323
8,138
502
2,903
114
2,199
206
5,997
1,073
1,733
2,509
1,029
1,003
112
19
71
4,098
25
3,257
322
467
1,684
205
2,988
1,232
736
683
178
290
7,772
447
2,478
137
2,090
141
5,858
1,113
1,810
2,163
1,080
1,237
97
5
55
4
349
491
540
205
2,680
1,389
514
657
76
256
7,788
396
2,682
163
2,324
280
5,925
1,084
1,396
2,333
1,257
1,600
118
12
147
4
535
479
526
99
3,463
1,186
442
1,120
-
4,289
2,767
2,982
2,619
182
6,860
359
1,725
292
2,110
407
5,301
925
1,173
2,003
1,094
1,021
111
568
247
4,297
130
3,848
778
409
403
182
2,898
1,099
722
1,191
77
16,077
14,333
13,517
16,960
712,504
687,785
665,256
626,344
(2,814)
(2,866)
(3,330)
(3,028)
13,791
583,516
(3,173)
709,690
684,919
661,926
623,316
580,343
7,273
7,246
5,533
750
8,876
3,207
41,718
10,045
9,629
14,449
9,186
3,232
159
6,019
361
1,158
350
1,848
484
5,116
869
996
1,878
868
1,004
37,222
138
58,470
127
465
120
2,006
35
2,886
1,617
352
140
242
3,248
689
701
1,111
52
174
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175
Notes to the financial statements
Note 13. Loans (continued)
Loans included the following finance lease receivables:
$m
Gross investment in finance lease receivables:
Due within one year
Due after five years
Due after one year but not later than five years
Unearned future finance income on finance lease receivables
Net investment in finance lease receivables
Accumulated allowance for uncollectable minimum lease payments
Due within one year
Due after five years
Due after one year but not later than five years
Total net investment in finance lease receivables
Consolidated
Parent Entity
2018
2017
2018
2017
692
661
473
433
4,866
4,619
3,804
3,349
595
(870)
301
(796)
563
(727)
237
(606)
5,283
4,785
4,113
3,413
(8)
(6)
(3)
(2)
677
634
458
416
4,116
3,913
3,192
2,809
490
238
463
188
5,283
4,785
4,113
3,413
Net investment in finance lease receivables after accumulated allowance
5,275
4,779
4,110
3,411
The net investment in finance lease receivables may be analysed as follows:
Note 13. Loans (continued)
The following table shows loans presented based on their industry classification:
Notes to the financial statements
Consolidated
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
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
2018
2017
2016
2015
2014
8,297
8,642
6,751
14,059
628
9,298
3,311
45,471
13,477
12,158
16,501
8,853
4,350
463,609
6,680
622,085
323
8,138
502
2,903
114
2,199
206
5,997
1,073
1,733
2,509
1,029
1,003
46,613
-
74,342
112
19
71
4,098
25
3,257
322
467
1,684
205
2,988
1,232
736
683
178
16,077
712,504
(2,814)
709,690
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
601,646
290
7,772
447
2,478
137
2,090
141
5,858
1,113
1,810
2,163
1,080
1,237
45,190
-
71,806
97
5
55
4,289
4
2,982
349
491
540
205
2,680
1,389
514
657
76
14,333
687,785
(2,866)
684,919
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
579,244
256
7,788
396
2,682
163
2,324
280
5,925
1,084
1,396
2,333
1,257
1,600
45,011
-
72,495
118
12
147
2,767
4
2,619
535
479
526
99
3,463
1,186
442
1,120
-
13,517
665,256
(3,330)
661,926
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
545,655
182
6,860
359
1,725
292
2,110
407
5,301
925
1,173
2,003
1,094
1,021
40,277
-
63,729
111
568
247
4,297
130
3,848
778
409
403
182
2,898
1,099
722
1,191
77
16,960
626,344
(3,028)
623,316
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
511,255
159
6,019
361
1,158
350
1,848
484
5,116
869
996
1,878
868
1,004
37,222
138
58,470
127
465
120
2,006
35
2,886
1,617
352
140
242
3,248
689
701
1,111
52
13,791
583,516
(3,173)
580,343
3
174
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175
Notes to the financial statements
Notes to the financial statements
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
Note 13. Loans (continued)
Consolidated 2018
$m
Loans by type of customer in Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Property services and business services
Transport and storage
Manufacturing
Mining
Property
Services
Trade
Utilities
Retail lending
Other
Total Australia
Total overseas
Total loans
Consolidated
Up to 1 Year 1 to 5 Years Over 5 Years
Total
19,019
22,782
3,381
3,173
1,647
7,465
125
3,263
548
4,029
3,248
6,737
1,688
1,105
14,618
1,076
71,122
24,824
95,946
4,457
4,763
4,301
4,896
174
4,701
1,281
7,547
7,185
8,048
5,660
2,625
459
706
803
1,698
329
1,334
1,482
3,670
1,901
1,725
1,716
1,505
620
8,297
8,642
6,751
14,059
628
9,298
3,311
45,471
13,477
12,158
16,501
8,853
4,350
24,316
424,675
463,609
4,097
1,507
6,680
106,833
18,958
125,791
444,130
46,637
490,767
622,085
90,419
712,504
2018
Loans at
Loans at
Variable
Interest
Fixed
Interest
2017
Loans at
Loans at
Variable
Interest
Fixed
Interest
$m
Rates
Rates
Total
Rates
Rates
Total
Interest rate segmentation of Group
loans maturing after one year
By offices in Australia
By offices overseas
Total loans maturing after one year
442,702
173,856
616,558
436,014
161,754
597,768
423,886
127,077
550,963
417,643
117,326
534,969
18,816
46,779
65,595
18,371
44,428
62,799
2018
2017
2018:
The following table shows the consolidated contractual maturity distribution of all loans by type of customer as at 30 September
8,228
8,584
6,247
14,006
620
9,072
3,279
45,471
12,433
11,891
16,291
8,456
4,324
462,568
5,848
617,318
-
2
5
-
-
98
-
-
8
-
263
-
-
-
-
376
70
4
59
4,093
24
3,253
323
234
1,595
187
2,802
1,127
734
277
99
14,881
632,575
(2,407)
630,168
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
176
2018 Westpac Group Annual Report
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177
Notes to the financial statements
Notes to the financial statements
2018
2017
The following table shows the consolidated contractual maturity distribution of all loans by type of customer as at 30 September
2018:
Note 13. Loans (continued)
Consolidated 2018
$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
14,006
12,882
8,228
8,584
6,247
620
9,072
3,279
45,471
12,433
11,891
16,291
8,456
4,324
462,568
5,848
617,318
-
2
5
-
-
-
-
8
-
-
-
-
-
70
4
59
4,093
24
3,253
323
234
1,595
187
2,802
1,127
734
277
99
8,098
8,063
5,440
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
-
-
-
-
9
1
-
-
-
2
88
4
44
4,284
3
2,969
349
288
525
74
2,446
1,159
508
280
80
98
88
263
217
376
321
14,881
632,575
(2,407)
630,168
13,101
608,610
(2,373)
606,237
Up to 1 Year 1 to 5 Years Over 5 Years
Total
3,381
3,173
1,647
7,465
125
3,263
548
4,457
4,763
4,301
4,896
174
4,701
1,281
19,019
22,782
7,547
7,185
8,048
5,660
2,625
4,029
3,248
6,737
1,688
1,105
14,618
1,076
71,122
24,824
95,946
459
706
803
1,698
329
1,334
1,482
3,670
1,901
1,725
1,716
1,505
620
8,297
8,642
6,751
14,059
628
9,298
3,311
45,471
13,477
12,158
16,501
8,853
4,350
24,316
424,675
463,609
4,097
1,507
6,680
106,833
18,958
125,791
444,130
46,637
490,767
622,085
90,419
712,504
Loans at
Variable
Interest
Rates
2018
Loans at
Fixed
Interest
Rates
Loans at
Variable
Interest
Rates
2017
Loans at
Fixed
Interest
Rates
Total
Total
423,886
127,077
550,963
417,643
117,326
534,969
18,816
442,702
46,779
173,856
65,595
616,558
18,371
436,014
44,428
161,754
62,799
597,768
3
Note 13. Loans (continued)
Parent Entity
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Property services and business services
Mining
Property
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
Property services and business services
Mining
Property
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
Property services and business services
Mining
Property
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total loans
Provisions for impairment charges on loans
Total net loans
176
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
177
collectively assessed for impairment.
individually assessed for impairment; and
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:
Notes to the financial statements
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
2018
2017
2016
2015
2014
$m
%
$m
%
$m
%
$m
%
$m
%
Property services and business services
127
200
Individually assessed provisions by industry
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
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
Property services and business services
Mining
Property
Services
Trade
Transport and storage
Utilities
Retail lending
Total New Zealand
Total other overseas
387
12.6
433
13.9
752
20.9
553
16.6
691
19.9
9
13
24
25
49
9
47
35
27
39
16
-
92
2
-
13
-
-
6
-
6
-
1
-
-
-
7
33
2
0.3
0.4
0.8
0.8
1.6
0.3
1.5
1.1
0.9
1.3
0.5
-
3.0
0.1
-
0.4
-
-
0.2
-
-
0.1
-
-
-
0.2
1.1
0.1
15
9
20
6
40
19
74
77
25
37
14
-
94
3
-
11
-
-
4
-
-
2
1
-
-
7
45
2
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
-
0.4
-
-
0.1
-
-
0.1
-
-
-
0.2
1.4
0.1
39
21
23
15
120
41
125
215
16
62
14
-
57
4
-
11
1
-
34
14
31
1
2
1
-
-
4
99
18
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
-
0.3
-
-
0.9
0.4
0.9
-
0.1
-
-
-
0.1
2.7
0.5
38
23
20
23
41
11
97
20
39
54
-
57
3
-
6
1
-
33
13
42
1
2
1
-
-
8
107
9
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
-
0.2
-
-
1.0
0.4
1.3
-
0.1
-
-
-
0.2
3.2
0.3
0.2
20
0.6
47
47
61
24
36
15
83
32
70
12
2
60
2
-
6
1
-
33
36
38
-
1
2
1
-
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
-
0.2
-
-
0.9
1.0
1.1
0.1
-
-
-
-
10
128
48
0.3
3.6
1.4
24.9
75.1
Total individually assessed provisions
422
13.8
480
15.4
869
24.1
669
20.1
867
Total collectively assessed provisions
2,631
86.2
2,639
84.6
2,733
75.9
2,663
79.9
2,614
Total provisions for impairment charges and
credit commitments
3,053
100.0
3,119
100.0
3,602
100.0
3,332
100.0
3,481
100.0
Note 6 explains how impairment charges are determined.
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
2018
2016
Parent Entity
2018
2017
480
371
(150)
(269)
(11)
1
422
869
610
(288)
(688)
(16)
(7)
480
669
727
(210)
(287)
(13)
(17)
869
417
341
(131)
(248)
(11)
7
375
752
581
(218)
(681)
(16)
(1)
417
2,639
2,733
2,663
2,180
2,198
668
(858)
179
3
2,631
3,053
(239)
2,814
699
(968)
188
(13)
2,639
3,119
(253)
2,866
744
(902)
193
35
2,733
3,602
(272)
3,330
610
(742)
148
42
2,238
2,613
(206)
2,407
628
(810)
152
12
2,180
2,597
(224)
2,373
178
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
179
Notes to the financial statements
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
2018
2017
2016
2015
2014
$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
Property
Critical accounting assumptions and estimates
Property services and business services
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
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
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.
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Total New Zealand
Total other overseas
9
13
24
25
49
9
47
35
27
39
16
-
92
2
0.3
0.4
0.8
0.8
1.6
0.3
1.5
1.1
0.9
1.3
0.5
-
3.0
0.1
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
387
12.6
433
13.9
752
20.9
553
16.6
691
19.9
-
13
-
-
6
-
6
-
1
-
-
-
7
33
2
-
0.4
-
-
0.2
-
-
11
-
-
4
-
-
0.4
-
-
0.1
-
0.2
20
0.6
-
0.1
-
-
-
0.2
1.1
0.1
-
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
Total individually assessed provisions
422
13.8
480
15.4
869
24.1
669
20.1
867
Total collectively assessed provisions
2,631
86.2
2,639
84.6
2,733
75.9
2,663
79.9
2,614
24.9
75.1
3
Total provisions for impairment charges and
credit commitments
3,053
100.0
3,119
100.0
3,602
100.0
3,332
100.0
3,481
100.0
The Group recognises two types of impairment provisions for its loans, being provisions for loans which are:
Notes to the financial statements
Note 14. Provisions for impairment charges
Accounting policy
individually assessed for impairment; and
collectively assessed for impairment.
Note 6 explains how impairment charges are determined.
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.
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
Opening balance
Provisions raised
Write-offs
Interest adjustment
Other adjustments
Closing balance
Collectively assessed provisions
Total provisions for impairment charges on loans and credit commitments
Less provisions for credit commitments (refer to Note 28)
Total provisions for impairment charges on loans
Consolidated
Parent Entity
2018
2017
2016
2018
2017
480
371
(150)
(269)
(11)
1
422
668
(858)
179
3
2,631
3,053
(239)
2,814
869
610
(288)
(688)
(16)
(7)
480
699
(968)
188
(13)
2,639
3,119
(253)
2,866
669
727
(210)
(287)
(13)
(17)
869
744
(902)
193
35
2,733
3,602
(272)
3,330
417
341
(131)
(248)
(11)
7
375
610
(742)
148
42
2,238
2,613
(206)
2,407
752
581
(218)
(681)
(16)
(1)
417
628
(810)
152
12
2,180
2,597
(224)
2,373
2,639
2,733
2,663
2,180
2,198
178
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
179
Notes to the financial statements
Notes to the financial statements
Note 14. Provisions for impairment charges (continued)
Note 14. Provisions for impairment charges (continued)
The following table shows details of loan write-offs by industry classifications for the past five years:
The following table shows details of recoveries of loans by industry classifications for the past five years:
Consolidated
$m
Write-offs
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Total other overseas
Total write-offs
Write-offs in relation to:
Collectively assessed provisions
Individually assessed provisions
Total write-offs
Consolidated
$m
Recoveries
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
Total New Zealand
Total other overseas
Total recoveries
Total write-offs
Accounting policy
Life insurance assets
estimates in Note 23.
2018
2017
2016
2015
2014
2018
2017
2016
2015
2014
1
-
1
1
-
1
7
1
1
2
1
-
139
-
155
24
-
179
3
-
2
1
2
1
3
-
3
1
-
10
118
5
149
19
-
168
15
12
34
-
-
1
1
-
3
2
2
1
1
-
-
-
4
8
3
-
2
1
1
-
-
84
2
131
6
-
137
(1,189)
(1,052)
78
1
113
18
-
131
(1,238)
(1,107)
-
-
2
8
3
-
-
-
1
-
2
62
2
92
14
-
106
(1,408)
(1,302)
(14)
(12)
(23)
(4)
(12)
(14)
(39)
(44)
(24)
(56)
(17)
(1)
(793)
(5)
(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)
Property services and business services
(70)
(18)
(56)
(24)
(2)
(658)
(13)
(50)
(22)
(70)
(43)
(3)
(603)
(14)
(1,058)
(1,602)
(1,119)
(1,110)
(1,209)
-
-
(1)
-
-
-
(13)
-
(1)
(1)
-
-
(53)
-
(69)
-
-
-
(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)
(1,127)
(1,656)
(1,189)
(1,238)
(1,408)
(858)
(269)
(968)
(688)
(902)
(287)
(793)
(445)
(702)
(706)
(1,127)
(1,656)
(1,189)
(1,238)
(1,408)
Net write-offs and recoveries
(1,127)
(948)
(1,656)
(1,488)
Note 15. Life insurance assets and life insurance liabilities
The Group conducts its life insurance business in Australia primarily through Westpac Life Insurance Services Limited and
separate statutory funds 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, 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
The Life Act places restrictions on life insurance assets, including that they can only be used:
to meet the liabilities and expenses of that statutory fund;
to acquire investments to further the business of the statutory fund; or
as a distribution, when the statutory fund has met its solvency and capital adequacy requirements.
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
Life insurance liabilities
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.
180
2018 Westpac Group Annual Report
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181
Notes to the financial statements
Notes to the financial statements
Note 14. Provisions for impairment charges (continued)
Note 14. Provisions for impairment charges (continued)
The following table shows details of loan write-offs by industry classifications for the past five years:
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
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
Total New Zealand
Total other overseas
Total recoveries
Total write-offs
Net write-offs and recoveries
2018
2017
2016
2015
2014
1
-
1
1
-
1
7
1
1
2
1
-
139
-
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
155
24
-
179
(1,127)
(948)
149
19
-
168
(1,656)
(1,488)
131
6
-
137
(1,189)
(1,052)
113
18
-
131
(1,238)
(1,107)
-
-
2
8
3
-
12
-
-
1
-
2
62
2
92
14
-
106
(1,408)
(1,302)
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
separate statutory funds 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.
Consolidated
$m
Write-offs
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Property services and business services
Mining
Property
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
Property services and business services
Mining
Property
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
2018
2017
2016
2015
2014
(803)
(13)
(658)
(13)
(603)
(14)
(1,058)
(1,602)
(1,119)
(1,110)
(1,209)
(14)
(12)
(23)
(4)
(12)
(14)
(39)
(44)
(24)
(56)
(17)
(1)
(793)
(5)
(1)
-
-
-
-
-
(13)
-
(1)
(1)
-
-
-
(69)
-
(38)
(10)
(30)
(6)
(105)
(46)
(76)
(203)
(97)
(59)
(17)
-
(898)
(17)
(1)
-
-
-
-
-
-
-
-
-
-
(1)
(53)
(1)
(17)
(12)
(20)
(13)
(21)
(18)
(44)
(43)
(36)
(30)
(48)
(1)
-
(1)
(1)
-
-
-
(2)
-
(1)
-
-
(51)
(1)
(67)
(3)
(2)
(10)
(104)
(182)
(40)
(36)
(40)
(12)
(20)
(17)
(70)
(18)
(56)
(24)
(2)
-
(3)
-
-
(1)
(28)
(18)
-
(1)
(4)
-
-
-
(26)
(60)
(37)
(10)
(85)
(4)
(50)
(22)
(70)
(43)
(3)
(2)
(10)
(5)
(10)
(1)
(10)
(41)
-
(37)
(3)
-
-
-
(53)
(49)
(55)
(49)
(110)
(18)
(168)
(31)
(1,127)
(1,656)
(1,189)
(1,238)
(1,408)
(858)
(269)
(968)
(688)
(902)
(287)
(793)
(445)
(702)
(706)
(1,127)
(1,656)
(1,189)
(1,238)
(1,408)
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.
180
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
181
The Life Act places restrictions on life insurance assets, including that they can only be used:
as a distribution, when the statutory fund has met its solvency and capital adequacy requirements.
to acquire investments to further the business of the statutory fund; or
to meet the liabilities and expenses of that statutory fund;
3
Notes to the financial statements
Notes to the financial statements
Note 15. Life insurance assets and life insurance liabilities (continued)
Note 16. Payables due to other financial institutions
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.
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.
Payables due to other financial institutions are recognised initially at fair value and subsequently at amortised cost using the
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’.
Accounting policy
effective interest rate method.
Security repurchase agreements
$m
Cash collateral
Offshore central bank deposits
Interbank borrowing
Security repurchase agreements1
Consolidated
Parent Entity
2018
2017
2018
2,171
3,397
6,564
6,005
2,429
3,108
6,953
9,417
1,735
3,397
6,545
6,005
2017
2,304
3,108
6,946
9,417
Total payables due to other financial institutions
18,137
21,907
17,682
21,775
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
Unit trusts
Loans and other assets
Total life insurance assets
2018
20171
1,223
1,622
6,545
60
9,450
2,515
2,025
6,093
10
10,643
There were no life insurance assets in the Parent Entity as at 30 September 2018 (2017: nil).
Life insurance liabilities
Consolidated
Reconciliation of movements in policy liabilities
$m
Opening balance
Movements in policy liabilities reflected in the income statement
Contract contributions recognised in policy liabilities
Contract withdrawals recognised in policy liabilities
Contract fees, expenses and tax recoveries
Change in external unit holders of managed investment schemes
Closing balance
Life Investment
Contracts
Life Insurance
Contracts
Total
2018
2017
2018
2017
2018
2017
9,854
13,234
(835)
(873)
9,019
12,361
704
738
544
790
(1,115)
(1,214)
(104)
(1,639)
8,438
(100)
(3,400)
9,854
(6)
-
-
-
38
-
-
-
-
(841)
-
(835)
698
738
582
790
(1,115)
(1,214)
(104)
(1,639)
7,597
(100)
(3,400)
9,019
There were no life insurance liabilities in the Parent Entity as at 30 September 2018 (2017: nil).
1 Comparatives have been restated for consistency.
1 The carrying value of securities pledged under repurchase agreements for the Group and the Parent Entity is $8,884 million (2017: $15,192 million).
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183
Notes to the financial statements
Notes to the financial statements
Note 15. Life insurance assets and life insurance liabilities (continued)
Note 16. Payables due to other financial institutions
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.
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
Interbank borrowing
Security repurchase agreements1
Total payables due to other financial institutions
Consolidated
2018
2017
Parent Entity
2018
2017
2,171
3,397
6,564
6,005
18,137
2,429
3,108
6,953
9,417
21,907
1,735
3,397
6,545
6,005
17,682
2,304
3,108
6,946
9,417
21,775
MoS accounts for the associated risks and uncertainties of each type of life insurance contract written. At each reporting date,
planned profit margins and an estimate of future liabilities are calculated. Profit margins are released to non-interest income
over the period that life insurance is provided to policyholders (Note 4). The cost incurred in acquiring specific insurance
contracts is deferred provided that these amounts are recoverable out of planned profit margins. The deferred amounts are
recognised as a reduction in life insurance policy liabilities and are amortised to non-interest income over the same period as
the planned profit margins.
External unit holder liabilities of managed investment schemes
The life insurance statutory funds include controlling interests in managed investment schemes which are consolidated. When
the managed investment scheme is consolidated, the external unit holder liabilities are recognised as a liability and included in
life insurance liabilities. They are designated at fair value through income statement.
Critical accounting assumptions and estimates
The key factors that affect the estimation of life insurance liabilities and related assets are:
the cost of providing benefits and administering contracts;
mortality and morbidity experience, which includes policyholder benefits enhancements;
discontinuance rates, which affects the Group’s ability to recover the cost of acquiring new business over the life of the
contracts; and
the discount rate of projected future cash flows.
Regulation, competition, interest rates, taxes, securities market conditions and general economic conditions also affect the
estimation of life insurance liabilities.
Life insurance assets
Investments held directly and in unit trusts
Consolidated
$m
Equities
Debt securities
Unit trusts
Loans and other assets
Total life insurance assets
Life insurance liabilities
Consolidated
$m
Opening balance
Contract contributions recognised in policy liabilities
Contract withdrawals recognised in policy liabilities
Contract fees, expenses and tax recoveries
There were no life insurance assets in the Parent Entity as at 30 September 2018 (2017: nil).
Reconciliation of movements in policy liabilities
Contracts
Contracts
Total
Life Investment
Life Insurance
Movements in policy liabilities reflected in the income statement
(6)
38
2018
2017
2018
2017
2018
2017
9,854
13,234
(835)
(873)
9,019
12,361
704
738
544
790
(1,115)
(1,214)
(104)
(100)
-
-
-
-
698
738
582
790
(1,115)
(1,214)
(104)
(100)
(1,639)
(3,400)
-
-
-
-
Change in external unit holders of managed investment schemes
(1,639)
(3,400)
Closing balance
8,438
9,854
(841)
(835)
7,597
9,019
There were no life insurance liabilities in the Parent Entity as at 30 September 2018 (2017: nil).
2018
20171
1,223
1,622
6,545
60
2,515
2,025
6,093
10
9,450
10,643
3
1 Comparatives have been restated for consistency.
1 The carrying value of securities pledged under repurchase agreements for the Group and the Parent Entity is $8,884 million (2017: $15,192 million).
182
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183
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 call1
Other interest bearing term1
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
Total deposits and other borrowings
Deposits and other borrowings at fair value2
Deposits and other borrowings at amortised cost
Total deposits and other borrowings
Consolidated
2018
2017
Parent Entity
2018
2017
28,746
37,515
28,746
37,515
41,783
40,324
41,783
40,324
233,052
224,268
233,052
223,686
171,832
156,249
171,832
156,249
475,413
458,356
475,413
457,774
1,116
5,406
546
4,853
21,368
21,273
29,897
27,620
57,787
54,292
-
-
-
3
3
-
-
-
-
-
11,672
8,860
11,672
830
1,638
11,945
810
1,505
9,768
352
1,249
11,779
8,860
322
1,150
9,587
26,085
20,943
25,052
19,919
559,285
533,591
500,468
477,693
41,178
46,569
40,062
46,023
518,107
559,285
487,022
533,591
460,406
500,468
431,670
477,693
Australia
Non-interest bearing
Certificates of deposit
Other interest bearing at call1
Other interest bearing term1
Total Australia
Overseas
Non-interest bearing
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total overseas
out below:
Consolidated 2018
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
2018
2017
2016
Notes to the financial statements
Average
Balance
$m
Average
Rate
%
Average
Balance
$m
Average
Rate
%
Average
Balance
$m
Average
Rate
%
41,156
31,424
228,328
162,254
463,162
6,021
13,008
23,017
41,942
83,988
2.0%
1.2%
2.5%
1.9%
1.2%
2.8%
39,355
33,350
222,122
154,114
448,941
5,527
13,151
24,163
37,813
80,654
2.0%
1.1%
2.7%
1.4%
1.3%
2.7%
35,732
31,165
208,333
136,617
411,847
5,051
16,938
24,686
35,963
82,638
2.4%
1.5%
2.9%
0.9%
1.9%
2.7%
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
Less Than
Between
3 and
Between
6 Months
and
$m
Certificates of deposit greater than US$100,000
Term deposits greater than US$100,000
3 Months
6 Months
1 Year Over 1 Year
Total
14,181
84,292
13,176
30,627
1,285
27,139
104
8,848
28,746
150,906
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 also recognised
through the income statement.
Interest expense is recognised in net interest income using the effective interest rate method.
$m
Security repurchase agreements2
Securities sold short
Total other financial liabilities at fair value through income statement
Consolidated
Parent Entity
2018
2017
2018
3,517
780
4,297
3,543
513
4,056
3,517
780
4,297
2017
3,525
513
4,038
At maturity, the Group is contractually required to pay $4,298 million (2017: $4,056 million), and the Parent Entity $4,298 million
(2017: $4,038 million) to holders of these financial liabilities.
1 Comparatives have been revised for consistency.
2 The contractual outstanding amount payable at maturity for the Group is $41,330 million (2017: $46,713 million) and for the Parent Entity is $40,214
million (2017: $46,168 million).
1 Comparatives have been revised for consistency.
is $3,608 million (2017: $3,536 million).
2 The carrying value of securities pledged under repurchase agreements for the Group is $3,608 million (2017: $3,554 million) and for the Parent Entity
184
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185
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 call1
Other interest bearing term1
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
Total deposits and other borrowings
Deposits and other borrowings at fair value2
Deposits and other borrowings at amortised cost
Total deposits and other borrowings
Consolidated
Parent Entity
2018
2017
2018
2017
28,746
37,515
28,746
37,515
41,783
40,324
41,783
40,324
233,052
224,268
233,052
223,686
171,832
156,249
171,832
156,249
475,413
458,356
475,413
457,774
1,116
5,406
546
4,853
21,368
21,273
29,897
27,620
57,787
54,292
-
-
-
3
3
-
-
-
-
-
11,672
8,860
11,672
830
1,638
11,945
810
1,505
9,768
352
1,249
11,779
8,860
322
1,150
9,587
26,085
20,943
25,052
19,919
559,285
533,591
500,468
477,693
41,178
46,569
40,062
46,023
518,107
487,022
460,406
431,670
559,285
533,591
500,468
477,693
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
2018
2017
2016
Notes to the financial statements
Australia
Non-interest bearing
Certificates of deposit
Other interest bearing at call1
Other interest bearing term1
Total Australia
Overseas
Non-interest bearing
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total overseas
Average
Balance
$m
Average
Rate
%
Average
Balance
$m
Average
Rate
%
Average
Balance
$m
Average
Rate
%
41,156
31,424
228,328
162,254
463,162
6,021
13,008
23,017
41,942
83,988
2.0%
1.2%
2.5%
1.9%
1.2%
2.8%
39,355
33,350
222,122
154,114
448,941
5,527
13,151
24,163
37,813
80,654
2.0%
1.1%
2.7%
1.4%
1.3%
2.7%
35,732
31,165
208,333
136,617
411,847
5,051
16,938
24,686
35,963
82,638
2.4%
1.5%
2.9%
0.9%
1.9%
2.7%
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 2018
$m
Certificates of deposit greater than US$100,000
Term deposits greater than US$100,000
Less Than
3 Months
14,181
84,292
Between
3 and
6 Months
13,176
30,627
Between
6 Months
and
1 Year Over 1 Year
104
1,285
8,848
27,139
Total
28,746
150,906
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 also recognised
through the income statement.
3
Interest expense is recognised in net interest income using the effective interest rate method.
2 The contractual outstanding amount payable at maturity for the Group is $41,330 million (2017: $46,713 million) and for the Parent Entity is $40,214
1 Comparatives have been revised for consistency.
million (2017: $46,168 million).
1 Comparatives have been revised for consistency.
2 The carrying value of securities pledged under repurchase agreements for the Group is $3,608 million (2017: $3,554 million) and for the Parent Entity
is $3,608 million (2017: $3,536 million).
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185
At maturity, the Group is contractually required to pay $4,298 million (2017: $4,056 million), and the Parent Entity $4,298 million
(2017: $4,038 million) to holders of these financial liabilities.
$m
Security repurchase agreements2
Securities sold short
Total other financial liabilities at fair value through income statement
Consolidated
2018
2017
3,517
780
4,297
3,543
513
4,056
Parent Entity
2018
3,517
780
4,297
2017
3,525
513
4,038
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.
Debt issues are designated at fair value if they reduce or eliminate an accounting mismatch or contain an embedded derivative.
They are measured at fair value with changes in fair value (except those due to changes in credit risk) recognised as non-
interest income.
The change in the fair value that is due to credit risk is recognised in other comprehensive income except where it would create
an accounting mismatch, in which case it is also recognised in the income statement.
Interest expense incurred is recognised within net interest income using the effective interest rate method.
In the table below, the distinction between short-term (12 months or less) and long-term (greater than 12 months) debt is based
on the original maturity of the underlying security.
$m
Short-term debt:
Own issuances1
Customer conduits2
Acceptances
Total short-term debt1
Long-term debt:
Covered bonds
Senior1
Securitisation
Structured notes
Total long-term debt1
Total debt issues
Debt issues at fair value3
Debt issues at amortised cost
Total debt issues
Movement Reconciliation ($m)
Balance as at 1 October 2017
Issuances
Maturities, repayments, buy backs and reductions
Other cash movements
Total cash movements
Foreign exchange translation impact
Fair value adjustments
Fair value hedge accounting adjustments
Other (amortisation of bond issue costs, etc.)
Total non-cash movements
Balance as at 30 September 2018
Consolidated
2018
2017
Parent Entity
2018
2017
26,266
31,514
26,266
30,002
-
-
392
6
-
-
-
6
26,266
31,912
26,266
30,008
35,434
34,516
30,268
29,698
103,159
93,476
95,754
84,410
7,588
8,209
149
243
-
-
-
-
146,330
136,444
126,022
114,108
172,596
168,356
152,288
144,116
3,355
4,673
3,223
2,940
169,241
172,596
163,683
168,356
149,065
152,288
141,176
144,116
168,356
59,456
(64,698)
-
(5,242)
11,022
(244)
(1,313)
17
9,482
144,116
57,440
(58,005)
-
(565)
10,252
(240)
(1,288)
13
8,737
172,596
152,288
Note 19. Debt issues (continued)
Consolidated
$m
Short-term debt
Own issuances:
US commercial paper
Senior debt1:
AUD
GBP
Other
Total own issuances1
Asset backed commercial paper (by currency):
Total assets backed commercial paper
Acceptances
Total short-term debt
Long-term debt (by currency)1:
AUD
AUD
CHF
EUR
GBP
JPY
NZD
USD
Other
Total long-term debt1
Consolidated
$m
Short-term borrowings
US commercial paper
Maximum amount outstanding at any month end
Approximate average amount outstanding
Approximate weighted average interest rate on:
Average amount outstanding
Outstanding as at end of the year
Notes to the financial statements
2018
2017
18,675
26,167
550
6,604
437
1,900
2,916
531
26,266
31,514
-
-
-
392
392
6
26,266
31,912
37,571
2,953
31,734
5,290
3,226
2,294
60,336
2,926
35,780
1,903
25,049
4,922
2,137
3,416
60,971
2,266
146,330
136,444
2018
2017
2016
28,331
23,315
27,456
23,025
36,478
26,351
2.0%
2.5%
1.3%
1.2%
0.7%
0.9%
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.
1 Comparatives have been revised for consistency.
2 Further information on customer conduits is disclosed in Note 25.
3 The contractual outstanding amount payable at maturity for the Group is $3,475 million (2017: $4,604 million) and for the Parent Entity is $3,344
million (2017: $2,875 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 $45 million (2017: $2 million decrease) for the Group and Parent Entity.
1 Comparatives have been revised for consistency.
186
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187
The change in the fair value that is due to credit risk is recognised in other comprehensive income except where it would create
AUD
Note 19. Debt issues (continued)
Consolidated
$m
Short-term debt
Own issuances:
US commercial paper
Senior debt1:
AUD
GBP
Other
Total own issuances1
Asset backed commercial paper (by currency):
Total assets backed commercial paper
Acceptances
Total short-term debt
Long-term debt (by currency)1:
AUD
CHF
EUR
GBP
JPY
NZD
USD
Other
Total long-term debt1
Consolidated
$m
Short-term borrowings
US commercial paper
Maximum amount outstanding at any month end
Approximate average amount outstanding
Approximate weighted average interest rate on:
Average amount outstanding
Outstanding as at end of the year
Notes to the financial statements
2018
2017
18,675
26,167
550
6,604
437
1,900
2,916
531
26,266
31,514
-
-
-
26,266
37,571
2,953
31,734
5,290
3,226
2,294
392
392
6
31,912
35,780
1,903
25,049
4,922
2,137
3,416
60,336
60,971
2,926
146,330
2,266
136,444
2018
2017
2016
28,331
23,315
27,456
23,025
36,478
26,351
2.0%
2.5%
1.3%
1.2%
0.7%
0.9%
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.
3
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.
rate method or at fair value.
Debt issues are initially measured at fair value and subsequently either measured at amortised cost using the effective interest
Debt issues are designated at fair value if they reduce or eliminate an accounting mismatch or contain an embedded derivative.
They are measured at fair value with changes in fair value (except those due to changes in credit risk) recognised as non-
interest income.
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 (12 months or less) and long-term (greater than 12 months) debt is based
on the original maturity of the underlying security.
$m
Short-term debt:
Own issuances1
Customer conduits2
Acceptances
Total short-term debt1
Long-term debt:
Covered bonds
Senior1
Securitisation
Structured notes
Total long-term debt1
Total debt issues
Debt issues at fair value3
Debt issues at amortised cost
Total debt issues
Movement Reconciliation ($m)
Balance as at 1 October 2017
Issuances
Maturities, repayments, buy backs and reductions
Other cash movements
Total cash movements
Foreign exchange translation impact
Fair value adjustments
Fair value hedge accounting adjustments
Other (amortisation of bond issue costs, etc.)
Total non-cash movements
Balance as at 30 September 2018
Consolidated
Parent Entity
2018
2017
2018
2017
26,266
31,514
26,266
30,002
-
-
392
6
26,266
31,912
26,266
30,008
35,434
34,516
30,268
29,698
103,159
93,476
95,754
84,410
7,588
8,209
149
243
146,330
136,444
126,022
114,108
172,596
168,356
152,288
144,116
3,355
4,673
3,223
2,940
169,241
163,683
149,065
141,176
172,596
168,356
152,288
144,116
-
6
-
-
-
-
-
-
168,356
59,456
(64,698)
-
(5,242)
11,022
(244)
(1,313)
17
9,482
144,116
57,440
(58,005)
-
(565)
10,252
(240)
(1,288)
13
8,737
172,596
152,288
1 Comparatives have been revised for consistency.
2 Further information on customer conduits is disclosed in Note 25.
3 The contractual outstanding amount payable at maturity for the Group is $3,475 million (2017: $4,604 million) and for the Parent Entity is $3,344
million (2017: $2,875 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 $45 million (2017: $2 million decrease) for the Group and Parent Entity.
1 Comparatives have been revised for consistency.
186
2018 Westpac Group Annual Report
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187
Notes to the financial statements
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.
R
$m
Additional Tier 1 (AT1) loan capital
Convertible preference shares
Westpac capital notes
USD AT1 securities
Total AT1 loan capital
Tier 2 loan capital
Subordinated notes
Subordinated perpetual notes
Total Tier 2 loan capital
Total loan capital
Movement Reconciliation ($m)
Balance as at 1 October 2017
Issuances
Maturities, repayments, buy backs and reductions
Total cash movements
Foreign exchange translation impact
Fair value hedge accounting adjustments
Conversion of Convertible Preference Shares to ordinary shares1
Other (amortisation of bond issue costs, etc.)
Total non-cash movements
Balance as at 30 September 2018
Consolidated
2018
2017
Parent Entity
2018
2017
$m
-
7,370
1,585
8,955
7,822
488
8,310
1,188
5,684
1,556
8,428
8,789
449
9,238
-
7,370
1,585
8,955
7,822
488
8,310
17,265
17,666
17,265
1,188
5,684
1,556
8,428
8,789
449
9,238
17,666
17,666
2,342
(2,387)
(45)
449
(257)
(566)
18
(356)
17,666
2,342
(2,387)
(45)
449
(257)
(566)
18
(356)
17,265
17,265
1 Refer to AT1 loan capital discussion in the next page and Note 41.
188
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
189
Notes to the financial statements
Note 20. Loan capital (continued)
Additional Tier 1 loan capital
Consolidated and Parent Entity
A summary of the key terms and common features of AT1 instruments are provided below1.
Dividend/distribution/
Potential scheduled
Optional
interest rate
conversion date2
redemption date3
2018
2017
Westpac convertible preference shares (CPS)
$1,189 million CPS
(180 day bank bill rate + 3.25% p.a.)
31 March 2020
31 March 20184
-
1,188
x (1 - Australian corporate tax rate)
Total convertible preference shares
Westpac capital notes (WCN)
$1,384 million WCN
(90 day bank bill rate + 3.20% p.a.)
8 March 2021
8 March 2019
1,382
1,379
$1,311 million WCN2
(90 day bank bill rate + 3.05% p.a.)
23 September 2024
23 September 2022
1,305
$1,324 million WCN3
(90 day bank bill rate + 4.00% p.a.)
22 March 2023
22 March 2021
1,316
$1,702 million WCN4
(90 day bank bill rate + 4.90% p.a.)
20 December 2023
20 December 2021
1,691
$1,690 million WCN5
(90 day bank bill rate + 3.20% p.a.)
22 September 2027
22 September 2025
1,676
Total Westpac capital notes
USD AT1 securities
US$1,250 million securities
n/a
21 September 20276
1,585
1,556
x (1 - Australian corporate tax rate)
x (1 - Australian corporate tax rate)
x (1 - Australian corporate tax rate)
x (1 - Australian corporate tax rate)
x (1 - Australian corporate tax rate)
5.000% p.a. until but excluding
21 September 2027 (first reset date).
If not redeemed, converted or
written-off earlier, from, and
including, each reset date5 to, but
excluding, the next succeeding
reset date, at a fixed rate p.a. equal
to the prevailing 5-year USD mid-
market swap rate plus 2.888% p.a.
-
1,188
1,304
1,313
1,688
-
7,370 5,684
1,585
1,556
Total USD AT1 securities
Common features of AT1 instruments
Payment conditions
Quarterly distributions on the Westpac capital notes and semi-annual interest payments on the USD AT1 securities are
discretionary and will only be paid if the payment conditions are satisfied, including that the payment will not result in a breach
of Westpac’s capital requirements under APRA’s prudential standards; not result in Westpac becoming, or being likely to
become, insolvent; or if APRA does not object to the payment.
Broadly, if for any reason a distribution or interest payment has not been paid in full on the relevant payment date, Westpac
must not determine or pay any dividends on Westpac ordinary shares or undertake a discretionary buy back or capital
reduction of Westpac ordinary shares, unless the unpaid payment is paid in full within 20 business days of the relevant
payment date or in certain other circumstances.
1 A$ unless otherwise noted.
satisfied.
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 distribution payment date on which the scheduled conversion conditions are
3 Westpac may elect to redeem the relevant AT1 instrument, subject to APRA’s prior written approval.
4 On 13 March 2018, $623 million of CPS were transferred to the Westpac CPS nominated party for $100 each pursuant to the Westpac Capital
Notes 5 reinvestment offer. Those CPS were subsequently bought back and cancelled by Westpac. On 3 April 2018, the remaining $566 million of
CPS were transferred to the Westpac CPS nominated party for $100 each. Following the transfer, those remaining CPS were converted into
19,189,765 ordinary shares.
5 21 September 2027 and every fifth anniversary thereafter is a reset date.
6 Westpac may elect to redeem on 21 September 2027 and every fifth anniversary thereafter.
Notes to the financial statements
Notes to the financial statements
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.
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.
Consolidated and Parent Entity
Consolidated
Parent Entity
2018
2017
2018
2017
$m
Dividend/distribution/
interest rate
Potential scheduled
conversion date2
Optional
redemption date3
2018
2017
Westpac convertible preference shares (CPS)
$1,189 million CPS
(180 day bank bill rate + 3.25% p.a.)
31 March 2020
31 March 20184
-
1,188
x (1 - Australian corporate tax rate)
Total convertible preference shares
Westpac capital notes (WCN)
$1,384 million WCN
(90 day bank bill rate + 3.20% p.a.)
8 March 2021
8 March 2019
1,382
1,379
x (1 - Australian corporate tax rate)
-
1,188
17,265
17,666
17,265
$1,324 million WCN3
(90 day bank bill rate + 4.00% p.a.)
22 March 2023
22 March 2021
1,316
$1,311 million WCN2
(90 day bank bill rate + 3.05% p.a.)
23 September 2024
23 September 2022
1,305
x (1 - Australian corporate tax rate)
$1,702 million WCN4
(90 day bank bill rate + 4.90% p.a.)
20 December 2023
20 December 2021
1,691
x (1 - Australian corporate tax rate)
$1,690 million WCN5
(90 day bank bill rate + 3.20% p.a.)
22 September 2027
22 September 2025
1,676
x (1 - Australian corporate tax rate)
1,304
1,313
1,688
-
Total Westpac capital notes
USD AT1 securities
US$1,250 million securities
x (1 - Australian corporate tax rate)
5.000% p.a. until but excluding
21 September 2027 (first reset date).
If not redeemed, converted or
written-off earlier, from, and
including, each reset date5 to, but
excluding, the next succeeding
reset date, at a fixed rate p.a. equal
to the prevailing 5-year USD mid-
market swap rate plus 2.888% p.a.
7,370 5,684
n/a
21 September 20276
1,585
1,556
Total USD AT1 securities
Common features of AT1 instruments
1,585
1,556
Payment conditions
Quarterly distributions on the Westpac capital notes and semi-annual interest payments on the USD AT1 securities are
discretionary and will only be paid if the payment conditions are satisfied, including that the payment will not result in a breach
of Westpac’s capital requirements under APRA’s prudential standards; not result in Westpac becoming, or being likely to
become, insolvent; or if APRA does not object to the payment.
Broadly, if for any reason a distribution or interest payment has not been paid in full on the relevant payment date, Westpac
must not determine or pay any dividends on Westpac ordinary shares or undertake a discretionary buy back or capital
reduction of Westpac ordinary shares, unless the unpaid payment is paid in full within 20 business days of the relevant
payment date or in certain other circumstances.
3
1 A$ 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 distribution payment date on which the scheduled conversion conditions are
satisfied.
3 Westpac may elect to redeem the relevant AT1 instrument, subject to APRA’s prior written approval.
4 On 13 March 2018, $623 million of CPS were transferred to the Westpac CPS nominated party for $100 each pursuant to the Westpac Capital
Notes 5 reinvestment offer. Those CPS were subsequently bought back and cancelled by Westpac. On 3 April 2018, the remaining $566 million of
CPS were transferred to the Westpac CPS nominated party for $100 each. Following the transfer, those remaining CPS were converted into
19,189,765 ordinary shares.
5 21 September 2027 and every fifth anniversary thereafter is a reset date.
6 Westpac may elect to redeem on 21 September 2027 and every fifth anniversary thereafter.
Note 20. Loan Capital
Accounting policy
R
$m
Additional Tier 1 (AT1) loan capital
Convertible preference shares
Westpac capital notes
USD AT1 securities
Total AT1 loan capital
Tier 2 loan capital
Subordinated notes
Subordinated perpetual notes
Total Tier 2 loan capital
Total loan capital
Movement Reconciliation ($m)
Balance as at 1 October 2017
Issuances
Maturities, repayments, buy backs and reductions
Total cash movements
Foreign exchange translation impact
Fair value hedge accounting adjustments
Conversion of Convertible Preference Shares to ordinary shares1
Other (amortisation of bond issue costs, etc.)
Total non-cash movements
Balance as at 30 September 2018
-
7,370
1,585
8,955
7,822
488
8,310
1,188
5,684
1,556
8,428
8,789
449
9,238
-
7,370
1,585
8,955
7,822
488
8,310
1,188
5,684
1,556
8,428
8,789
449
9,238
17,666
17,666
2,342
(2,387)
(45)
449
(257)
(566)
18
(356)
17,666
2,342
(2,387)
(45)
449
(257)
(566)
18
(356)
17,265
17,265
1 Refer to AT1 loan capital discussion in the next page and Note 41.
188
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
189
Notes to the financial statements
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 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 event or non-viability trigger event. 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 basis2).
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
terminated.
Early conversion
Westpac is able to elect to convert3, 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.
Notes to the financial statements
Note 20. Loan capital (continued)
Tier 2 loan capital
Consolidated and Parent Entity
$m
Basel III transitional subordinated notes
US$350 million subordinated notes
Fixed 4.625% p.a.
A summary of the key terms and common features of Westpac’s Tier 2 instruments are provided below1.
Interest rate2
Maturity date
redemption date3
2018
2017
Optional
US$800 million subordinated notes
3.625% p.a. until but excluding 28 February 2018. Thereafter, if not
28 February 2023
28 February 2018
redeemed, fixed rate equal to 5-year US Treasury rate + 2.90% p.a.
1 June 2018
n/a
-
-
454
1,018
Basel III fully compliant subordinated notes
A$925 million subordinated notes
90 day bank bill rate + 2.30% p.a.
A$1,000 million subordinated notes
90 day bank bill rate + 2.05% p.a.
CNY1,250 million subordinated notes
4.85% p.a. until but excluding 9 February 2020. Thereafter, if not
9 February 2025
9 February 2020
22 August 2023
22 August 2018
14 March 2024
14 March 2019
⁴
⁴
A$350 million subordinated notes
4.50% p.a. until but excluding 11 March 2022. Thereafter, if not redeemed,
11 March 2027
11 March 2022
347
S$325 million subordinated notes
4.00% p.a. until but excluding 12 August 2022. Thereafter, if not redeemed,
12 August 2027
12 August 2022
330
redeemed, a fixed rate per annum equal to the one-year CNH HIBOR
reference rate plus 0.8345% p.a.
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.
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.
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
171
171
US$100 million subordinated notes
Fixed 5.00% p.a.
23 February 2046
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
n/a
NZ$400 million subordinated notes
4.6950% p.a. until but excluding 1 September 2021. Thereafter, if not
1 September 2026
1 September 2021
JPY8,000 million subordinated notes
0.9225% p.a until but excluding 7 October 2021. Thereafter, if not
7 October 2026
7 October 2021
97
redeemed, a fixed rate per annum equal to the New Zealand 5-year swap
rate on 1 September 2021 plus 2.60% p.a.
redeemed, a fixed rate per annum equal to the five-year JPY mid-swap
US$1,500 million subordinated notes
4.322% p.a. until but excluding 23 November 2026. Thereafter, if not
23 November 2031
23 November 2026
1,922
1,882
redeemed, a fixed rate per annum equal to the five-year USD mid-swap
JPY12,000 million subordinated notes 0.87% p.a. until but excluding 6 July 2022. Thereafter, if not redeemed, a
6 July 2027
6 July 2022
fixed rate per annum equal to the five-year JPY mid-swap rate
JPY13,500 million subordinated notes 0.868% p.a. until but excluding 6 July 2022. Thereafter, if not redeemed,
6 July 2027
6 July 2022
a fixed rate per annum equal to the five-year JPY mid-swap rate
146
136
165
152
HKD600 million subordinated notes
3.15% p.a. until but excluding 14 July 2022. Thereafter, if not redeemed, a
14 July 2027
14 July 2022
102
fixed rate per annum equal to the five-year HKD mid-swap rate
A$350 million subordinated notes
4.334% p.a. until but excluding 16 August 2024. Thereafter, if not
16 August 2029
16 August 2024
347
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
rate plus 1.0005% p.a.
rate plus 2.236% p.a.
plus 0.78% p.a.
plus 0.778% p.a.
plus 1.34% p.a.
be annualised.
A$185 million subordinated notes
Fixed 5.00% p.a.
A$250 million subordinated notes
90 day bank bill rate + 1.40% p.a.
A$130 million subordinated notes
Fixed 5.00% p.a.
A$725 million subordinated notes
90 day bank bill rate + 1.80% p.a.
Total subordinated notes
24 January 2048
16 February 2028
16 February 2023
2 March 2048
22 June 2028
22 June 2023
n/a
n/a
185
250
130
722
7,822
8,789
923
991
239
350
312
117
700
225
115
112
357
90
98
347
-
-
-
-
-
999
252
114
700
242
123
120
358
1 Scheduled conversion does not apply to USD AT1 securities.
2 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.
3 Excludes WCN and USD AT1 securities.
1 Excludes subordinated perpetual notes.
2
Interest payments are made periodically as set out in the terms of the subordinated notes.
3 Westpac may elect to redeem the 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.
4 The subordinated notes were redeemed in full on the relevant optional redemption date.
190
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
191
Notes to the financial statements
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 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 event or non-viability trigger event. 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 basis2).
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
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
Westpac is able to elect to convert3, 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.
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.
of issue.
terminated.
Early conversion
Early redemption
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.
Maturity date
Optional
redemption date3
1 June 2018
n/a
US$800 million subordinated notes
3.625% p.a. until but excluding 28 February 2018. Thereafter, if not
28 February 2023
28 February 2018
redeemed, fixed rate equal to 5-year US Treasury rate + 2.90% p.a.
⁴
2018
2017
-
-
454
1,018
Basel III fully compliant subordinated notes
A$925 million subordinated notes
90 day bank bill rate + 2.30% p.a.
A$1,000 million subordinated notes
90 day bank bill rate + 2.05% p.a.
CNY1,250 million subordinated notes
4.85% p.a. until but excluding 9 February 2020. Thereafter, if not
9 February 2025
redeemed, a fixed rate per annum equal to the one-year CNH HIBOR
reference rate plus 0.8345% p.a.
A$350 million subordinated notes
4.50% p.a. until but excluding 11 March 2022. Thereafter, if not redeemed,
11 March 2027
11 March 2022
347
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 redeemed,
12 August 2027
12 August 2022
330
22 August 2023
22 August 2018
14 March 2024
14 March 2019
⁴
9 February 2020
-
999
252
923
991
239
350
312
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
171
171
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.
A$700 million subordinated notes
Floating 90 day bank bill rate + 3.10% p.a.
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.
23 February 2046
n/a
10 March 2026
10 March 2021
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 not
1 September 2026
1 September 2021
114
700
242
123
120
358
JPY8,000 million subordinated notes
0.9225% p.a until but excluding 7 October 2021. Thereafter, if not
7 October 2026
7 October 2021
97
redeemed, a fixed rate per annum equal to the New Zealand 5-year swap
rate on 1 September 2021 plus 2.60% p.a.
redeemed, a fixed rate per annum equal to the five-year JPY mid-swap
rate plus 1.0005% p.a.
US$1,500 million subordinated notes
4.322% p.a. until but excluding 23 November 2026. Thereafter, if not
23 November 2031
23 November 2026
1,922
117
700
225
115
112
357
90
1,882
JPY12,000 million subordinated notes 0.87% p.a. until but excluding 6 July 2022. Thereafter, if not redeemed, a
6 July 2027
6 July 2022
redeemed, a fixed rate per annum equal to the five-year USD mid-swap
rate plus 2.236% p.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 redeemed,
6 July 2027
6 July 2022
a fixed rate per annum equal to the five-year JPY mid-swap rate
plus 0.778% p.a.
146
136
165
152
HKD600 million subordinated notes
3.15% p.a. until but excluding 14 July 2022. Thereafter, if not redeemed, a
14 July 2027
14 July 2022
102
fixed rate per annum equal to the five-year HKD mid-swap rate
plus 1.34% p.a.
A$350 million subordinated notes
4.334% p.a. until but excluding 16 August 2024. Thereafter, if not
16 August 2029
16 August 2024
347
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
98
347
3
be annualised.
A$185 million subordinated notes
Fixed 5.00% p.a.
A$250 million subordinated notes
90 day bank bill rate + 1.40% p.a.
A$130 million subordinated notes
Fixed 5.00% p.a.
A$725 million subordinated notes
Total subordinated notes
90 day bank bill rate + 1.80% p.a.
24 January 2048
n/a
16 February 2028
16 February 2023
2 March 2048
n/a
22 June 2028
22 June 2023
185
250
130
722
7,822
-
-
-
-
8,789
1 Scheduled conversion does not apply to USD AT1 securities.
2 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.
3 Excludes WCN and USD AT1 securities.
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
Interest payments are made periodically as set out in the terms of the subordinated notes.
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.
4 The subordinated notes were redeemed in full on the relevant optional redemption date.
190
2018 Westpac Group Annual Report
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191
Notes to the financial statements
Note 20. Loan capital (continued)
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 AT1 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 AT1 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.
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 related to the hedged risk.
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
income statement.
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
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
The Group hedges its interest rate risk from fixed debt issuances and fixed rate assets with single currency interest rate
non-interest income.
a. Fair value hedges
derivatives.
$m
Change in fair value hedging instruments
Change in fair value hedge items attributed to hedged risk
Ineffectiveness in interest income
Consolidated
Parent Entity
2018
2017
2018
2017
(1,203)
(328)
(1,208)
(337)
1,192
(11)
292
(36)
1,197
(11)
306
(31)
192
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
193
Notes to the financial statements
Note 20. Loan capital (continued)
Note 21. Derivative financial instruments
Notes to the financial statements
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.
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.
Non-viability trigger event
capital.
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 AT1 loan
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 AT1 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.
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 related to the hedged risk.
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.
3
a. Fair value hedges
The Group hedges its interest rate risk from fixed debt issuances and fixed rate 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
Parent Entity
2018
2017
2018
2017
(1,203)
(328)
(1,208)
(337)
1,192
(11)
292
(36)
1,197
(11)
306
(31)
192
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
193
4 Years
3 Years
2 Years
1 Month
to 1 Year
3 Months
Less Than 1 Month to 3 Months 1 Year to 2 Years to 3 Years to 4 Years to
5 Years
Over
5 Years
Interest rate contracts
Futures contracts1
Forward rate agreements
189,853
168,132
-
11
-
(12)
Notes to the financial statements
Notes to the financial statements
Note 21. Derivative financial instruments (continued)
Note 21. Derivative financial instruments (continued)
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.
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:
2018
Cash inflows
Cash outflows
2017
Cash inflows
Cash outflows
$m
Cash flow hedge ineffectiveness
0.3%
0.5%
3.2%
3.7%
2.1%
1.8%
21.8%
22.4%
23.8%
23.0%
18.9%
19.5%
19.1%
18.0%
4.7%
4.9%
9.3%
9.9%
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%
Consolidated
2018
(7)
2017
14
Parent Entity
2018
(11)
2017
18
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 investment hedges amounted to nil (2017:
nil).
194
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
195
-
-
-
-
-
-
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 2018
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
Swap agreements
2,863,349 15,626
(15,580)
505
(4,751)
385
(550)
Options
39,067
165
(167)
Total interest rate contracts
3,260,401 15,802
(15,759)
505
(4,751)
385
(550)
-
-
-
-
-
-
-
-
-
11
-
(12)
- 16,516
(20,881)
-
165
(167)
- 16,692
(21,060)
Spot and forward contracts
784,791 6,741
(6,418)
-
-
-
(32) 6,741
(6,450)
462,949 6,561
(9,019)
726
33 1,639
(215)
22,281
120
(184)
-
-
-
- 8,926
(9,201)
-
120
(184)
contracts
1,270,021 13,422
(15,621)
726
33 1,639
(215)
(32) 15,787
(15,835)
Commodity contracts
6,735
246
(300)
Equities
96
1
-
Credit default swaps
13,536
102
(101)
-
-
-
-
-
-
Total of gross derivatives
4,550,789 29,573
(31,781) 1,231
(4,718) 2,024
Impact of netting arrangements3
- (8,222)
8,912
(375)
3,633
(130)
(765)
344
-
-
-
246
1
102
(300)
-
(101)
(32) 32,828
(37,296)
- (8,727)
12,889
Total of net derivatives
4,550,789 21,351
(22,869)
856
(1,085) 1,894
(421)
-
(32) 24,101
(24,407)
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
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)
-
-
-
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)
Foreign exchange contracts
Cross currency swap
agreements2
Options
Total foreign exchange
Consolidated 2017
Interest rate contracts
Futures contracts1
Forward rate agreements
Foreign exchange contracts
Cross currency swap
agreements2
Options
Total foreign exchange
contracts
Commodity contracts
Equities
Credit default swaps
444,421 6,272
(7,893)
573
4 1,006
(744)
13,604
124
(138)
-
-
-
-
- 7,851
(8,633)
-
124
(138)
1,126,921 12,177
(14,058)
573
4 1,006
(744)
19
(19) 13,775
(14,817)
7,772
270
(235)
202
10,907
3
79
-
(78)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
270
(235)
3
79
-
(78)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total of gross derivatives
4,218,671 29,144
(29,935) 1,019
(3,237) 1,504
(1,451)
19
(19) 31,686
(34,642)
Impact of netting arrangements3
Total of net derivatives
- (7,332)
7,178
(149)
1,782
(172)
307
-
- (7,653)
9,267
4,218,671 21,812
(22,757)
870
(1,455) 1,332
(1,144)
19
(19) 24,033
(25,375)
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at 30
September.
2 The unrealised foreign exchange gains or losses on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged.
3 Consists of derivative trades settled directly with central clearing counterparties and their associated variation margin. Refer to Note 24.
Notes to the financial statements
Notes to the financial statements
Note 21. Derivative financial instruments (continued)
Note 21. Derivative financial instruments (continued)
Exposure to the volatility of interest cash flows from customer deposits and loans is hedged with interest rate derivatives.
The notional amount and fair value of derivative instruments held for trading and designated in hedge relationships are set out
in the following tables:
Exposure to foreign currency principal and interest cash flows from floating rate debt issuances is hedged through the use of
Consolidated 2018
Fair Value
Hedging
Total
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:
$m
Amount Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Notional
Trading
Fair Value
Cash Flow
Net Investment
Fair Value
b. Cash flow hedges
cross currency derivatives.
Interest rate contracts
Futures contracts1
Forward rate agreements
189,853
168,132
-
11
-
(12)
-
-
-
-
-
-
-
-
Swap agreements
2,863,349 15,626
(15,580)
505
(4,751)
385
(550)
Options
39,067
165
(167)
-
-
-
-
Total interest rate contracts
3,260,401 15,802
(15,759)
505
(4,751)
385
(550)
Foreign exchange contracts
Spot and forward contracts
784,791 6,741
(6,418)
-
-
-
-
Cross currency swap
agreements2
Options
Total foreign exchange
462,949 6,561
(9,019)
726
33 1,639
(215)
22,281
120
(184)
-
-
-
-
contracts
1,270,021 13,422
(15,621)
726
33 1,639
(215)
Commodity contracts
6,735
246
(300)
Equities
96
1
-
Credit default swaps
13,536
102
(101)
-
-
-
-
-
-
-
-
-
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
4,550,789 29,573
(31,781) 1,231
(4,718) 2,024
- (8,222)
4,550,789 21,351
8,912
(22,869)
(375)
856
(130)
3,633
(1,085) 1,894
-
-
-
(765)
344
(421)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
-
(12)
- 16,516
(20,881)
-
165
(167)
- 16,692
(21,060)
(32) 6,741
(6,450)
- 8,926
(9,201)
-
120
(184)
(32) 15,787
(15,835)
-
-
-
246
1
102
(300)
-
(101)
(32) 32,828
(37,296)
-
-
- (8,727)
(32) 24,101
12,889
(24,407)
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 investment hedges amounted to nil (2017:
Consolidated 2017
Fair Value
Hedging
Total
2018
Cash inflows
Cash outflows
2017
Cash inflows
Cash outflows
Less Than 1 Month to 3 Months 1 Year to 2 Years to 3 Years to 4 Years to
1 Month
3 Months
to 1 Year
2 Years
3 Years
4 Years
5 Years
Over
5 Years
0.3%
0.5%
3.2%
3.7%
2.1%
1.8%
21.8%
22.4%
23.8%
23.0%
18.9%
19.5%
19.1%
18.0%
4.7%
4.9%
9.3%
9.9%
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%
Consolidated
Parent Entity
2018
(7)
2017
14
2018
(11)
2017
18
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.
$m
Cash flow hedge ineffectiveness
c. Dual fair value and cash flow hedges
d. Net investment hedges
nil).
$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
contracts
Commodity contracts
Equities
Credit default swaps
444,421 6,272
(7,893)
573
4 1,006
(744)
13,604
124
(138)
-
-
-
-
-
-
- 7,851
(8,633)
-
124
(138)
3
1,126,921 12,177
(14,058)
573
4 1,006
(744)
19
(19) 13,775
(14,817)
7,772
270
(235)
202
10,907
3
79
-
(78)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
270
(235)
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)
19
(19) 31,686
(34,642)
- (7,332)
7,178
(149)
1,782
(172)
307
-
- (7,653)
4,218,671 21,812
(22,757)
870
(1,455) 1,332
(1,144)
19
(19) 24,033
9,267
(25,375)
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at 30
September.
2 The unrealised foreign exchange gains or losses on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged.
3 Consists of derivative trades settled directly with central clearing counterparties and their associated variation margin. Refer to Note 24.
194
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
195
Notes to the financial statements
Note 21. Derivative financial instruments (continued)
Parent Entity 2018
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
189,853
168,132
-
11
-
(12)
-
-
-
-
-
-
-
-
Swap agreements
2,859,358 15,659
(15,751)
489
(4,568)
352
(444)
Options
39,067
165
(167)
-
-
-
-
Total interest rate contracts
3,256,410 15,835
(15,930)
489
(4,568)
352
(444)
Foreign exchange contracts
Spot and forward contracts
784,438 6,737
(6,417)
-
-
-
-
Cross currency swap
agreements2
Options
Total foreign exchange
456,251 6,562
(9,019)
703
40 1,142
(164)
22,281
120
(184)
-
-
-
-
contracts
1,262,970 13,419
(15,620)
703
40 1,142
(164)
Commodity contracts
6,735
246
(300)
Equities
96
1
-
Credit default swaps
13,536
102
(101)
-
-
-
-
-
-
-
-
-
Total of gross derivatives
Impact of netting arrangements3
Total of net derivatives
4,539,747 29,603
(31,951) 1,192
(4,528) 1,494
(8,222)
-
4,539,747 21,381
8,912
(23,039)
(375)
817
3,633
(130)
(895) 1,364
-
-
-
(608)
344
(264)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
-
(12)
- 16,500
(20,763)
-
165
(167)
- 16,676
(20,942)
(31) 6,737
(6,448)
- 8,407
(9,143)
-
120
(184)
(31) 15,264
(15,775)
-
-
-
246
1
102
(300)
-
(101)
(31) 32,289
(37,118)
-
-
-
(8,727)
(31) 23,562
12,889
(24,229)
Principal financial risks
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)
-
contracts
1,116,526 12,171
(14,056)
545
Commodity contracts
Equities
Credit default swaps
7,772
270
(235)
202
10,907
3
79
-
(78)
-
-
-
9
-
9
-
-
-
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
(167)
1,711
(1,288) 1,147
226
(816)
849
(454)
-
-
-
-
- 7,667
(8,339)
-
124
(138)
849
(454)
19
(16) 13,584
(14,517)
-
-
-
-
-
-
-
-
-
19
-
19
-
-
-
270
(235)
3
79
-
(78)
(16) 31,476
(34,178)
-
(7,653)
(16) 23,823
9,267
(24,911)
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:
2018
2017
Notional
Fair value
Notional
Fair value
Amount
Asset Liability
Amount
Asset Liability
6,895
6,641
3
99
(101)
-
5,630
5,277
13,536
102
(101)
10,907
5
74
79
(78)
-
(78)
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
This note details the financial risk management policies, practices and quantitative information of the Group’s principal financial
$m
Total
Credit protection bought
Credit protection sold
Note 22. Financial risk
by the Group.
risk exposures.
Overview
Credit risk
obligations.
The risk of financial loss where a customer or
counterparty fails to meet their financial
Credit risk mitigation, collateral and other credit enhancements
22.2.2
Financial assets that are past due, but not impaired
Items 90 days past due, or otherwise in default, and not impaired 22.2.6
Note name
Risk management frameworks
Credit risk ratings system
Credit risk concentrations
Credit quality of financial assets
Assets pledged as collateral
Contractual maturity of financial liabilities
Impaired loans
Collateral held
Liquidity modelling
Sources of liquidity
Expected maturity
Value-at-Risk (VaR)
Traded market risk
Non-traded market risk
Note
number
22.1
22.2.1
22.2.3
22.2.4
22.2.5
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
Funding and liquidity risk
The risk that the Group will be unable to fund
assets and meet obligations as they become
due.
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.
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at 30
September.
2 The unrealised foreign exchange gains or losses on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged.
3 Consists of derivative trades settled directly with central clearing counterparties and their associated variation margin. Refer to Note 24.
196
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197
Notes to the financial statements
Note 21. Derivative financial instruments (continued)
Parent Entity 2018
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
189,853
168,132
-
11
-
(12)
Swap agreements
2,859,358 15,659
(15,751)
489
(4,568)
352
(444)
Options
39,067
165
(167)
Total interest rate contracts
3,256,410 15,835
(15,930)
489
(4,568)
352
(444)
-
-
-
-
-
-
-
-
-
11
-
(12)
- 16,500
(20,763)
-
165
(167)
- 16,676
(20,942)
Spot and forward contracts
784,438 6,737
(6,417)
-
-
-
(31) 6,737
(6,448)
456,251 6,562
(9,019)
703
40 1,142
(164)
22,281
120
(184)
-
-
-
- 8,407
(9,143)
-
120
(184)
Foreign exchange contracts
Cross currency swap
agreements2
Options
Total foreign exchange
contracts
1,262,970 13,419
(15,620)
703
40 1,142
(164)
(31) 15,264
(15,775)
Commodity contracts
6,735
246
(300)
Equities
96
1
-
Credit default swaps
13,536
102
(101)
-
-
-
-
-
-
Total of gross derivatives
4,539,747 29,603
(31,951) 1,192
(4,528) 1,494
Impact of netting arrangements3
-
(8,222)
8,912
(375)
3,633
(130)
(608)
344
-
-
-
246
1
102
(300)
-
(101)
(31) 32,289
(37,118)
-
(8,727)
12,889
Total of net derivatives
4,539,747 21,381
(23,039)
817
(895) 1,364
(264)
-
(31) 23,562
(24,229)
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)
-
-
-
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)
-
-
-
-
-
-
-
-
-
Foreign exchange contracts
Cross currency swap
agreements2
Options
Total foreign exchange
contracts
Commodity contracts
Equities
Credit default swaps
434,600 6,273
(7,894)
545
13,604
124
(138)
-
849
(454)
-
-
- 7,667
(8,339)
-
124
(138)
1,116,526 12,171
(14,056)
545
849
(454)
19
(16) 13,584
(14,517)
7,772
270
(235)
202
10,907
3
79
-
(78)
-
-
-
-
-
-
270
(235)
3
79
-
(78)
Total of gross derivatives
4,199,295 29,172
(30,121)
971
(2,999) 1,314
(1,042)
(16) 31,476
(34,178)
Impact of netting arrangements3
-
(7,338)
7,330
(148)
1,711
(167)
226
-
(7,653)
9,267
19
-
Total of net derivatives
4,199,295 21,834
(22,791)
823
(1,288) 1,147
(816)
19
(16) 23,823
(24,911)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
-
9
-
-
-
-
-
-
-
-
-
1 The fair value differential of futures contracts are settled daily with the exchange. The notional balance represents open contracts as at 30
September.
2 The unrealised foreign exchange gains or losses on derivatives in hedge relationships are substantially offset by the retranslation at spot exchange
rates of the foreign currency denominated debt being hedged.
3 Consists of derivative trades settled directly with central clearing counterparties and their associated variation margin. Refer to Note 24.
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
Note 22. Financial risk
2018
2017
Notional
Amount
Fair value
Asset Liability
Notional
Amount
Fair value
Asset Liability
6,895
6,641
13,536
3
99
102
(101)
-
(101)
5,630
5,277
10,907
5
74
79
(78)
-
(78)
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.
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.
Impaired loans
Collateral held
Liquidity modelling
Sources of liquidity
Assets pledged as collateral
Contractual maturity of financial liabilities
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
3
196
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197
Notes to the financial statements
Note 22. Financial risk (continued)
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:
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.
Note 22. Financial risk (continued)
Risk
Market risk
Risk management framework and controls
The Market Risk Framework describes the Group’s approach to managing traded and non-traded
market risk.
Notes to the financial statements
Traded market risk includes interest rate, foreign exchange, commodity, equity price, credit spread
and volatility risks. Non-traded market risk includes interest rate and credit spread 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
The BRCC approves the risk appetite for traded and non-traded risks through the use of VaR, NaR
stress testing.
and specific structural risk limits.
Westpac Group Market Risk Committee (MARCO) 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 MARCO, RISKCO and the BRCC.
Daily stress testing and backtesting of VaR results are 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. MARCO has ratified an
The BRCC has approved a framework for profit or loss escalation which considers both single day
approved escalation framework.
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.
The principal objective of the credit risk rating system is to reliably assess the credit risk to which the Group is exposed. The
22.2 Credit Risk
22.2.1 Credit risk ratings system
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.
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 Group’s approach to managing liquidity risk.
It is part of the Group’s board-approved Risk Management Strategy and sets out the Group’s liquidity
risk appetite, roles and responsibilities of key people, managing liquidity risk within the Group, risk
reporting and control processes, limits and targets for minimum liquid asset holdings and the
wholesale funding and ratios used to manage the Group’s balance sheet.
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. Group Treasury manages a portfolio of
liquid assets held by the Group for several purposes, including as a buffer against unforeseen
funding requirements. The level of liquid assets held takes into account the liquidity requirements of
Westpac’s balance sheet under normal and stress conditions.
Daily liquidity risk reports are reviewed by Treasury and the Group’s Liquidity risk teams. Liquidity
reports are presented to ALCO monthly and to the BRCC quarterly.
Group Treasury undertakes an annual funding review that outlines the Group’s balance sheet
funding strategy over a three year period. This review encompasses trends in global markets, peer
analysis, wholesale funding capacity, expected funding requirements and a funding risk analysis.
This strategy is continuously reviewed to take account of changing market conditions, investor
sentiment and estimations of asset and liability growth rates.
Group Treasury also maintains a contingent funding plan that outlines the steps that should be taken
by the Group in the event of an emerging ‘funding crisis’. The plan is aligned with Westpac’s broader
Liquidity Crisis Management Policy which is approved annually by the Board.
Funding and liquidity
risk
198
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199
Notes to the financial statements
Note 22. Financial risk (continued)
22.1 Risk management frameworks
The Board is responsible for approving the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite
Statement and 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
All models materially impacting the risk rating process are periodically reviewed in accordance with
features and uses of rating outcomes.
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
Policies for the delegation of credit approval authorities and formal limits for the extension of credit
the Chief Risk Officer.
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.
It is part of the Group’s board-approved Risk Management Strategy and sets out the Group’s liquidity
risk appetite, roles and responsibilities of key people, managing liquidity risk within the Group, risk
reporting and control processes, limits and targets for minimum liquid asset holdings and the
wholesale funding and ratios used to manage the Group’s balance sheet.
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. Group Treasury manages a portfolio of
liquid assets held by the Group for several purposes, including as a buffer against unforeseen
funding requirements. The level of liquid assets held takes into account the liquidity requirements of
Westpac’s balance sheet under normal and stress conditions.
Daily liquidity risk reports are reviewed by Treasury and the Group’s Liquidity risk teams. Liquidity
reports are presented to ALCO monthly and to the BRCC quarterly.
Group Treasury undertakes an annual funding review that outlines the Group’s balance sheet
funding strategy over a three year period. This review encompasses trends in global markets, peer
analysis, wholesale funding capacity, expected funding requirements and a funding risk analysis.
This strategy is continuously reviewed to take account of changing market conditions, investor
sentiment and estimations of asset and liability growth rates.
Group Treasury also maintains a contingent funding plan that outlines the steps that should be taken
by the Group in the event of an emerging ‘funding crisis’. The plan is aligned with Westpac’s broader
Liquidity Crisis Management Policy which is approved annually by the Board.
Funding and liquidity
The Liquidity Risk Management Framework sets out the Group’s approach to managing liquidity risk.
risk
Note 22. Financial risk (continued)
Risk
Market risk
Risk management framework and controls
The Market Risk Framework describes the Group’s approach to managing traded and non-traded
market risk.
Notes to the financial statements
Traded market risk includes interest rate, foreign exchange, commodity, equity price, credit spread
and volatility risks. Non-traded market risk includes interest rate and credit spread 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.
Westpac Group Market Risk Committee (MARCO) 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 MARCO, RISKCO and the BRCC.
Daily stress testing and backtesting of VaR results are 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. MARCO has ratified an
approved escalation framework.
The BRCC has approved a framework for profit or loss escalation which considers both single day
and 20 day cumulative results.
Treasury’s ALM unit is responsible for managing the non-traded interest rate risk including risk
mitigation through 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.
3
198
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199
Notes to the financial statements
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
Westpac CRG
Moody’s Rating
Notes to the financial statements
Note 22. Financial risk (continued)
Management of risk mitigation
The Group mitigates credit risk through controls covering:
Collateral and valuation
The estimated realisable value of collateral held in support of loans is based on a
management
combination of:
S&P Rating
AAA – AA–
A+ – A–
BBB+ – BBB–
BB+ – B+
Aaa – Aa3
A1 – A3
Baa1 – Baa3
Ba1 – B1
Westpac Rating
Watchlist
Special Mention
Substandard/Default
Default
Strong
Good/satisfactory
Weak
Weak/default/non-performing
A
B
C
D
E
F
G
H
formal valuations currently held for such collateral; and
management’s assessment of the estimated realisable value of all collateral held.
This analysis also takes into consideration any other relevant knowledge available to
management at the time. Updated valuations are obtained when appropriate.
The Group revalues collateral related to financial markets positions on a daily basis and has
formal processes in place to promptly call for collateral top-ups, if required. 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.
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.
Central clearing
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.
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.
Other credit enhancements
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
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
form of guarantees and deposits.
Loans – business1
Trading securities, financial
assets designated at fair value
and derivatives
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.
Offsetting
1 This includes collateral held in relation to associated credit commitments.
200
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
201
Notes to the financial statements
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
Westpac CRG
Moody’s Rating
Strong
Weak
Good/satisfactory
Weak/default/non-performing
Program-managed portfolio
A
B
C
D
E
F
G
H
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
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
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
Other credit enhancements
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
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
Loans – business1
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
and boats.
or other assets.
Trading securities, financial
These exposures are carried at fair value which reflects the credit risk.
Other security such as guarantees, standby letters of credit or derivative protection may also
be taken as collateral, if appropriate.
Offsetting
assets designated at fair value
and derivatives
Central clearing
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.
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.
formal valuations currently held for such collateral; and
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.
3
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.
1 This includes collateral held in relation to associated credit commitments.
200
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201
Notes to the financial statements
Note 22. Financial risk (continued)
22.2.3 Credit risk concentrations
Credit risk is concentrated when a number of counterparties are engaged in similar activities, have similar economic
characteristics and thus may be similarly affected by changes in economic or other conditions.
The Group monitors its credit portfolio to manage risk concentrations and rebalance the portfolio.
Individual customers or groups of related customers
The Group has large exposure limits governing the aggregate size of credit exposure normally acceptable to individual
customers and groups of related customers. These limits are tiered by customer risk grade.
Specific industries
Exposures to businesses, governments and other financial institutions are classified into a number of industry clusters based
on related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored against the
Group’s industry risk appetite limits.
Individual countries
The Group has limits governing risks related to individual countries, such as political situations, government policies and
economic conditions that may adversely affect either a customer’s ability to meet its obligations to the Group, or the Group’s
ability to realise its assets in a particular country.
Maximum exposure to credit risk
The carrying amount of on-balance sheet financial assets (which comprises receivables due from financial institutions; trading
securities and financial assets designated at fair value; derivatives; available-for-sale securities; loans; and regulatory deposits
with central banks overseas) and undrawn credit commitments represents the maximum exposure to credit risk (excluding any
collateral received), as set out in the following tables.
The following tables set out the credit risk concentrations to which the Group and the Parent Entity are exposed for on-balance
sheet financial assets and for undrawn credit commitments. 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.
Property services and business services
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)
40% (2017: 52%) were issued by financial institutions for the Group; 39%
(2017: 50%) for the Parent Entity.
56% (2017: 45%) were issued by government or semi-government authorities
for the Group; 58% (2017: 47%) for the Parent Entity.
76% (2017: 76%) were held in Australia by the Group; 80% (2017: 81%) by the
Parent Entity.
27% (2017: 26%) were issued by financial institutions for the Group; 28%
(2017: 27%) for the Parent Entity.
73% (2017: 74%) were issued by government or semi-government authorities
for the Group; 72% (2017: 73%) for the Parent Entity.
89% (2017: 90%) were held in Australia by the Group; 96% (2017: 98%) 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.
79% (2017: 77%) were issued by financial institutions for both the Group and
Parent Entity.
84% (2017: 86%) were held in Australia by the Group; 86% (2017: 86%) by the
Parent Entity.
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
Property services and business services
Mining
Property
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
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
Property services and business services
Mining
Property
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total gross credit risk
Notes to the financial statements
2018
Undrawn
Total on
credit
balance commit-
2017
Undrawn
Total on
credit
balance
commit-
sheet
ments
Total
sheet
ments
Total
8,306
8,651
6,756
57,153
49,830
9,968
3,637
45,814
13,561
12,297
16,809
9,587
5,281
1,404
2,035
3,324
7,781
728
5,738
3,079
12,309
5,596
5,700
7,951
4,958
3,471
9,710
10,686
10,080
64,934
50,558
15,706
6,716
58,123
19,157
17,997
24,760
14,545
8,752
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
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
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
463,609
86,421
550,030 451,315
88,363 539,678
6,781
1,597
8,378
4,360
1,519
5,879
718,040 152,092
870,132 701,405
158,392 859,797
46,614
12,114
58,728
45,190
11,995
57,185
1
245
246
3
227
230
84,023
22,855
106,878
82,780
23,090 105,870
323
8,188
504
6,919
4,767
2,307
213
6,236
1,108
1,758
2,568
1,102
1,415
112
19
71
7,845
4,246
3,364
353
467
1,754
207
2,993
1,232
763
683
178
39
684
429
1,437
691
1,577
101
1,035
512
613
1,023
791
1,564
12
1
121
3,454
50
4,849
1,793
3,330
57
733
448
222
329
45
6
362
8,872
933
8,356
5,458
3,884
314
7,271
1,620
2,371
3,591
1,893
2,979
124
20
192
11,299
4,296
8,213
2,146
524
2,487
655
6,323
1,454
1,092
728
184
290
7,809
450
7,626
5,051
2,185
144
5,901
1,142
1,834
2,215
1,118
1,822
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
13
1
242
1
4,259
1,518
2,458
40
508
105
437
260
37
8
332
8,554
847
9,664
5,600
3,712
341
6,940
1,547
2,438
3,391
1,965
3,124
110
6
297
3,072
7,366
1,896
531
1,050
310
5,138
1,863
804
694
86
3,182
10,895
24,287
15,450
39,737
21,049
13,069
34,118
826,350 190,397 1,016,747 805,234
194,551 999,785
202
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
203
Notes to the financial statements
Note 22. Financial risk (continued)
22.2.3 Credit risk concentrations
Credit risk is concentrated when a number of counterparties are engaged in similar activities, have similar economic
characteristics and thus may be similarly affected by changes in economic or other conditions.
The Group monitors its credit portfolio to manage risk concentrations and rebalance the portfolio.
Individual customers or groups of related customers
The Group has large exposure limits governing the aggregate size of credit exposure normally acceptable to individual
customers and groups of related customers. These limits are tiered by customer risk grade.
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
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
Specific industries
Group’s industry risk appetite limits.
Individual countries
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)
40% (2017: 52%) were issued by financial institutions for the Group; 39%
(2017: 50%) for the Parent Entity.
56% (2017: 45%) were issued by government or semi-government authorities
for the Group; 58% (2017: 47%) for the Parent Entity.
76% (2017: 76%) were held in Australia by the Group; 80% (2017: 81%) by the
Parent Entity.
Available-for-sale securities
(Note12)
27% (2017: 26%) were issued by financial institutions for the Group; 28%
(2017: 27%) for the Parent Entity.
73% (2017: 74%) were issued by government or semi-government authorities
for the Group; 72% (2017: 73%) for the Parent Entity.
89% (2017: 90%) were held in Australia by the Group; 96% (2017: 98%) by the
Loans (Note 13)
Note 13 provides a detailed breakdown of loans by industry and geographic
Derivative financial instruments
79% (2017: 77%) were issued by financial institutions for both the Group and
(Note 21)
84% (2017: 86%) were held in Australia by the Group; 86% (2017: 86%) by the
Parent Entity.
classification.
Parent Entity.
Parent Entity.
Note 22. Financial risk (continued)
Notes to the financial statements
Consolidated
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total gross credit risk
2017
Undrawn
credit
commit-
ments
Total on
balance
sheet
Total
Total
2018
Undrawn
credit
Total on
balance commit-
ments
sheet
8,306
8,651
6,756
57,153
49,830
9,968
3,637
45,814
13,561
12,297
16,809
9,587
5,281
463,609
6,781
1,404
2,035
3,324
7,781
728
5,738
3,079
12,309
5,596
5,700
7,951
4,958
3,471
86,421
1,597
718,040 152,092
323
8,188
504
6,919
4,767
2,307
213
6,236
1,108
1,758
2,568
1,102
1,415
46,614
1
84,023
39
684
429
1,437
691
1,577
101
1,035
512
613
1,023
791
1,564
12,114
245
22,855
9,710
10,686
10,080
64,934
50,558
15,706
6,716
58,123
19,157
17,997
24,760
14,545
8,752
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
550,030 451,315
4,360
870,132 701,405
8,378
362
8,872
933
8,356
5,458
3,884
314
7,271
1,620
2,371
3,591
1,893
2,979
58,728
246
106,878
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
112
19
71
7,845
4,246
3,364
353
467
1,754
207
2,993
1,232
763
683
178
24,287
97
5
55
7,713
3,071
3,107
378
491
542
205
2,680
1,426
544
657
78
21,049
826,350 190,397 1,016,747 805,234
12
1
121
3,454
50
4,849
1,793
57
733
448
3,330
222
329
45
6
15,450
124
20
192
11,299
4,296
8,213
2,146
524
2,487
655
6,323
1,454
1,092
728
184
39,737
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
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
88,363 539,678
5,879
158,392 859,797
1,519
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
23,090 105,870
13
1
242
3,182
1
4,259
1,518
40
508
105
2,458
437
260
37
8
13,069
110
6
297
10,895
3,072
7,366
1,896
531
1,050
310
5,138
1,863
804
694
86
34,118
194,551 999,785
3
202
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
203
Notes to the financial statements
Note 22. Financial risk (continued)
Parent Entity
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total gross credit risk
2018
Undrawn
credit
commit-
ments
Total on
balance
sheet
2017
Undrawn
credit
commit-
ments
Total on
balance
sheet
Total
Note 22. Financial risk (continued)
22.2.4 Credit quality of financial assets
Total
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.
Notes to the financial statements
8,237
8,593
6,252
56,687
49,824
9,742
3,605
45,812
12,517
12,029
16,598
9,190
5,255
462,568
5,949
712,858
-
52
7
2,761
994
206
7
52
43
25
322
73
372
1
1
4,916
1,404
2,035
3,324
7,781
728
5,738
3,078
12,309
5,595
5,700
7,949
4,957
3,471
8,110
9,641
8,073
10,628
5,447
9,576
58,589
64,468
49,330
50,552
9,511
15,480
3,371
6,683
43,641
58,121
11,047
18,112
12,853
17,729
16,098
24,547
9,097
14,147
6,386
8,726
86,421 548,989 449,207
3,385
7,523
152,064 864,922 694,145
1,574
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
9,578
10,228
9,113
67,004
50,143
15,697
6,939
55,684
16,190
18,934
24,789
15,135
10,602
88,362 537,569
4,903
158,363 852,508
1,518
-
7
22
50
29
97
1
8
31
44
234
87
146
19
1
776
-
59
29
2,811
1,023
303
8
60
74
69
556
160
518
20
2
5,692
-
38
6
3,230
929
183
3
43
38
25
269
38
498
-
5
5,305
-
7
13
56
23
110
3
10
57
64
216
89
128
33
4
813
-
45
19
3,286
952
293
6
53
95
89
485
127
626
33
9
6,118
70
4
59
7,641
3,469
3,359
354
234
1,665
188
2,807
1,127
761
277
99
22,114
739,888
12
1
113
3,442
50
4,741
1,791
31
730
445
3,216
214
329
40
4
15,159
88
82
4
5
44
172
7,420
11,083
2,449
3,519
3,089
8,100
378
2,145
288
265
527
2,395
74
633
2,446
6,023
1,196
1,341
538
1,090
280
317
82
103
18,903
37,273
167,999 907,887 718,353
13
1
237
3,161
1
4,166
1,516
34
507
101
2,354
414
259
34
5
12,803
101
5
281
10,581
2,450
7,255
1,894
322
1,034
175
4,800
1,610
797
314
87
31,706
171,979 890,332
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
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
provision
Impairment carrying
Total
value
other financial institutions
5,775
15
-
5,790
-
5,790
-
5,790
21,720
23,692
60,229
145
406
506
-
3
-
21,865
24,101
60,735
-
-
-
21,865
24,101
60,735
-
-
-
21,865
24,101
60,735
Loans - housing and personal
379,383
114,627
4,365
498,375
16,162
687
515,224
Loans - business
90,408
97,369
4,481
192,258
4,293
729
197,280
(1,303)
(1,511)
513,921
195,769
1,122
4,064
233
392
-
18
1,355
4,474
-
37
-
3
1,355
4,514
-
-
1,355
4,514
586,393
213,693
8,867
808,953
20,492
1,419
830,864
(2,814)
828,050
Neither past due nor impaired
Good/
Past due
but not
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
provision
Impairment carrying
Total
value
other financial institutions
7,119
9
-
7,128
-
7,128
-
7,128
24,973
23,184
59,752
22
815
493
-
33
-
24,995
24,032
60,245
-
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
Loans - business
86,437
95,556
4,507
186,500
3,273
681
861
497,151
190,634
(1,331)
(1,535)
495,820
189,099
814
4,340
234
364
-
14
1,048
4,718
-
34
-
3
1,048
4,755
-
-
1,048
4,755
569,645
210,856
8,096
788,597
19,846
1,546
809,989
(2,866)
807,123
Consolidated 2018
$m
Receivables due from
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
Regulatory deposits with central
banks overseas
Other financial assets2
Total
Consolidated 2017
$m
Receivables due from
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
Regulatory deposits with central
banks overseas
Other financial assets2
Total3
-
-
-
-
-
-
-
-
1 Equity securities are excluded from these balances and as a result the total carrying value will not represent the balance reported on the balance
sheet.
2 Other financial assets include accrued interest of $1,276 million (2017: $1,193 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 $1,264 million (2017: $1,408 million) are also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
3 Comparatives have been revised for consistency.
204
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
205
Notes to the financial statements
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
Property services and business services
Mining
Property
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
Property services and business services
Mining
Property
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
Property services and business services
Mining
Property
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total gross credit risk
2018
Undrawn
2017
Undrawn
Total on
credit
balance
commit-
Total on
credit
balance
commit-
sheet
ments
Total
sheet
ments
Total
8,237
8,593
6,252
56,687
49,824
9,742
3,605
45,812
12,517
12,029
16,598
9,190
5,255
1,404
2,035
3,324
7,781
728
5,738
3,078
12,309
5,595
5,700
7,949
4,957
3,471
9,641
10,628
9,576
64,468
50,552
15,480
6,683
58,121
18,112
17,729
24,547
14,147
8,726
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
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
9,578
10,228
9,113
67,004
50,143
15,697
6,939
55,684
16,190
18,934
24,789
15,135
10,602
462,568
86,421 548,989 449,207
88,362 537,569
5,949
1,574
7,523
3,385
1,518
4,903
712,858
152,064 864,922 694,145
158,363 852,508
-
52
7
2,761
994
206
7
52
43
25
322
73
372
1
1
4,916
70
4
59
7,641
3,469
3,359
354
234
1,665
188
2,807
1,127
761
277
99
-
7
22
50
29
97
1
8
31
44
234
87
146
19
1
776
12
1
113
50
4,741
1,791
3,216
31
730
445
214
329
40
4
-
59
29
2,811
1,023
303
8
60
74
69
556
160
518
20
2
82
5
172
3,519
8,100
2,145
265
2,395
633
6,023
1,341
1,090
317
103
-
38
6
3,230
929
183
3
43
38
25
269
38
498
-
5
88
4
44
7,420
2,449
3,089
378
288
527
74
2,446
1,196
538
280
82
-
7
13
56
23
3
10
57
64
110
216
89
128
33
4
813
13
1
237
1
4,166
1,516
2,354
34
507
101
414
259
34
5
-
45
19
3,286
952
293
6
53
95
89
485
127
626
33
9
101
5
281
2,450
7,255
1,894
322
1,034
175
4,800
1,610
797
314
87
5,692
5,305
6,118
22,114
15,159
37,273
18,903
12,803
31,706
739,888
167,999 907,887 718,353
171,979 890,332
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).
Consolidated 2018
$m
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
other financial institutions
5,775
15
-
5,790
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
21,720
23,692
60,229
145
406
506
-
3
-
21,865
24,101
60,735
-
-
-
-
-
5,790
-
5,790
-
-
-
21,865
24,101
60,735
-
-
-
21,865
24,101
60,735
Loans - housing and personal
379,383
114,627
4,365
498,375
16,162
687
515,224
Loans - business
90,408
97,369
4,481
192,258
4,293
729
197,280
Regulatory deposits with central
banks overseas
Other financial assets2
Total
1,122
4,064
586,393
233
-
1,355
-
-
1,355
392
213,693
18
8,867
4,474
808,953
37
20,492
3
1,419
4,514
830,864
Consolidated 2017
$m
Receivables due from
Neither past due nor impaired
Good/
Past due
but not
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
(1,303)
(1,511)
513,921
195,769
-
-
(2,814)
1,355
4,514
828,050
Total
Impairment carrying
value
provision
other financial institutions
7,119
9
-
7,128
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
-
-
-
-
-
7,128
-
7,128
-
1
-
24,995
24,033
60,245
-
-
-
24,995
24,033
60,245
3,442
11,083
3,161
10,581
Loans - housing and personal
363,026
113,363
3,542
479,931
16,539
Loans - business
86,437
95,556
4,507
186,500
3,273
681
861
497,151
190,634
(1,331)
(1,535)
495,820
189,099
Regulatory deposits with central
banks overseas
Other financial assets2
Total3
814
4,340
569,645
234
-
1,048
364
210,856
14
8,096
4,718
788,597
-
34
19,846
-
1,048
3
1,546
4,755
809,989
-
-
(2,866)
1,048
4,755
807,123
3
1 Equity securities are excluded from these balances and as a result the total carrying value will not represent the balance reported on the balance
sheet.
2 Other financial assets include accrued interest of $1,276 million (2017: $1,193 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 $1,264 million (2017: $1,408 million) are also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
3 Comparatives have been revised for consistency.
204
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
205
Notes to the financial statements
Note 22. Financial risk (continued)
Parent Entity 2018
$m
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
other financial institutions
5,709
2
-
5,711
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
20,201
23,155
56,443
145
404
3
-
3
-
20,346
23,562
56,446
-
-
-
-
-
5,711
-
5,711
-
-
-
20,346
23,562
56,446
-
-
-
20,346
23,562
56,446
Loans - housing and personal
359,843
87,667
4,050
451,560
15,044
572
467,176
Loans - business
76,995
80,572
3,412
160,979
3,838
582
165,399
Regulatory deposits with central
banks overseas
Due from subsidiaries
Other financial assets2
Total
1,122
140,597
3,321
687,386
126
-
-
-
306
169,225
15
7,480
1,248
140,597
3,642
864,091
-
-
-
-
33
18,915
2
1,156
1,248
140,597
3,677
884,162
Parent Entity 2017
$m
Receivables due from
Neither past due nor impaired
Good/
Past due
but not
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
(1,125)
(1,282)
466,051
164,117
-
-
-
(2,407)
1,248
140,597
3,677
881,755
Total
Impairment carrying
value
provision
other financial institutions
6,352
5
-
6,357
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
-
-
-
-
-
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
Total3
814
142,455
3,681
673,641
131
-
-
-
278
165,497
10
6,247
945
142,455
3,969
845,385
-
-
-
-
31
18,186
2
1,239
945
142,455
4,002
864,810
(1,091)
(1,282)
448,398
157,839
-
-
-
(2,373)
945
142,455
4,002
862,437
Details of collateral held in support of these balances are provided in Note 22.2.8.
1 Equity securities are excluded from these balances and as a result the total carrying value will not represent the balance reported on the balance
sheet.
2 Other financial assets include accrued interest of $1,103 million (2017: $1,029 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 $1,264 million (2017: $1,388 million) are also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
3 Comparatives have been revised for consistency.
follows:
Consolidated
$m
Loans:
Parent Entity
$m
Loans:
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
Notes to the financial statements
1-5 days 6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
2018
2017
Loans - housing and personal
Loans - business
Other financial assets
Total
3,440
1,170
8
9,688
2,558
23
3,034 16,162
4,515
565
4,293
6
37
698
9
9,331
2,085
19
2,693 16,539
490
3,273
6
34
4,618
12,269
3,605 20,492
5,222
11,435
3,189 19,846
1-5 days 6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
2018
2017
Loans - housing and personal
Loans - business
Other financial assets
Total
3,179
1,054
7
8,895
2,285
20
2,970 15,044
4,216
499
3,838
6
33
603
8
8,471
1,810
18
2,625 15,312
430
2,843
5
31
4,240
11,200
3,475 18,915
4,827
10,299
3,060 18,186
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 secured1;
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).
Gross amount
2018
2017
2016
3,861
3,322
3,075
127
29
117
19
89
17
4,017
3,458
3,181
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.
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
restructured loans (the original contractual terms have been modified to provide for concessions for a customer facing
ThT
Consolidated
$m
Australia
New Zealand
Other overseas
Total
22.2.7 Impaired loans
These include:
due; and
financial difficulties).
1 The estimated net realisable value of security to which the Group has recourse is sufficient to cover all principal and interest as at 30 September.
206
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
207
Notes to the financial statements
Note 22. Financial risk (continued)
Neither past due nor impaired
Good/
Past due
but not
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
provision
Impairment carrying
Total
value
other financial institutions
5,709
2
-
5,711
-
5,711
-
5,711
20,201
23,155
56,443
145
404
3
-
3
-
20,346
23,562
56,446
-
-
-
20,346
23,562
56,446
-
-
-
20,346
23,562
56,446
Loans - housing and personal
359,843
87,667
4,050
451,560
15,044
572
467,176
Loans - business
76,995
80,572
3,412
160,979
3,838
582
165,399
Regulatory deposits with central
banks overseas
Due from subsidiaries
Other financial assets2
Total
1,122
140,597
3,321
687,386
126
-
-
-
1,248
140,597
306
15
3,642
-
-
33
-
-
2
1,248
140,597
3,677
169,225
7,480
864,091
18,915
1,156
884,162
(2,407)
881,755
Neither past due nor impaired
Good/
Past due
but not
Strong
Satisfactory Weak
Total
impaired
Impaired
Total
provision
other financial institutions
6,352
5
-
6,357
-
6,357
-
6,357
(1,125)
(1,282)
466,051
164,117
-
-
-
1,248
140,597
3,677
Impairment carrying
Total
value
Parent Entity 2018
$m
Receivables due from
Trading securities and
financial assets
designated at fair value1
Derivative financial instruments
Available-for-sale securities1
Loans:
Parent Entity 2017
$m
Receivables due from
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
-
1
-
22,875
23,823
55,743
-
-
-
22,875
23,823
55,743
-
-
-
-
-
-
-
-
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
2018
2017
Loans - housing and personal
Loans - business
Other financial assets
Total
3,440
1,170
8
4,618
9,688
2,558
23
12,269
3,034 16,162
4,515
565
4,293
6
37
3,605 20,492
698
9
5,222
9,331
2,085
19
11,435
2,693 16,539
490
3,273
6
34
3,189 19,846
Parent Entity
$m
Loans:
1-5 days 6-89 days 90+ days
Total 1-5 days 6-89 days 90+ days
Total
2018
2017
Loans - housing and personal
Loans - business
Other financial assets
Total
3,179
1,054
7
4,240
8,895
2,285
20
11,200
2,970 15,044
4,216
499
3,838
6
33
3,475 18,915
603
8
4,827
8,471
1,810
18
10,299
2,625 15,312
430
2,843
5
31
3,060 18,186
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 secured1;
assets that were, but are no longer 90 days past due but are yet to satisfactorily demonstrate sustained improvement to
allow reclassification; and
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
Total3
814
142,455
3,681
673,641
131
-
278
-
-
945
142,455
10
3,969
-
-
31
-
-
2
945
142,455
4,002
165,497
6,247
845,385
18,186
1,239
864,810
(2,373)
862,437
(1,091)
(1,282)
448,398
157,839
-
-
-
945
142,455
4,002
Details of collateral held in support of these balances are provided in Note 22.2.8.
Consolidated
$m
Australia
New Zealand
Other overseas
Total
22.2.7 Impaired loans
Gross amount
2018
2017
2016
3,861
3,322
3,075
127
29
4,017
117
19
3,458
89
17
3,181
ThT
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).
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.
3
1 Equity securities are excluded from these balances and as a result the total carrying value will not represent the balance reported on the balance
sheet.
2 Other financial assets include accrued interest of $1,103 million (2017: $1,029 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 $1,264 million (2017: $1,388 million) are also included in this
balance which is allocated proportionately based on the trading securities balance classifications.
3 Comparatives have been revised for consistency.
206
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207
1 The estimated net realisable value of security to which the Group has recourse is sufficient to cover all principal and interest as at 30 September.
restructured loans (the original contractual terms have been modified to provide for concessions for a customer facing
financial difficulties).
Impaired loans are those for which there is objective evidence that their principal or interest payments may not be recoverable.
These include:
unsecured facilities including overdrafts, personal loans and revolving credit facilities which are greater than 90 days past
due; and
non-performing loans (aligned to an impaired internal credit risk grade);
Notes to the financial statements
Note 22. Financial risk (continued)
Note 22. Financial risk (continued)
Notes to the financial statements
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:
The gross amount of impaired loans, along with the provision for impairment, by type and geography of impaired loans at
30 September, is summarised in the table below:
Consolidated
2018
$m
Individually impaired
Gross amount
Impairment provision
Carrying amount
Collectively impaired
Gross amount
Impairment provision
Carrying amount
Total gross amount
Total impairment provision
Total carrying amount
Loans-
Housing and
Personal
Loans -
Business
Total
165
(106)
59
522
(196)
326
687
(302)
385
532
(316)
216
197
(35)
162
729
(351)
378
697
(422)
275
719
(231)
488
1,416
(653)
763
Parent Entity
2018
$m
Individually impaired
Gross amount
Impairment provision
Carrying amount
Collectively impaired
Gross amount
Impairment provision
Carrying amount
Total gross amount
Total impairment provision
Total carrying amount
Loans-
Housing and
Personal
Loans -
Business
Total
130
(85)
45
442
(156)
286
572
(241)
331
400
(290)
110
182
(15)
167
582
(305)
277
530
(375)
155
624
(171)
453
1,154
(546)
608
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
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Consolidated
$m
Australia
Non-performing loans
Gross amount
Impairment provision
Restructured loans
Gross amount
Impairment provision
Gross amount
Impairment provision
New Zealand
Non-performing loans
Gross amount
Impairment provision
Restructured loans
Gross amount
Impairment provision
Gross amount
Impairment provision
Other overseas
Non-performing loans
Gross amount
Impairment provision
Restructured loans
Gross amount
Impairment provision
Net
Net
Net
Net
Net
Net
Net
Net
Net
2018
2017
2016
2015
2014
882
(422)
460
975
(460)
515
1,589
(769)
820
1,220
(572)
648
1,580
(697)
883
9
(1)
8
12
(7)
5
13
(11)
2
358
(179)
179
362
(187)
175
267
(159)
108
124
(30)
94
152
(41)
111
218
(95)
123
16
(4)
12
10
(7)
3
44
(21)
23
2
(1)
1
-
-
-
14
(4)
10
12
(9)
3
13
(6)
7
3
(1)
2
1
(1)
-
15
(5)
10
11
(8)
3
15
(6)
9
-
-
-
-
-
-
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
-
1
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Gross amount
Impairment provision
Total net impaired assets
763
828
1,092
1,018
1,293
Details of collateral held in support of these balances are provided in Note 22.2.8.
208
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
209
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
2018
Loans-
2017
Loans-
Housing and
Loans -
Housing and
Loans -
Personal
Business
Total
Personal
Business
Total
2018
Loans-
2017
Loans-
Housing and
Loans -
Housing and
Loans -
Personal
Business
Total
Personal
Business
Total
165
(106)
59
522
(196)
326
687
(302)
385
130
(85)
45
442
(156)
286
572
(241)
331
532
(316)
216
197
(35)
162
729
(351)
378
400
(290)
110
182
(15)
167
582
(305)
277
697
(422)
275
719
(231)
488
1,416
(653)
763
530
(375)
155
624
(171)
453
1,154
(546)
608
164
(104)
60
517
(202)
315
681
(306)
375
121
(83)
38
421
(162)
259
542
(245)
297
692
(376)
316
169
(32)
137
861
(408)
453
534
(334)
200
160
(17)
143
694
(351)
343
856
(480)
376
686
(234)
452
1,542
(714)
828
655
(417)
238
581
(179)
402
1,236
(596)
640
Notes to the financial statements
Note 22. Financial risk (continued)
Note 22. Financial risk (continued)
Notes to the financial statements
The gross amount of impaired loans, along with the provision for impairment, by class of asset at 30 September, is summarised
The gross amount of impaired loans, along with the provision for impairment, by type and geography of impaired loans at
30 September, is summarised in the table below:
Consolidated
$m
Australia
Non-performing loans
Gross amount
Impairment provision
Net
Restructured loans
Gross amount
Impairment provision
Net
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Gross amount
Impairment provision
Net
New Zealand
Non-performing loans
Gross amount
Impairment provision
Net
Restructured loans
Gross amount
Impairment provision
Net
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Gross amount
Impairment provision
Net
Other overseas
Non-performing loans
Gross amount
Impairment provision
Net
Restructured loans
Gross amount
Impairment provision
Net
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due
Gross amount
Impairment provision
Net
Total net impaired assets
2018
2017
2016
2015
2014
882
(422)
460
975
(460)
515
1,589
(769)
820
1,220
(572)
648
1,580
(697)
883
9
(1)
8
12
(7)
5
13
(11)
2
358
(179)
179
362
(187)
175
267
(159)
108
124
(30)
94
152
(41)
111
218
(95)
123
16
(4)
12
10
(7)
3
44
(21)
23
2
(1)
1
-
-
15
(5)
10
11
(8)
3
15
(6)
9
-
-
-
-
-
14
(4)
10
12
(9)
3
13
(6)
7
3
(1)
2
1
(1)
-
763
-
828
-
1,092
22
(12)
10
252
(164)
88
348
(104)
244
17
(4)
13
10
(7)
3
25
(13)
12
-
-
-
34
(23)
11
203
(132)
71
397
(130)
267
-
-
-
13
(9)
4
53
(35)
18
59
(21)
38
1
(1)
-
1,018
1
-
1
1,293
3
Details of collateral held in support of these balances are provided in Note 22.2.8.
208
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209
Notes to the financial statements
Note 22. Financial risk (continued)
Note 22. Financial risk (continued)
Notes to the financial statements
The following table summarises the interest received and forgone on non-performing loans and restructured financial assets:
Parent Entity
Consolidated 2018
$m
Interest received
Interest forgone
22.2.8 Collateral held
Australia
Overseas
3
31
8
-
Total
11
31
Loans
The Group analyses the coverage of the loan portfolio which is secured by the collateral that it holds. Coverage is measured as
follows:
Coverage
Fully secured
Partially secured
Unsecured
Secured loan to collateral value ratio
Less than or equal to 100%
Greater than 100% but not more than 150%
Greater than 150%, or no security held (e.g. can include credit cards, personal loans, and
exposure to highly rated corporate entities)
The Group’s loan portfolio has the following coverage from collateral held:
Neither past due nor impaired
Consolidated
2018
2017
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Loans-
Housing and
Personal
97.5
0.6
1.9
100.0
Loans-
Housing and
Personal
98.1
0.3
1.6
100.0
Loans -
Business
55.8
22.9
21.3
100.0
Total
85.9
6.8
7.3
100.0
Loans-
Housing and
Personal
97.0
0.9
2.1
100.0
Loans -
Business
54.0
25.7
20.3
100.0
Total
84.9
7.9
7.2
100.0
2018
2017
Loans -
Business
57.8
20.4
21.8
100.0
Total
87.5
5.6
6.9
100.0
Loans-
Housing and
Personal
97.9
0.3
1.8
100.0
Loans -
Business
55.4
23.7
20.9
100.0
Total
86.7
6.5
6.8
100.0
Past due but not impaired
Consolidated
2018
2017
%
Fully secured
Partially secured
Unsecured
Total
Loans-
Housing and
Personal
94.6
2.0
3.4
100.0
Loans -
Business
52.8
28.2
19.0
100.0
Total
85.8
7.5
6.7
100.0
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
In managing liquidity for the Group, Treasury utilises balance sheet forecasts and the maturity profile of the Group’s wholesale
funding portfolio to project liquidity outcomes. Regional liquidity limits are also used by the Group to ensure liquidity is managed
efficiently and prudently in other geographies.
In addition, the Group conducts regular stress testing 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 forecasting, planning and stress testing outcomes are used by the Group to inform liquidity modelling to assist the Group in
meeting its regulatory requirements as required under APRA’s liquidity prudential standard, being the Liquidity Coverage Ratio
(LCR) and Net Stable Funding Ratio (NSFR). Westpac’s LCR and NSFR are above the regulatory requirement of 100%.
210
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211
1 Securities received as collateral are not recognised on the Group and Parent Entity’s balance sheet.
%
Fully secured
Partially secured
Unsecured
Total
Impaired
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
2018
Loans-
2017
Loans-
Housing and
Loans -
Housing and
Loans -
Personal
Business
Total
Personal
Business
Total
95.7
1.5
2.8
100.0
54.7
25.0
20.3
87.3
6.3
6.4
100.0
100.0
96.4
0.6
3.0
100.0
60.2
25.7
14.1
90.8
4.5
4.7
100.0
100.0
2018
Loans-
2017
Loans-
Housing and
Loans -
Housing and
Loans -
Personal
Business
Total
Personal
Business
Total
72.8
10.0
17.2
100.0
32.0
11.5
56.5
51.8
10.8
37.4
100.0
100.0
69.5
10.7
19.8
100.0
17.3
25.7
57.0
40.3
19.1
40.6
100.0
100.0
2018
Loans-
2017
Loans-
Housing and
Loans -
Housing and
Loans -
Personal
Business
Total
Personal
Business
Total
76.4
6.5
17.1
100.0
28.5
13.1
58.4
52.2
9.8
38.0
100.0
100.0
73.2
6.3
20.5
100.0
19.6
17.1
63.3
43.1
12.4
44.5
100.0
100.0
Collateral held against financial assets other than loans
$m
Cash, primarily for derivatives
Securities under reverse repurchase agreements1
Securities under derivatives and stock borrowing1
Total other collateral held
22.3 Funding and liquidity risk
22.3.1 Liquidity modelling
Consolidated
Parent Entity
2018
2017
2018
2017
2,187
1,404
28
2,480
6,814
32
1,751
1,404
28
2,354
6,814
32
3,619
9,326
3,183
9,200
Consolidated 2018
$m
Interest received
Interest forgone
22.2.8 Collateral held
Loans
follows:
Coverage
Fully secured
Partially secured
Unsecured
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Past due but not impaired
Australia
Overseas
3
31
8
-
Total
11
31
The Group analyses the coverage of the loan portfolio which is secured by the collateral that it holds. Coverage is measured as
Secured loan to collateral value ratio
Less than or equal to 100%
Greater than 100% but not more than 150%
Greater than 150%, or no security held (e.g. can include credit cards, personal loans, and
exposure to highly rated corporate entities)
The Group’s loan portfolio has the following coverage from collateral held:
Neither past due nor impaired
2018
Loans-
2017
Loans-
Housing and
Loans -
Housing and
Loans -
Personal
Business
Total
Personal
Business
Total
97.5
0.6
1.9
100.0
55.8
22.9
21.3
85.9
6.8
7.3
100.0
100.0
97.0
0.9
2.1
100.0
54.0
25.7
20.3
84.9
7.9
7.2
100.0
100.0
2018
Loans-
2017
Loans-
Housing and
Loans -
Housing and
Loans -
Personal
Business
Total
Personal
Business
Total
98.1
0.3
1.6
100.0
57.8
20.4
21.8
87.5
5.6
6.9
100.0
100.0
97.9
0.3
1.8
100.0
55.4
23.7
20.9
86.7
6.5
6.8
100.0
100.0
2018
Loans-
2017
Loans-
94.6
2.0
3.4
100.0
52.8
28.2
19.0
85.8
7.5
6.7
100.0
100.0
93.9
2.6
3.5
100.0
58.2
28.3
13.5
87.9
6.9
5.2
100.0
100.0
Notes to the financial statements
Note 22. Financial risk (continued)
Note 22. Financial risk (continued)
Notes to the financial statements
The following table summarises the interest received and forgone on non-performing loans and restructured financial assets:
Parent Entity
2018
2017
%
Fully secured
Partially secured
Unsecured
Total
Impaired
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Loans-
Housing and
Personal
95.7
1.5
2.8
100.0
Loans -
Business
54.7
25.0
20.3
100.0
Total
87.3
6.3
6.4
100.0
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
72.8
10.0
17.2
100.0
Loans-
Housing and
Personal
76.4
6.5
17.1
100.0
2018
2017
Loans -
Business
32.0
11.5
56.5
100.0
Total
51.8
10.8
37.4
100.0
Loans-
Housing and
Personal
69.5
10.7
19.8
100.0
Loans -
Business
17.3
25.7
57.0
100.0
Total
40.3
19.1
40.6
100.0
2018
2017
Loans -
Business
28.5
13.1
58.4
100.0
Total
52.2
9.8
38.0
100.0
Loans-
Housing and
Personal
73.2
6.3
20.5
100.0
Loans -
Business
19.6
17.1
63.3
100.0
Total
43.1
12.4
44.5
100.0
Collateral held against financial assets other than loans
$m
Cash, primarily for derivatives
Securities under reverse repurchase agreements1
Securities under derivatives and stock borrowing1
Total other collateral held
Consolidated
2018
2017
Parent Entity
2018
2017
2,187
1,404
28
3,619
2,480
6,814
32
9,326
1,751
1,404
28
3,183
2,354
6,814
32
9,200
22.3 Funding and liquidity risk
22.3.1 Liquidity modelling
In managing liquidity for the Group, Treasury utilises balance sheet forecasts and the maturity profile of the Group’s wholesale
funding portfolio to project liquidity outcomes. Regional liquidity limits are also used by the Group to ensure liquidity is managed
efficiently and prudently in other geographies.
3
Housing and
Loans -
Housing and
Loans -
Personal
Business
Total
Personal
Business
Total
In addition, the Group conducts regular stress testing 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 forecasting, planning and stress testing outcomes are used by the Group to inform liquidity modelling to assist the Group in
meeting its regulatory requirements as required under APRA’s liquidity prudential standard, being the Liquidity Coverage Ratio
(LCR) and Net Stable Funding Ratio (NSFR). Westpac’s LCR and NSFR are above the regulatory requirement of 100%.
210
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211
1 Securities received as collateral are not recognised on the Group and Parent Entity’s balance sheet.
deposits;
fee income.
debt issues;
interest income; and
principal repayments on loans;
repurchase agreements with central banks;
proceeds from sale of marketable securities;
Notes to the financial statements
Note 22. Financial risk (continued)
22.3.2 Sources of liquidity
Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, product and term. Sources
include, but are not limited to:
Notes to the financial statements
Note 22. Financial risk (continued)
Wholesale funding with a residual maturity less than 12 months decreased by 165 basis points to 12.4%. The Group’s
short term funding portfolio (including long term to short term scroll) of $102 billion had a weighted average maturity of 151
days and is more than covered by the $153.7 billion of unencumbered repo-eligible liquid assets and cash held by the
Group; and
Funding from equity was little changed at 7.9% of total funding.
Maintaining a diverse funding base with the capacity and flexibility to access a wide range of funding markets, investors,
currencies, maturities and products is an important part of managing liquidity risk. Westpac’s funding infrastructure supports its
ability to meet changing and diverse investor demands. In 2018, the Group raised $32 billion of long term wholesale funding.
The majority of new issuance came in the form of senior unsecured and covered bond format, in core currencies of AUD, USD,
EUR and GBP. The Group also continued to benefit from its position as the only major Australian bank with an active Auto ABS
capability and the only Australian bank with access to the US SEC registered market, raising funds in both these markets
Long term wholesale funding also included $3.0 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 2018 can be found in Note 16, Note 17,
As at 30 September 2018 the Parent Entity’s credit ratings were:
during the year.
Note 19 and Note 20.
Credit ratings
2018
S&P Global Ratings
Moody’s Investors Service
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.
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
Consolidated
Parent Entity
2018
2017
2018
2017
4,754
5,687
4,690
5,315
14
15
14
15
1,544
1,421
1,544
1,421
12,492
18,746
12,492
18,728
18,804
25,869
18,740
25,479
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)
increased by $15.9 billion to $153.7 billion over the last 12 months.
A summary of the Group’s liquid asset holdings is as follows:
$m
Cash
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans1
Regulatory deposits with central banks
Total liquid assets
2018
2017
Actual Average
Actual Average
25,476
21,912
17,339
20,594
816
745
834
662
10,529
9,412
11,405
12,891
60,667
62,892
59,735
59,887
55,500
55,336
47,935
48,561
706
153,694
639
549
150,936 137,797
628
143,223
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 compliance with both the LCR and NSFR.
%
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
2018
63.1
15.7
12.4
0.9
7.9
100.0
2017
61.8
15.2
14.1
1.0
7.9
100.0
Movements in the Group’s funding composition in 2018 included:
Customer deposits increased by 127 basis points to 63.1% of the Group’s total funding at 30 September 2018, reflecting
growth in term deposits;
Long term funding with a residual maturity greater than 12 months increased 45 basis points to 15.7% as the group
continued to lengthen the tenor of its funding. Funding from securitisation was slightly lower at 0.9% of total funding;
1 Loans are self-originated AAA rated mortgage backed securities which are eligible for repurchase with the RBA and Reserve Bank of New Zealand.
1 Primarily comprised of receivables due from other financial institutions.
212
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213
Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, product and term. Sources
Notes to the financial statements
Note 22. Financial risk (continued)
22.3.2 Sources of liquidity
include, but are not limited to:
deposits;
debt issues;
proceeds from sale of marketable securities;
repurchase agreements with central banks;
principal repayments on loans;
interest income; and
fee income.
Liquid assets
$m
Cash
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Available-for-sale securities
Loans1
Regulatory deposits with central banks
Total liquid assets
Group’s funding composition
Wholesale term funding with residual maturity greater than 12 months
Wholesale funding with a residual maturity less than 12 months
%
Customer deposits
Securitisation
Equity
Group's total funding
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)
increased by $15.9 billion to $153.7 billion over the last 12 months.
A summary of the Group’s liquid asset holdings is as follows:
2018
2017
Actual Average
Actual Average
25,476
21,912
17,339
20,594
816
745
834
662
10,529
9,412
11,405
12,891
60,667
62,892
59,735
59,887
55,500
55,336
47,935
48,561
706
639
549
628
153,694
150,936 137,797
143,223
2018
63.1
15.7
12.4
0.9
7.9
2017
61.8
15.2
14.1
1.0
7.9
100.0
100.0
The Group monitors the composition and stability of its funding so that it remains within the Group's funding risk appetite. This
includes compliance with both the LCR and NSFR.
Movements in the Group’s funding composition in 2018 included:
Customer deposits increased by 127 basis points to 63.1% of the Group’s total funding at 30 September 2018, reflecting
growth in term deposits;
Long term funding with a residual maturity greater than 12 months increased 45 basis points to 15.7% as the group
continued to lengthen the tenor of its funding. Funding from securitisation was slightly lower at 0.9% of total funding;
Notes to the financial statements
Note 22. Financial risk (continued)
Wholesale funding with a residual maturity less than 12 months decreased by 165 basis points to 12.4%. The Group’s
short term funding portfolio (including long term to short term scroll) of $102 billion had a weighted average maturity of 151
days and is more than covered by the $153.7 billion of unencumbered repo-eligible liquid assets and cash held by the
Group; and
Funding from equity was little changed at 7.9% of total funding.
Maintaining a diverse funding base with the capacity and flexibility to access a wide range of funding markets, investors,
currencies, maturities and products is an important part of managing liquidity risk. Westpac’s funding infrastructure supports its
ability to meet changing and diverse investor demands. In 2018, the Group raised $32 billion of long term wholesale funding.
The majority of new issuance came in the form of senior unsecured and covered bond format, in core currencies of AUD, USD,
EUR and GBP. The Group also continued to benefit from its position as the only major Australian bank with an active Auto ABS
capability and the only Australian bank with access to the US SEC registered market, raising funds in both these markets
during the year.
Long term wholesale funding also included $3.0 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 2018 can be found in Note 16, Note 17,
Note 19 and Note 20.
Credit ratings
As at 30 September 2018 the Parent Entity’s credit ratings were:
2018
S&P Global Ratings
Moody’s Investors Service
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.
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
Consolidated
2018
2017
Parent Entity
2018
2017
4,754
5,687
4,690
5,315
14
15
14
15
1,544
1,421
1,544
1,421
12,492
18,804
18,746
25,869
12,492
18,740
18,728
25,479
3
1 Loans are self-originated AAA rated mortgage backed securities which are eligible for repurchase with the RBA and Reserve Bank of New Zealand.
1 Primarily comprised of receivables due from other financial institutions.
212
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213
Notes to the financial statements
Note 22. Financial risk (continued)
22.3.4 Contractual maturity of financial liabilities
The tables below present cash flows associated with financial liabilities, payable at the balance sheet date, by remaining
contractual maturity. The amounts disclosed in the table are the future contractual undiscounted cash flows, whereas the Group
manages inherent liquidity risk based on expected cash flows.
Cash flows associated with financial liabilities include both principal payments as well as fixed or variable interest payments
incorporated into the relevant coupon period. Principal payments reflect the earliest contractual maturity date. Derivative
liabilities 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 2018
$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 Over 1 Month Over 3 Months Over 1 Year
to 5 Years
to 3 Months
to 1 Year
1 Month
Over
5 Years
Total
15,242
352,941
4,197
22,869
68
2,680
(2,658)
1,743
1,639
398,721
8
398,729
15,585
174,658
154
190,397
1,754
85,726
100
-
95
5,140
(5,096)
7,502
591
95,812
79
95,891
-
-
-
-
1,040
108,427
-
160
16,771
-
-
75
-
18,196
563,940
4,297
-
377
406
(337)
48,848
2,657
-
741
-
96
22,869
1,377
2,799
(2,527)
100,245
-
1,258
(1,178)
31,892
-
12,283
(11,796)
190,230
4,887
161,418
253
118,189
4,866
32,143
16,509
161,671
123,055
48,652
806,283
21,715
827,998
-
-
-
-
-
-
-
-
-
-
-
15,585
174,658
154
- 190,397
Note 22. Financial risk (continued)
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
Parent Entity 2018
$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
3,253
22,757
98
865
(737)
3,111
1,603
385,267
5
385,272
15,460
178,443
648
194,551
14,788
320,365
4,197
23,039
51
2,632
(2,615)
1,588
142,400
1,598
508,043
8
508,051
14,957
152,943
99
167,999
Notes to the financial statements
Up to Over 1 Month Over 3 Months Over 1 Year
Over
1 Month
to 3 Months
to 1 Year
to 5 Years
5 Years
Total
16,496
337,821
4,438
76,557
1,014
102,306
23
20,605
-
21,971
197
537,486
Up to
Over 1 Month
Over 3 Months
Over 1 Year
Over
1 Month
to 3 Months
to 1 Year
to 5 Years
5 Years
Total
1,753
74,530
1,040
94,855
160
14,606
-
17,741
75
504,431
803
-
146
3,368
(3,275)
10,492
575
93,104
86
93,190
-
-
-
-
100
-
55
4,725
(4,687)
7,117
-
510
84,103
79
84,182
-
-
-
-
-
-
-
4,056
-
22,757
489
1,088
108
1,929
1,039
(821)
46,730
2,586
5,617
(4,634)
2,057
12,946
(1,745)
(11,212)
101,045
18,796
180,174
-
-
4,764
153,343
729
123,744
4,781
19,413
16,548
774,871
22,149
154,072
128,525
35,961
797,020
-
-
-
15,460
178,443
648
-
194,551
-
4,297
-
96
23,039
1,081
271
608
377
(324)
45,527
-
2,294
2,174
(2,043)
85,106
726
(644)
10,634
(10,313)
29,329
168,667
-
-
142,400
4,402
144,040
253
100,611
4,866
29,582
16,509
866,379
21,715
144,293
105,477
46,091
888,094
-
-
-
14,957
152,943
99
-
167,999
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
214
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2018 Westpac Group Annual Report
215
Notes to the financial statements
Note 22. Financial risk (continued)
22.3.4 Contractual maturity of financial liabilities
The tables below present cash flows associated with financial liabilities, payable at the balance sheet date, by remaining
contractual maturity. The amounts disclosed in the table are the future contractual undiscounted cash flows, whereas the Group
manages inherent liquidity risk based on expected cash flows.
Cash flows associated with financial liabilities include both principal payments as well as fixed or variable interest payments
incorporated into the relevant coupon period. Principal payments reflect the earliest contractual maturity date. Derivative
liabilities 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.
Up to Over 1 Month Over 3 Months Over 1 Year
Over
1 Month
to 3 Months
to 1 Year
to 5 Years
5 Years
Total
Consolidated 2018
$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 contingent liabilities
and commitments
Letters of credit and guarantees
Commitments to extend credit
Other commitments
Total undiscounted contingent
liabilities and commitments
15,242
352,941
4,197
22,869
68
2,680
(2,658)
1,743
1,639
398,721
8
15,585
174,658
154
190,397
Total undiscounted financial liabilities
398,729
1,754
85,726
100
-
95
5,140
(5,096)
7,502
591
95,812
79
95,891
-
-
-
-
1,040
108,427
-
160
16,771
-
-
18,196
75
563,940
-
4,297
-
377
406
(337)
48,848
2,657
-
741
-
96
22,869
1,377
2,799
(2,527)
1,258
12,283
(1,178)
(11,796)
100,245
31,892
190,230
-
-
4,887
161,418
118,189
32,143
806,283
253
4,866
16,509
21,715
161,671
123,055
48,652
827,998
-
-
-
-
-
-
-
-
-
-
-
15,585
174,658
154
- 190,397
Note 22. Financial risk (continued)
Notes to the financial statements
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
Parent Entity 2018
$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 Over 1 Month Over 3 Months Over 1 Year
to 5 Years
to 3 Months
to 1 Year
1 Month
Over
5 Years
Total
16,496
337,821
4,438
76,557
1,014
102,306
23
20,605
-
197
21,971
537,486
3,253
22,757
98
865
(737)
3,111
1,603
385,267
5
385,272
15,460
178,443
648
194,551
Up to
1 Month
14,788
320,365
4,197
23,039
51
2,632
(2,615)
1,588
142,400
1,598
508,043
8
508,051
14,957
152,943
99
167,999
803
-
146
3,368
(3,275)
10,492
575
93,104
86
93,190
-
-
-
-
-
-
489
-
-
4,056
-
1,088
-
108
22,757
1,929
1,039
(821)
46,730
2,586
5,617
(4,634)
101,045
-
2,057
(1,745)
18,796
-
12,946
(11,212)
180,174
4,764
153,343
729
154,072
123,744
4,781
128,525
19,413
16,548
35,961
774,871
22,149
797,020
-
-
-
-
-
-
-
-
-
-
-
15,460
178,443
648
-
194,551
Over 1 Month
Over 3 Months
Over 1 Year
to 3 Months
to 1 Year
to 5 Years
Over
5 Years
Total
1,753
74,530
1,040
94,855
160
14,606
-
75
17,741
504,431
100
-
55
4,725
(4,687)
7,117
-
510
84,103
79
84,182
-
-
-
-
-
-
271
377
(324)
45,527
-
2,294
-
-
4,297
-
608
2,174
(2,043)
85,106
-
-
-
96
23,039
1,081
726
(644)
29,329
-
-
10,634
(10,313)
168,667
142,400
4,402
144,040
253
144,293
100,611
4,866
105,477
29,582
16,509
46,091
866,379
21,715
888,094
3
-
-
-
-
-
-
-
-
-
-
-
14,957
152,943
99
-
167,999
214
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
215
Notes to the financial statements
Note 22. Financial risk (continued)
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
Up to Over 1 Month Over 3 Months Over 1 Year
to 5 Years
to 3 Months
to 1 Year
1 Month
Note 22. Financial risk (continued)
Over
5 Years
Total
Consolidated 2018
$m
Assets
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
4,438
65,078
1,014
91,055
23
18,618
-
197
21,839
480,961
Cash and balances with central banks
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
803
-
128
2,929
(2,861)
9,127
-
523
80,165
86
80,251
-
-
-
-
-
-
409
820
(680)
42,116
-
2,353
-
-
4,038
-
1,000
2,796
(2,376)
84,960
-
-
-
106
22,791
1,726
1,294
(1,052)
16,270
-
-
7,850
(6,969)
154,542
143,834
4,452
137,087
729
105,021
4,781
16,815
16,548
835,064
22,149
137,816
109,802
33,363
857,213
-
-
-
-
-
-
-
-
-
-
-
14,908
156,423
648
- 171,979
Derivative financial instruments
Available-for-sale securities
Loans (net of provisions)
Life insurance assets
Investments in associates
All other assets
Total assets
Liabilities
Regulatory deposits with central banks overseas
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
26,431
5,790
11,869
17,828
6,959
94,717
1,598
679
-
5,522
171,393
17,988
543,198
4,297
17,346
53,930
1,547
10,667
648,973
1,382
650,355
(478,962)
-
-
10,265
6,273
54,160
614,973
7,852
676
115
13,885
708,199
149
16,087
-
7,061
118,666
6,050
768
148,781
15,883
164,664
543,535
Total
26,431
5,790
22,134
24,101
61,119
709,690
9,450
1,355
115
19,407
879,592
18,137
559,285
4,297
24,407
172,596
7,597
11,435
797,754
17,265
815,019
64,573
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.
216
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217
Notes to the financial statements
Note 22. Financial risk (continued)
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 contingent liabilities
and commitments
Letters of credit and guarantees
Commitments to extend credit
Other commitments
Total undiscounted contingent
liabilities and commitments
22.3.5 Expected maturity
16,364
306,013
3,235
22,791
83
11
-
2,069
143,834
1,576
495,976
5
14,908
156,423
648
171,979
Total undiscounted financial liabilities
495,981
Up to Over 1 Month Over 3 Months Over 1 Year
Over
1 Month
to 3 Months
to 1 Year
to 5 Years
5 Years
Total
4,438
65,078
1,014
91,055
23
18,618
-
21,839
197
480,961
803
-
128
2,929
(2,861)
9,127
-
523
80,165
86
80,251
-
-
-
-
-
4,038
-
22,791
409
1,000
106
1,726
2,796
(2,376)
84,960
1,294
(1,052)
7,850
(6,969)
16,270
154,542
-
-
143,834
4,452
137,087
105,021
16,815
835,064
729
4,781
16,548
22,149
137,816
109,802
33,363
857,213
-
-
820
(680)
42,116
-
2,353
-
-
-
-
-
-
-
14,908
156,423
648
- 171,979
-
-
-
-
-
-
-
-
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.
Note 22. Financial risk (continued)
Consolidated 2018
$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
26,431
5,790
11,869
17,828
6,959
94,717
1,598
679
-
5,522
171,393
17,988
543,198
4,297
17,346
53,930
1,547
10,667
648,973
1,382
650,355
(478,962)
-
-
10,265
6,273
54,160
614,973
7,852
676
115
13,885
708,199
149
16,087
-
7,061
118,666
6,050
768
148,781
15,883
164,664
543,535
Total
26,431
5,790
22,134
24,101
61,119
709,690
9,450
1,355
115
19,407
879,592
18,137
559,285
4,297
24,407
172,596
7,597
11,435
797,754
17,265
815,019
64,573
3
216
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217
Notes to the financial statements
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)
Parent Entity 2018
$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
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
Due within
12 Months
Greater than
12 Months
24,726
5,711
11,145
17,677
4,846
76,389
571
140,597
-
-
4,358
286,020
17,533
486,418
4,297
17,317
50,499
142,400
8,569
727,033
1,382
728,415
(442,395)
-
-
9,272
5,885
51,667
553,779
677
-
76
4,508
11,346
637,210
149
14,050
-
6,912
101,789
-
676
123,576
15,883
139,459
497,751
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
Total
24,726
5,711
20,417
23,562
56,513
630,168
1,248
140,597
76
4,508
15,704
923,230
17,682
500,468
4,297
24,229
152,288
142,400
9,245
850,609
17,265
867,874
55,356
Note 22. Financial risk (continued)
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
Total liabilities excluding loan capital
Debt issues
Due to subsidiaries
All other liabilities
Loan capital
Total liabilities
Net assets/(net liabilities)
22.4 Market risk
22.4.1 Value-at-Risk
Notes to the financial statements
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
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
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
218
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219
Notes to the financial statements
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
Investments in associates
All other assets
Total assets
Liabilities
Regulatory deposits with central banks overseas
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 2018
$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
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)
24,726
5,711
11,145
17,677
4,846
76,389
571
140,597
-
-
4,358
286,020
17,533
486,418
4,297
17,317
50,499
142,400
8,569
727,033
1,382
728,415
(442,395)
-
-
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
-
-
9,272
5,885
51,667
553,779
677
-
76
4,508
11,346
637,210
149
14,050
-
6,912
101,789
-
676
123,576
15,883
139,459
497,751
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
Total
24,726
5,711
20,417
23,562
56,513
630,168
1,248
140,597
76
4,508
15,704
923,230
17,682
500,468
4,297
24,229
152,288
142,400
9,245
850,609
17,265
867,874
55,356
Note 22. Financial risk (continued)
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)
Notes to the financial statements
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
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
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
3
218
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219
Notes to the financial statements
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
2018
2017
2016
High
Low Average
High
Low Average
High
Low Average
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
15.6
6.9
1.0
24.3
5.8
n/a
28.1
5.1
0.7
0.0
1.7
1.4
n/a
6.7
8.6
3.0
0.1
6.5
3.8
(8.6)
13.4
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
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 over the next 12 months as a percentage of reported net
interest income:
2018
2017
The availability of observable inputs is influenced by factors such as:
Maximum Minimum Average
% (increase)/decrease in net interest income As at Exposure Exposure Exposure As at Exposure Exposure Exposure
Maximum Minimum Average
Consolidated
Parent Entity
0.01
(0.22)
0.78
0.51
(0.09)
(0.28)
0.27 0.62
0.04 0.34
0.62
0.34
(0.01)
(0.33)
0.31
0.05
Value at Risk - IRRBB
The table below depicts VaR for IRRBB:
$m
Consolidated
2018
2017
As at
23.2
High
57.0
Low Average As at
23.2
32.5 57.3
High
57.3
Low Average
40.8
27.0
As at 30 September 2018 the Value at Risk – IRRBB for the Parent Entity was $20.8 million (2017: $56.9 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.
product type;
depth of market activity;
maturity of market models; and
complexity of the transaction.
standard industry practice;
economic models; and
observed transaction prices.
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.
Fair Valuation Control Framework
The same controls as used to monitor traded market risk allow management to continuously monitor and manage IRRBB.
1
2
Includes electricity risk.
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
220
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221
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 recognised in the income statement over the life of the
instrument when the inputs become observable.
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.
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.
These adjustments incorporate bid/offer spreads, credit valuation adjustments and funding valuation adjustments.
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.
Notes to the financial statements
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
2018
2017
2016
$m
Interest rate risk
Foreign exchange risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
High
Low Average
High
Low Average
High
Low Average
15.6
6.9
1.0
24.3
5.8
n/a
28.1
5.1
0.7
0.0
1.7
1.4
n/a
6.7
8.6
3.0
0.1
6.5
3.8
(8.6)
13.4
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
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)
interest income:
The table below depicts NaR assuming a 100 basis point shock over the next 12 months as a percentage of reported net
% (increase)/decrease in net interest income As at Exposure Exposure Exposure As at Exposure Exposure Exposure
Consolidated
Parent Entity
0.01
(0.22)
0.78
0.51
(0.09)
(0.28)
0.27 0.62
0.04 0.34
0.62
0.34
(0.01)
(0.33)
0.31
0.05
2018
2017
Maximum Minimum Average
Maximum Minimum Average
Value at Risk - IRRBB
The table below depicts VaR for IRRBB:
$m
Consolidated
Risk mitigation
2018
2017
As at
23.2
High
57.0
Low Average As at
23.2
32.5 57.3
High
57.3
Low Average
27.0
40.8
As at 30 September 2018 the Value at Risk – IRRBB for the Parent Entity was $20.8 million (2017: $56.9 million).
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.
Includes electricity risk.
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
1
2
220
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 recognised in the income statement over the life of the
instrument when the inputs become observable.
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;
The availability of observable inputs is influenced by factors such as:
depth of market activity;
maturity of market models; and
complexity of the transaction.
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:
observed transaction prices.
standard industry practice;
economic models; and
3
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.
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.
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
221
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
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.
Level 2 instruments
The fair value for financial instruments that are not actively traded is determined using valuation techniques which maximise the
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 incorporate 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
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
Valuation
Includes:
Exchange traded interest rate
futures and options and
commodity, energy and carbon
futures
FX spot and futures contracts
Listed equities and equity
indices
All these instruments are traded in liquid,
active markets where prices are readily
observable. No modelling or assumptions
are used in the valuation.
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
use of observable market prices. Valuation techniques include:
the use of market standard discounting methodologies;
option pricing models; and
other valuation techniques widely used and accepted by market participants.
Instrument
Balance sheet category
Includes:
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
FX swap, FX forward
contracts, FX options and
other non-vanilla FX
derivatives
instruments.
models.
Other credit
products
Derivatives
Single Name and Index
credit default swaps (CDS)
Commodity
products
Derivatives
Commodity, energy and
carbon 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 future markets.
Interest rate volatilities are sourced from brokers
and consensus data providers. If consensus prices
are not available, these are classified as Level 3
Derived from market observable inputs or
consensus pricing providers using industry standard
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
Due to low liquidity exchange traded options are
instruments.
Level 2.
Valued using industry standard models based on
observable parameters such as stock prices,
dividends, volatilities and interest rates.
Equity products Derivatives
Exchange traded equity
options, OTC equity options
and equity warrants
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
Regulatory deposits with
central banks overseas
Other financial liabilities
through income statement
securities
State and other government
bonds, corporate bonds and
commercial paper
Security repurchase
agreements and reverse
repurchase agreements over
non-asset backed debt
Australian residential
Valued using an industry approach to value floating
mortgage backed securities
rate debt with prepayment features. Australian
(RMBS) denominated in
RMBS are valued using prices sourced from a
Australian dollar and other
consensus data provider. If consensus prices are
asset backed securities
not available these are classified as Level 3
(ABS)
instruments.
Valued using observable market prices which are
sourced from consensus pricing services, broker
quotes or inter-dealer prices.
222
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2018 Westpac Group Annual Report
223
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 23. Fair values of financial assets and financial liabilities (continued)
option pricing models; and
the use of market standard discounting methodologies;
other valuation techniques widely used and accepted by market participants.
Level 2 instruments
The fair value for financial instruments that are not actively traded is determined using valuation techniques which maximise the
use of observable market prices. Valuation techniques include:
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.
A financial instrument’s categorisation within the valuation hierarchy is based on the lowest level input that is significant to the
Fair value hierarchy
fair value measurement.
Valuation techniques
The Group applies market accepted valuation techniques in determining the fair valuation of over the counter (OTC)
derivatives. This includes credit valuation adjustments (CVA) and funding valuation adjustments (FVA), which incorporate 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
based on actual arm’s length basis transactions.
The fair value of financial instruments traded in active markets based on recent unadjusted quoted prices. These prices are
The valuations of Level 1 instruments require little or no management judgement.
Instrument
Includes:
Valuation
Balance sheet
category
Exchange traded
products
Derivatives
Foreign exchange
products
Derivatives
Derivatives
Exchange traded interest rate
futures and options and
commodity, energy and carbon
futures
FX spot and futures contracts
Equity products
designated at fair value
Listed equities and equity
indices
Trading securities and
financial assets
Other financial liabilities
at fair value through
income statement
Trading securities and
financial assets
designated at fair value
Other financial liabilities
at fair value through
income statement
Non-asset backed
Available-for-sale
debt instruments
securities
Australian and New Zealand
Commonwealth government
bonds
Life insurance
assets and liabilities
Life insurance assets
Life insurance liabilities
Listed equities, exchange traded
derivatives and short sale of
listed equities within controlled
managed investment schemes
All these instruments are traded in liquid,
active markets where prices are readily
observable. No modelling or assumptions
are used in the valuation.
The Group categorises all fair value instruments according to the hierarchy described below.
Instrument
Balance sheet category
Includes:
Interest rate
products
Derivatives
Foreign
exchange
products
Derivatives
Interest rate and inflation
swaps, swaptions, caps,
floors, collars and other non-
vanilla interest
rate derivatives
FX swap, FX forward
contracts, FX options and
other non-vanilla FX
derivatives
Other credit
products
Derivatives
Single Name and Index
credit default swaps (CDS)
Commodity
products
Derivatives
Commodity, energy and
carbon derivatives
Equity products Derivatives
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
Regulatory deposits with
central banks overseas
Other financial liabilities
at fair value through
income statement
Exchange traded equity
options, OTC equity options
and equity warrants
Australian residential
mortgage backed securities
(RMBS) denominated in
Australian dollar and other
asset backed securities
(ABS)
State and other government
bonds, corporate bonds and
commercial paper
Security repurchase
agreements and reverse
repurchase agreements over
non-asset backed debt
securities
Valuation
Industry standard valuation models are used to
calculate the expected future value of payments by
product, which is discounted back to a present
value. The model’s interest rate inputs are
benchmark interest rates and active broker quoted
interest rates in the swap, bond and future markets.
Interest rate volatilities are sourced from brokers
and consensus data providers. If consensus prices
are not available, these are classified as Level 3
instruments.
Derived from market observable inputs or
consensus pricing providers using industry standard
models.
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. Australian
RMBS are valued using prices sourced from a
consensus data provider. If consensus prices are
not available these are classified as Level 3
instruments.
Valued using observable market prices which are
sourced from consensus pricing services, broker
quotes or inter-dealer prices.
3
222
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
223
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 23. Fair values of financial assets and financial liabilities (continued)
Level 2 instruments (continued)
Instrument
Balance sheet category
Includes:
Loans at fair
value
Loans
Fixed rate bills
Valuation
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.
The tables below summarise the attribution of financial instruments measured at fair value to the fair value hierarchy:
Consolidated
2018
2017
Valuation
Valuation
Valuation
Valuation
Quoted Techniques Techniques
Quoted Techniques Techniques
Market
(Market (Non-Market
Market
(Market (Non-Market
Prices Observable) Observable)
Prices Observable) Observable)
$m
(Level 1)
(Level 2)
(Level 3)
Total (Level 1)
(Level 2)
(Level 3)
Total
Certificates of
deposit
Deposits and other
borrowings
Certificates of deposit
Discounted cash flow using market rates offered for
deposits of similar remaining maturities.
Debt issues at
fair value
Debt issues
Debt issues
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.
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 or other
widely used and accepted valuation techniques
utilising observable market input.
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
Asset backed
debt
instruments
Balance sheet category
Trading securities and
financial assets designated
at fair value
Available-for-sale securities
Non-asset
backed debt
instruments
Trading securities and
financial assets designated
at fair value
Available-for-sale securities
Includes:
Valuation
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.
Equity
investments
Trading securities and
financial assets designated
at fair value
Available-for-sale securities
Investments in unlisted
funds, boutique investment
management companies and
strategic equity investments
Valued using valuation techniques appropriate to
the investment, including the use of recent arm’s
length transactions where available, discounted
cash flow approach, reference to the net assets of
the entity or to the most recent fund unit pricing.
Due to their illiquidity, complexity and/or use of
unobservable inputs into valuation models, they are
classified as Level 3 assets.
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
Total financial assets measured
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
measured at fair value
8,958
20
11,996
-
1,345
12,846
24,066
48,504
3,250
8,105
330 22,134
6,815
15 24,101
619 61,119
7,252
9
-
2,768
3,250
9,450
17,742
24,009
52,841
4,587
7,875
767 25,324
15 24,033
617 60,710
-
4,587
- 10,643
-
-
-
banks overseas
-
998
998
-
659
-
659
at fair value
22,319
97,769
964 121,052
16,844
107,713
1,399 125,956
-
41,178
- 41,178
-
46,569
- 46,569
496
76
-
-
3,801
24,325
3,355
7,597
-
4,297
6 24,407
-
-
3,355
7,597
208
8
-
-
3,848
25,358
4,673
9,019
-
4,056
9 25,375
-
-
4,673
9,019
572
80,256
6 80,834
216
89,467
9 89,692
Parent Entity
2018
2017
Valuation
Valuation
Valuation
Valuation
Quoted Techniques Techniques
Quoted Techniques Techniques
Market
(Market (Non-Market
Market
(Market (Non-Market
Prices Observable) Observable)
Prices Observable) Observable)
$m
(Level 1)
(Level 2)
(Level 3)
Total (Level 1)
(Level 2)
(Level 3)
Total
11,259
23,529
45,786
3,250
206 20,417
6,797
13 23,562
70 56,513
-
3,250
9
5,480
-
-
15,648
23,799
50,256
4,587
501 22,946
15 23,823
64 55,800
-
4,587
998
-
998
659
-
659
at fair value
19,629
84,822
289 104,740
12,286
94,949
580 107,815
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 measured
8,952
20
10,657
-
-
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
measured at fair value
-
40,062
- 40,062
-
46,023
- 46,023
496
76
-
3,801
24,147
3,223
-
4,297
6 24,229
-
3,223
208
8
-
3,830
24,894
2,940
-
4,038
9 24,911
-
2,940
572
71,233
6 71,811
216
77,687
9 77,912
224
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
225
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 23. Fair values of financial assets and financial liabilities (continued)
Level 2 instruments (continued)
The tables below summarise the attribution of financial instruments measured at fair value to the fair value hierarchy:
Instrument
Balance sheet category
Includes:
Valuation
Consolidated
2018
2017
Valuation
Valuation
Quoted Techniques Techniques
Market
(Market (Non-Market
Prices Observable) Observable)
(Level 3)
(Level 2)
(Level 1)
Valuation
Valuation
Quoted Techniques Techniques
Market
(Market (Non-Market
Prices Observable) Observable)
(Level 3)
(Level 2)
Total (Level 1)
Total
$m
Financial assets measured at
fair value on a recurring basis
Trading securities and financial
assets designated at fair value
Derivative financial instruments
Available-for-sale securities
Loans
Life insurance assets
Regulatory deposits with central
banks overseas
Total financial assets measured
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
measured at fair value
8,958
20
11,996
-
1,345
12,846
24,066
48,504
3,250
8,105
330 22,134
15 24,101
619 61,119
3,250
9,450
-
-
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
-
998
-
998
-
659
-
659
22,319
97,769
964 121,052
16,844
107,713
1,399 125,956
-
41,178
- 41,178
-
46,569
- 46,569
496
76
-
-
3,801
24,325
3,355
7,597
-
4,297
6 24,407
3,355
-
7,597
-
208
8
-
-
3,848
25,358
4,673
9,019
-
4,056
9 25,375
4,673
-
9,019
-
572
80,256
6 80,834
216
89,467
9 89,692
Parent Entity
2018
2017
Loans at fair
value
Loans
Fixed rate bills
the timing of cash flows, adjusted for
Discounted cash flow approach, using a discount
rate which reflects the terms of the instrument and
creditworthiness based on market observable
inputs.
Certificates of
Deposits and other
deposit
borrowings
Certificates of deposit
Discounted cash flow using market rates offered for
deposits of similar remaining maturities.
Debt issues at
fair value
Debt issues
Debt issues
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.
Life insurance
assets and
liabilities
Life insurance assets
Life insurance liabilities
Valued using observable market prices or other
widely used and accepted valuation techniques
utilising observable market input.
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
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
Trading securities and
financial assets designated
at fair value
Collateralised loan
obligations and offshore
asset-backed debt
Available-for-sale securities
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.
Non-asset
backed debt
instruments
Trading securities and
financial assets designated
at fair value
Available-for-sale securities
Government securities
Government securities from illiquid markets are
(predominantly PNG
government bonds)
classified as Level 3. Fair value is monitored by
reference to recent issuances.
Equity
investments
Trading securities and
financial assets designated
at fair value
Available-for-sale securities
Investments in unlisted
funds, boutique investment
management companies and
strategic equity investments
Valued using valuation techniques appropriate to
the investment, including the use of recent arm’s
length transactions where available, discounted
cash flow approach, reference to the net assets of
the entity or to the most recent fund unit pricing.
Due to their illiquidity, complexity and/or use of
unobservable inputs into valuation models, they are
classified as Level 3 assets.
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 measured
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
measured at fair value
8,952
20
10,657
-
11,259
23,529
45,786
3,250
206 20,417
13 23,562
70 56,513
3,250
-
6,797
9
5,480
-
15,648
23,799
50,256
4,587
501 22,946
15 23,823
64 55,800
4,587
-
-
998
-
998
-
659
-
659
19,629
84,822
289 104,740
12,286
94,949
580 107,815
3
-
40,062
- 40,062
-
46,023
- 46,023
496
76
-
3,801
24,147
3,223
-
4,297
6 24,229
3,223
-
208
8
-
3,830
24,894
2,940
-
4,038
9 24,911
2,940
-
572
71,233
6 71,811
216
77,687
9 77,912
224
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
225
Valuation
Valuation
Quoted Techniques Techniques
Market
(Market (Non-Market
Prices Observable) Observable)
(Level 3)
Valuation
Valuation
Quoted Techniques Techniques
Market
(Market (Non-Market
Prices Observable) Observable)
(Level 3)
$m
Financial assets measured at
fair value on a recurring basis
Total (Level 1)
(Level 2)
(Level 2)
(Level 1)
Total
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 23. Fair values of financial assets and financial liabilities (continued)
Analysis of movements between fair value hierarchy levels
Transfers into and out of Level 3 have occurred due to changes in observability in the significant inputs into the valuation
models used to determine the fair value of the related financial instruments. Transfers in and transfers out are reported using
the end of year fair values and are disclosed in the following table.
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):
Parent Entity 2018
Trading
Securities and
Financial Assets
Designated
$m
at Fair Value Derivatives Securities
Assets Derivatives Liabilities
501
15
64
580
9
9
Available-
Total
for-Sale
Level 3
Total
Level 3
Consolidated 2018
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale securities 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 2018
Consolidated 2017
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale securities 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
Trading
Securities and
Financial Assets
Designated
Available-
for-Sale
at Fair Value Derivatives Securities
Total
Total
Level 3
Level 3
Assets Derivatives Liabilities
767
15
617
1,399
9
9
2
-
67
(433)
(75)
2
330
1
-
3
(4)
-
-
15
-
(7)
1,446
(1,456)
-
19
619
3
(7)
1,516
(1,893)
(75)
21
964
1
-
1
(5)
-
-
6
1
-
1
(5)
-
-
6
(7)
4
-
(3)
(2)
(2)
Trading
Securities and
Financial Assets
Designated
Available-
for-Sale
at Fair Value Derivatives Securities
Total
Total
Level 3
Level 3
Assets Derivatives Liabilities
840
43
704
1,587
17
17
(26)
-
122
(162)
10
(17)
767
(8)
-
5
(13)
(12)
-
15
-
4
1,572
(1,645)
-
(18)
617
(34)
4
1,699
(1,820)
(2)
(35)
1,399
(3)
-
6
(9)
(2)
-
9
(3)
-
6
(9)
(2)
-
9
(29)
(2)
-
(31)
(3)
(3)
6
-
21
(268)
(53)
(1)
206
1
-
3
(6)
-
-
13
-
2
18
(14)
-
-
70
7
2
42
(288)
(53)
(1)
289
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale securities 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 2018
Parent Entity 2017
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale securities 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
5
4
-
9
(2)
(2)
$m
at Fair Value Derivatives Securities
Assets Derivatives Liabilities
590
42
50
682
17
17
Available-
Total
for-Sale
Level 3
Total
Level 3
Trading
Securities and
Financial Assets
Designated
8
-
32
(122)
10
(17)
501
(7)
-
5
(13)
(12)
-
15
-
-
14
-
-
-
64
1
-
51
(135)
(2)
(17)
580
1
(2)
-
(1)
(3)
(3)
1
-
1
(5)
-
-
6
(3)
-
6
(9)
(2)
-
9
1
-
1
(5)
-
-
6
(3)
-
6
(9)
(2)
-
9
226
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
227
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 23. Fair values of financial assets and financial liabilities (continued)
Analysis of movements between fair value hierarchy levels
Transfers into and out of Level 3 have occurred due to changes in observability in the significant inputs into the valuation
models used to determine the fair value of the related financial instruments. Transfers in and transfers out are reported using
the end of year fair values and are disclosed in the following table.
The tables below summarise the changes in financial instruments measured at fair value derived from non-market observable
Reconciliation of non-market observables
valuation techniques (Level 3):
Consolidated 2018
Trading
Securities and
Financial Assets
Designated
$m
at Fair Value Derivatives Securities
Assets Derivatives Liabilities
767
15
617
1,399
9
9
Available-
Total
for-Sale
Level 3
Total
Level 3
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale securities 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 2018
Consolidated 2017
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale securities 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
(7)
4
-
(3)
(2)
(2)
$m
at Fair Value Derivatives Securities
Assets Derivatives Liabilities
840
43
704
1,587
17
17
Available-
Total
for-Sale
Level 3
Total
Level 3
Trading
Securities and
Financial Assets
Designated
2
-
67
(433)
(75)
2
330
(26)
-
122
(162)
10
(17)
767
1
-
3
(4)
-
-
15
-
(7)
1,446
(1,456)
-
19
619
3
(7)
1,516
(1,893)
(75)
21
964
(8)
-
5
(13)
(12)
-
15
-
4
1,572
(1,645)
-
(18)
617
(34)
4
1,699
(1,820)
(2)
(35)
1,399
1
-
1
(5)
-
-
6
(3)
-
6
(9)
(2)
-
9
1
-
1
(5)
-
-
6
(3)
-
6
(9)
(2)
-
9
(29)
(2)
-
(31)
(3)
(3)
Parent Entity 2018
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale securities 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 2018
Parent Entity 2017
$m
Balance as at beginning of year
Gains/(losses) on assets/(gains)/
losses on liabilities recognised in:
Income statements
Available-for-sale securities 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
Trading
Securities and
Financial Assets
Designated
Available-
for-Sale
at Fair Value Derivatives Securities
Total
Total
Level 3
Level 3
Assets Derivatives Liabilities
501
15
64
580
9
9
6
-
21
(268)
(53)
(1)
206
1
-
3
(6)
-
-
13
-
2
18
(14)
-
-
70
7
2
42
(288)
(53)
(1)
289
1
-
1
(5)
-
-
6
1
-
1
(5)
-
-
6
5
4
-
9
(2)
(2)
Trading
Securities and
Financial Assets
Designated
Available-
for-Sale
at Fair Value Derivatives Securities
Total
Total
Level 3
Level 3
Assets Derivatives Liabilities
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
3
1
(2)
-
(1)
(3)
(3)
226
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
227
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
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 $4 million
(30 September 2017: $5 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.
value:
Consolidated
$m
Loans
Consolidated
$m
Loans
The following tables summarise the estimated fair value and fair value hierarchy of financial instruments not measured at fair
2018
Fair Value
Quoted
Market
Valuation
Valuation
Techniques
Techniques
(Market
(Non-Market
Carrying
Prices
Observable)
Observable)
Amount
(Level 1)
(Level 2)
(Level 3)
Total
Financial assets not measured at fair value
Cash and balances with central banks
26,431
26,431
Receivables due from other financial institutions
5,790
4,332
1,458
Regulatory deposits with central banks overseas
Other financial assets
Total financial assets not measured at fair value
743,532
31,120
706,742
743,834
Financial liabilities not measured at fair value
Payables due to other financial institutions
18,137
2,171
706,742
706,742
26,431
5,790
357
4,514
18,137
170,060
17,438
7,855
2,838
518,791
706,440
357
4,514
357
-
-
518,107
169,241
17,265
7,855
-
-
-
-
Deposits and other borrowings
Debt issues1
Loan capital
Other financial liabilities
Total financial liabilities not measured at fair value
730,605
2,171
2,838
732,281
Quoted
Market
Valuation
Valuation
Techniques
Techniques
(Market
(Non-Market
Carrying
Prices
Observable)
Observable)
Amount
(Level 1)
(Level 2)
(Level 3)
Total
Financial assets not measured at fair value
Cash and balances with central banks
18,397
18,397
-
18,397
Receivables due from other financial institutions
7,128
4,834
1,902
392
7,128
Regulatory deposits with central banks overseas
Other financial assets
Total financial assets not measured at fair value
711,000
23,620
680,960
711,236
Financial liabilities not measured at fair value
Payables due to other financial institutions
21,907
2,429
680,332
389
4,754
389
-
-
487,022
163,683
17,666
7,490
-
-
-
-
680,568
680,568
389
4,754
21,907
165,151
18,087
7,490
2,794
487,723
Deposits and other borrowings
Debt issues1
Loan capital
Other financial liabilities
Total financial liabilities not measured at fair value
697,768
2,429
2,794
700,358
-
-
-
4,514
5,972
15,966
515,953
170,060
17,438
7,855
727,272
2017
Fair Value
-
-
-
4,754
6,656
19,478
484,929
165,151
18,087
7,490
695,135
-
-
-
-
-
-
-
-
-
-
-
-
-
-
228
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
229
1 The estimated fair value of debt issues includes the impact of changes in Westpac's credit spreads since origination.
Notes to the financial statements
Significant unobservable inputs
on the Group’s reported results.
Day one profit or loss
(30 September 2017: $5 million profit).
Financial instruments not measured at fair value
The closing balance of unrecognised day one profit for both the Group and the Parent Entity for the year was $4 million
For financial instruments not measured at fair value on a recurring basis, fair value has been derived as follows:
Instrument
Valuation
Loans
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.
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
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.
Debt issues and
loan capital
spreads.
All other financial
assets and
liabilities
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 23. Fair values of financial assets and financial liabilities (continued)
Sensitivities to reasonably possible changes in non-market observable valuation assumptions would not have a material impact
The following tables summarise the estimated fair value and fair value hierarchy of financial instruments not measured at fair
value:
Notes to the financial statements
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
Quoted
Market
Prices
(Level 1)
Carrying
Amount
26,431
26,431
5,790
4,332
706,440
357
4,514
-
357
-
Total financial assets not measured at fair value
743,532
31,120
Financial liabilities not measured at fair value
Payables due to other financial institutions
18,137
2,171
Deposits and other borrowings
Debt issues1
Loan capital
Other financial liabilities
Total financial liabilities not measured at fair value
518,107
169,241
17,265
7,855
730,605
-
-
-
-
2,171
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
Quoted
Market
Prices
(Level 1)
Carrying
Amount
18,397
18,397
7,128
4,834
680,332
389
4,754
-
389
-
Total financial assets not measured at fair value
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
Other financial liabilities
Total financial liabilities not measured at fair value
487,022
163,683
17,666
7,490
697,768
-
-
-
-
2,429
2018
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
-
1,458
-
-
4,514
5,972
15,966
515,953
170,060
17,438
7,855
727,272
-
-
26,431
5,790
706,742
706,742
-
-
357
4,514
706,742
743,834
-
18,137
2,838
518,791
-
-
-
2,838
170,060
17,438
7,855
732,281
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
7,490
695,135
-
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
3
228
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
229
1 The estimated fair value of debt issues includes the impact of changes in Westpac's credit spreads since origination.
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
Note 24. Offsetting financial assets and 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
Quoted
Market
Prices
(Level 1)
Carrying
Amount
24,726
24,726
5,711
4,267
626,918
250
140,597
3,677
-
250
-
-
Total financial assets not measured at fair value
801,879
29,243
Financial liabilities not measured at fair value
Payables due to other financial institutions
17,682
1,735
Deposits and other borrowings
Debt issues1
Due to subsidiaries
Loan capital
Other financial liabilities
Total financial liabilities not measured at fair value
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
460,406
149,065
142,400
17,265
7,035
793,853
-
-
-
-
-
1,735
Quoted
Market
Prices
(Level 1)
Carrying
Amount
16,405
16,405
6,357
4,462
601,650
286
142,455
4,000
-
286
-
-
Total financial assets not measured at fair value
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 issues1
Due to subsidiaries
Loan capital
Other financial liabilities
Total financial liabilities not measured at fair value
431,670
141,176
143,834
17,666
6,868
762,989
-
-
-
-
-
2,304
2018
Fair Value
Valuation
Techniques
(Market
Observable)
(Level 2)
Valuation
Techniques
(Non-Market
Observable)
(Level 3)
Total
-
1,444
-
-
-
3,677
5,121
-
-
24,726
5,711
627,070
627,070
-
250
140,597
140,597
-
3,677
767,667
802,031
15,947
459,841
149,800
-
17,682
1,213
461,054
-
149,800
-
142,400
142,400
17,438
7,035
650,061
-
17,438
-
143,613
7,035
795,409
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
1 The estimated fair value of debt issues includes the impact of changes in Westpac’s credit spreads since origination.
230
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
231
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
Gross Amounts
the Balance
Financial
Cash
Instrument
Net
Amounts
Offset
Sheet
Instruments Collateral
Collateral Amount
Consolidated
$m
2018
Assets
Receivables due from other
financial institutions1
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
2017
Assets
Receivables due from other
financial institutions1
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Derivative financial instruments
32,828
(8,727)
(15,962)
(2,184)
46,983
(21,309)
25,674
(15,962)
(2,187)
(1,404)
6,121
(15,962)
(4,487)
67,304
(21,309)
45,995
(15,962)
(4,487)
(11,066)
14,480
14
1,379
8,519
4,243
-
-
(8,420)
(4,162)
37,296
(12,889)
9,522
20,486
-
(8,420)
-
-
15
-
-
6,887
15,990
(15,925)
2,269
(1,615)
14
24,101
1,379
99
81
24,407
9,522
12,066
-
15
24,033
6,887
65
654
25,375
12,960
5,424
12
43,771
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14)
(14)
-
5,941
(1,376)
-
99
81
(1,544)
(9,522)
2,414
12,066
-
-
-
-
-
-
-
-
-
-
(14)
(18)
1
4,870
(42)
(6,814)
31
65
654
1,695
-
5,424
12
-
(3)
-
-
-
-
-
-
-
-
(2)
-
-
56,847
(25,193)
31,654
(16,707)
(2,480)
(6,846)
5,621
Derivative financial instruments
Security repurchase agreements5
Deposits and other borrowings3
Other liabilities4
Total liabilities
34,642
12,960
21,349
13
(9,267)
(15,925)
-
(1)
68,964
(25,193)
(16,707)
(5,552)
(1,421)
(12,958)
(16,707)
(5,554)
(14,379)
7,131
Derivative financial instruments
31,686
(7,653)
(16,707)
(2,438)
1 Consist of stock borrowing arrangements, reported as part of cash collateral in Note 10.
2 Securities purchased under agreement to resell form part of Note 11.
3 Consist of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of business
loans in Note 13 and part of Deposits and other borrowings at amortised cost in Note 17.
4 Gross amounts consist of initial and variation margin held directly with central clearing counterparties, 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
5 Security repurchase agreements form part of Note 16 recognised at amortised cost and part of Note 18 recognised at fair value through income
margin.
statement.
Notes to the financial statements
Notes to the financial statements
Note 23. Fair values of financial assets and financial liabilities (continued)
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.
Due from subsidiaries
Other financial assets
Deposits and other borrowings
Debt issues1
Due to subsidiaries
Loan capital
Other financial liabilities
Parent Entity
$m
Loans
Parent Entity
$m
Loans
Due from subsidiaries
Other financial assets
Deposits and other borrowings
Debt issues1
Due to subsidiaries
Loan capital
Other financial liabilities
Financial assets not measured at fair value
Cash and balances with central banks
24,726
24,726
Receivables due from other financial institutions
5,711
4,267
1,444
Total financial assets not measured at fair value
801,879
29,243
767,667
802,031
Financial liabilities not measured at fair value
Payables due to other financial institutions
17,682
1,735
Total financial liabilities not measured at fair value
793,853
1,735
143,613
795,409
2018
Fair Value
Quoted
Market
Valuation
Valuation
Techniques
Techniques
(Market
(Non-Market
Carrying
Prices
Observable)
Observable)
Amount
(Level 1)
(Level 2)
(Level 3)
Total
626,918
140,597
3,677
460,406
149,065
142,400
17,265
7,035
601,650
142,455
4,000
431,670
141,176
143,834
17,666
6,868
-
-
-
-
3,677
5,121
15,947
459,841
149,800
17,438
7,035
650,061
2017
Fair Value
-
-
-
-
4,000
5,895
19,471
431,113
142,474
18,087
6,868
618,013
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
627,070
627,070
-
-
-
-
24,726
5,711
250
3,677
140,597
140,597
-
142,400
142,400
-
17,682
1,213
461,054
-
149,800
-
-
17,438
7,035
601,784
601,784
-
-
-
-
16,405
6,357
286
4,000
142,455
142,455
-
143,834
143,834
-
21,775
1,216
432,329
-
142,474
-
-
18,087
6,868
Valuation
Valuation
Quoted
Techniques
Techniques
Market
(Market
(Non-Market
Carrying
Prices
Observable)
Observable)
Amount
(Level 1)
(Level 2)
(Level 3)
Total
Financial assets not measured at fair value
Cash and balances with central banks
16,405
16,405
Receivables due from other financial institutions
6,357
4,462
1,895
Regulatory deposits with central banks overseas
286
286
Total financial assets not measured at fair value
771,153
21,153
744,239
771,287
Financial liabilities not measured at fair value
Payables due to other financial institutions
21,775
2,304
Regulatory deposits with central banks overseas
250
250
Consolidated
$m
2018
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
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
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
14
32,828
-
(8,727)
1,379
8,519
4,243
46,983
37,296
9,522
20,486
-
67,304
-
(8,420)
(4,162)
(21,309)
(12,889)
-
(8,420)
-
(21,309)
15
31,686
-
(7,653)
6,887
15,990
2,269
56,847
34,642
12,960
21,349
13
68,964
-
(15,925)
(1,615)
(25,193)
(9,267)
-
(15,925)
(1)
(25,193)
14
24,101
1,379
99
81
25,674
24,407
9,522
12,066
-
45,995
15
24,033
6,887
65
654
31,654
25,375
12,960
5,424
12
43,771
-
(15,962)
-
(2,184)
(14)
(14)
-
5,941
-
-
-
(15,962)
(15,962)
-
-
-
(15,962)
(3)
-
-
(2,187)
(4,487)
-
-
-
(4,487)
(1,376)
-
-
(1,404)
-
99
81
6,121
(1,544)
(9,522)
-
-
(11,066)
2,414
-
12,066
-
14,480
-
(16,707)
-
(2,438)
(14)
(18)
1
4,870
-
-
-
(16,707)
(16,707)
-
-
-
(16,707)
(42)
-
-
(2,480)
(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
3
Total financial liabilities not measured at fair value
762,989
2,304
145,050
765,367
1 The estimated fair value of debt issues includes the impact of changes in Westpac’s credit spreads since origination.
1 Consist of stock borrowing arrangements, reported as part of cash collateral in Note 10.
2 Securities purchased under agreement to resell form part of Note 11.
3 Consist of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of business
loans in Note 13 and part of Deposits and other borrowings at amortised cost in Note 17.
4 Gross amounts consist of initial and variation margin held directly with central clearing counterparties, 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.
230
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
231
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
Westpac for liquidity deals.
Own assets securitised
services.
its own assets.
Customer conduits
Covered bonds
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 issue the majority interest bearing debt securities to third party investors for funding deals and to
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
Undrawn funding and liquidity facilities of $517 million were provided by Westpac (2017: $511 million) for the securitisation of
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 nil at 30 September 2018 (2017: $392 million).
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.
Notes to the financial statements
Notes to the financial statements
Note 24. Offsetting financial assets and financial liabilities (continued)
Note 25. Securitisation, covered bonds and other transferred assets
Parent Entity
$m
2018
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
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
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
14
32,289
-
(8,727)
1,379
8,519
4,243
46,444
37,118
9,522
20,486
-
67,126
-
(8,420)
(4,162)
(21,309)
(12,889)
-
(8,420)
-
(21,309)
15
31,476
-
(7,653)
6,887
15,990
2,269
56,637
34,178
12,942
21,349
13
68,482
-
(15,925)
(1,615)
(25,193)
(9,267)
-
(15,925)
(1)
(25,193)
14
23,562
1,379
99
81
25,135
24,229
9,522
12,066
-
45,817
15
23,823
6,887
65
654
31,444
24,911
12,942
5,424
12
43,289
-
(15,862)
-
(1,748)
(14)
(14)
-
5,938
-
-
-
(15,862)
(15,862)
-
-
-
(15,862)
(3)
-
-
(1,751)
(4,423)
-
-
-
(4,423)
(1,376)
-
-
(1,404)
-
99
81
6,118
(1,544)
(9,522)
-
-
(11,066)
2,400
-
12,066
-
14,466
-
(16,552)
-
(2,312)
(14)
(18)
1
4,941
-
-
-
(16,552)
(16,522)
-
-
-
(16,522)
(42)
-
-
(2,354)
(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
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.
1 Consist of stock borrowing arrangements, reported as part of cash collateral in Note 10.
2 Securities purchased under agreement to resell form part of Note 11.
3 Consist of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of business
loans in Note 13 and part of Deposits and other borrowings at amortised cost in Note 17.
4 Gross amounts consist of initial and variation margin held directly with central clearing counterparties, 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.
232
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
233
Notes to the financial statements
Notes to the financial statements
Note 24. Offsetting financial assets and financial liabilities (continued)
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 issue the majority interest bearing debt securities to third party investors for funding deals and to
Westpac for liquidity deals.
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 $517 million were provided by Westpac (2017: $511 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 nil at 30 September 2018 (2017: $392 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).
(16,522)
(5,181)
(14,361)
7,225
The cash consideration received is recognised as a liability (Security repurchase agreements). Refer to Notes 16 and 18 for
further details.
3
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
233
Derivative financial instruments
32,289
(8,727)
(15,862)
(1,748)
Parent Entity
$m
2018
Assets
Receivables due from other
financial institutions1
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
2017
Assets
Receivables due from other
financial institutions1
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Effects of Offsetting
on Balance Sheet
Amounts Subject to Enforceable
Netting Arrangements But Not Offset
Net Amounts
Other
Reported on Recognised
Financial
Gross Amounts
the Balance
Financial
Cash
Instrument
Net
Amounts
Offset
Sheet
Instruments Collateral
Collateral Amount
14
1,379
8,519
4,243
-
-
(8,420)
(4,162)
37,118
(12,889)
9,522
20,486
-
(8,420)
-
-
15
-
-
6,887
15,990
(15,925)
2,269
(1,615)
46,444
(21,309)
25,135
(15,862)
(1,751)
(1,404)
6,118
(15,862)
(4,423)
67,126
(21,309)
45,817
(15,862)
(4,423)
(11,066)
14,466
14
23,562
1,379
99
81
24,229
9,522
12,066
-
15
23,823
6,887
65
654
24,911
12,942
5,424
12
43,289
-
(3)
-
-
-
-
-
-
-
-
(2)
-
-
(14)
(14)
-
5,938
(1,376)
-
99
81
(1,544)
(9,522)
2,400
12,066
-
-
-
-
-
-
-
-
-
-
(14)
(18)
1
4,941
(42)
(6,814)
31
65
654
1,789
-
5,424
12
(16,522)
(5,179)
(1,421)
(12,940)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
56,637
(25,193)
31,444
(16,552)
(2,354)
(6,846)
5,692
Derivative financial instruments
Security repurchase agreements5
Deposits and other borrowings3
Other liabilities4
Total liabilities
34,178
12,942
21,349
13
(9,267)
(15,925)
-
(1)
68,482
(25,193)
Other recognised financial instruments
Derivative financial instruments
31,476
(7,653)
(16,552)
(2,312)
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.
1 Consist of stock borrowing arrangements, reported as part of cash collateral in Note 10.
2 Securities purchased under agreement to resell form part of Note 11.
3 Consist of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of business
loans in Note 13 and part of Deposits and other borrowings at amortised cost in Note 17.
4 Gross amounts consist of initial and variation margin held directly with central clearing counterparties, 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
5 Security repurchase agreements form part of Note 16 recognised at amortised cost and part of Note 18 recognised at fair value through income
margin.
statement.
232
Notes to the financial statements
Note 25. Securitisation, covered bonds and other transferred assets (continued)
The following table presents Westpac’s assets transferred and their associated liabilities:
OTHER ASSETS, OTHER LIABILITIES, COMMITMENTS AND
Notes to the financial statements
Consolidated
$m
2018
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total3
2017
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total3
Parent Entity
$m
2018
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Total
2017
Securitisation - own assets1,4
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
7,631
43,088
12,492
63,211
8,249
42,122
18,746
69,117
7,588
35,434
9,522
52,544
8,209
34,516
12,960
55,685
7,662
n/a
n/a
7,662
8,282
n/a
n/a
8,282
7,565
n/a
n/a
7,565
8,223
n/a
n/a
8,223
97
n/a
n/a
97
59
n/a
n/a
59
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
97,259
36,190
12,492
96,728
30,268
9,522
145,941
136,518
98,368
35,202
18,728
152,298
97,872
29,698
12,942
140,512
For those liabilities that only have recourse to
the transferred assets:
Fair value of
transferred
assets
Fair value of
associated
liabilities
Net fair value
position
97,291
n/a
n/a
97,291
98,434
n/a
n/a
98,434
96,473
n/a
n/a
96,473
96,478
n/a
n/a
96,478
818
n/a
n/a
818
1,956
n/a
n/a
1,956
CONTINGENCIES
Note 26. Intangible assets
Accounting policy
Indefinite life intangible assets
Goodwill
i)
ii)
in-use.
Brand names
impairment.
Intangible
Goodwill
Brand names
acquired entity.
outlined below.
Goodwill acquired in a business combination is initially measured at cost, generally being the excess of:
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-
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
Finite life intangible assets
amortised cost less any impairment.
Finite life intangibles including computer software and core deposits, are recognised initially at cost and subsequently at
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
9 years
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
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
1 The carrying amount of assets securitised exceeds the amount of notes issued primarily because the carrying amount includes both principal and
income received from the transferred assets.
2 The difference between the carrying values of covered bonds and the assets pledged reflects the over-collateralisation required to maintain the
ratings of the covered bonds and also additional assets to allow immediate issuance of additional covered bonds if required. These additional assets
can be repurchased by Westpac at its discretion, subject to the conditions set out in the transaction documents.
3 This table excludes securitisation – customer conduits as the assets securitised are not assets of Westpac.
4 Comparatives have been revised for consistency.
234
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235
Notes to the financial statements
Notes to the financial statements
Note 25. Securitisation, covered bonds and other transferred assets (continued)
The following table presents Westpac’s assets transferred and their associated liabilities:
OTHER ASSETS, OTHER LIABILITIES, COMMITMENTS AND
CONTINGENCIES
Consolidated
For those liabilities that only have recourse to
the transferred assets:
Note 26. Intangible assets
$m
2018
Total3
2017
Total3
$m
2018
Total
2017
Total
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Parent Entity
Securitisation - own assets1
Covered bonds2
Repurchase agreements
Securitisation - own assets1,4
Covered bonds2
Repurchase agreements
Carrying
Carrying
amount of
amount of
Fair value of
Fair value of
transferred
associated
transferred
associated
Net fair value
assets
liabilities
assets
liabilities
position
7,631
43,088
12,492
63,211
8,249
42,122
18,746
69,117
7,588
35,434
9,522
52,544
8,209
34,516
12,960
55,685
7,662
n/a
n/a
7,662
8,282
n/a
n/a
8,282
7,565
n/a
n/a
7,565
8,223
n/a
n/a
8,223
For those liabilities that only have recourse to
the transferred assets:
Carrying
Carrying
amount of
amount of
Fair value of
Fair value of
transferred
associated
transferred
associated
Net fair value
assets
liabilities
assets
liabilities
position
97,259
36,190
12,492
96,728
30,268
9,522
97,291
96,473
n/a
n/a
n/a
n/a
145,941
136,518
97,291
96,473
98,368
35,202
18,728
97,872
29,698
12,942
98,434
96,478
n/a
n/a
n/a
n/a
152,298
140,512
98,434
96,478
97
n/a
n/a
97
59
n/a
n/a
59
818
n/a
n/a
818
1,956
n/a
n/a
1,956
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
9 years
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.
3
1 The carrying amount of assets securitised exceeds the amount of notes issued primarily because the carrying amount includes both principal and
income received from the transferred assets.
2 The difference between the carrying values of covered bonds and the assets pledged reflects the over-collateralisation required to maintain the
ratings of the covered bonds and also additional assets to allow immediate issuance of additional covered bonds if required. These additional assets
can be repurchased by Westpac at its discretion, subject to the conditions set out in the transaction documents.
3 This table excludes securitisation – customer conduits as the assets securitised are not assets of Westpac.
4 Comparatives have been revised for consistency.
234
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235
Notes to the financial statements
Note 26. Intangible assets (continued)
$m
Goodwill
Opening balance
Disposals1
Impairment1
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
Accumulated amortisation and impairment
Carrying amount
Total intangible assets
Consolidated
2018
2017
Parent Entity
2018
2017
9,012
9,030
6,844
6,844
(15)
(105)
(2)
-
-
(18)
-
-
-
-
-
-
8,890
9,012
6,844
6,844
1,916
1,781
1,758
1,635
882
(2)
(618)
(1)
2,177
5,727
766
(14)
(614)
(3)
1,916
5,059
823
(2)
(565)
-
2,014
4,861
692
(14)
(558)
3
1,758
4,249
(3,550)
(3,143)
(2,847)
(2,491)
2,177
1,916
2,014
1,758
670
670
670
21
(21)
-
670
670
670
187
(166)
21
636
636
636
21
(21)
-
636
636
636
187
(166)
21
1,494
1,494
1,279
1,279
(1,494)
(1,473)
(1,279)
(1,258)
-
21
33
-
(7)
26
391
(365)
26
11,763
53
-
(20)
33
398
(365)
33
11,652
-
-
-
-
-
160
(160)
-
9,494
21
3
-
(3)
-
160
(160)
-
9,259
Notes to the financial statements
Consolidated
Parent Entity
2018
2017
2018
3,359
2,513
487
2,048
470
13
-
3,359
2,513
487
2,048
472
13
120
3,144
2,378
487
835
-
-
-
2017
3,144
2,378
487
835
-
-
-
8,890
9,012
6,844
6,844
Note 26. Intangible assets (continued)
Goodwill has been allocated to the following CGUs:
$m
Consumer Bank
Business Bank
BT New Zealand
Hastings
Total goodwill
Westpac Institutional Bank
BT Financial Group (Australia)
New Zealand Consumer Banking and Wealth
flows by its adjusted pre-tax equity rate.
Group’s equity rate was 11.0% (2017: 11.0%).
Group’s adjusted pre-tax equity rate for:
- Australia was 15.7% (2017: 15.7%); and
- New Zealand was 15.3% (2017: 15.3%).
Significant assumptions used in recoverable amount calculations
Assumptions are used to determine the CGUs’ 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
For the purpose of goodwill impairment testing, the assumptions in the following table are made for each significant CGU. The
forecasts applied by management are not reliant on any one particular assumption.
Assumption
Cash flows
Based on:
Zero growth rate beyond 2 year forecast
Economic market conditions
Current market expectations
Business performance
Observable historical information and current market expectations of the future
There are no reasonably possible changes in assumptions for any significant CGU that would result in an indication of
impairment or have a material impact on the Group’s reported results.
Note 27. Other assets
$m
Accrued interest receivable
Securities sold not delivered
Deferred acquisition costs
Trade debtors
Prepayments
Accrued fees and commissions
Other
Total other assets
Consolidated
Parent Entity
2018
2017
2018
1,276
1,264
71
1,056
208
129
1,131
5,135
1,193
1,408
86
810
220
149
1,496
5,362
1,103
1,264
-
514
165
60
882
3,988
2017
1,029
1,388
1
358
182
64
1,296
4,318
1 The sale of Hastings' overseas operations and subsequent exit of Hastings' Australian operations resulted in the entire balance of goodwill previously
allocated to Hastings being derecognised ($15m) or impaired ($105m) in 2018.
236
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237
Notes to the financial statements
Note 26. Intangible assets (continued)
$m
Goodwill
Opening balance
Disposals1
Impairment1
Other adjustments
Closing balance
Computer software
Opening balance
Additions
Impairment
Amortisation
Other adjustments
Closing balance
Cost
Carrying amount
Brand Names
Opening balance
Closing balance
Carrying amount
Opening balance
Amortisation
Closing balance
Cost
Core deposit intangibles
Accumulated amortisation and impairment
Accumulated amortisation
Carrying amount
Other intangible assets
Opening balance
Additions through business combination
Amortisation
Closing balance
Cost
Accumulated amortisation and impairment
Carrying amount
Total intangible assets
Consolidated
Parent Entity
2018
2017
2018
2017
9,012
9,030
6,844
6,844
(15)
(105)
(2)
-
-
(18)
-
-
-
-
-
-
8,890
9,012
6,844
6,844
1,916
1,781
1,758
1,635
882
(2)
(618)
(1)
2,177
5,727
766
(14)
(614)
(3)
1,916
5,059
823
(2)
(565)
-
2,014
4,861
692
(14)
(558)
3
1,758
4,249
(3,550)
(3,143)
(2,847)
(2,491)
2,177
1,916
2,014
1,758
1,494
1,494
1,279
1,279
(1,494)
(1,473)
(1,279)
(1,258)
-
21
670
670
670
21
(21)
-
33
-
(7)
26
391
(365)
26
670
670
670
187
(166)
21
53
-
(20)
33
398
(365)
33
636
636
636
21
(21)
-
-
-
-
-
-
160
(160)
-
636
636
636
187
(166)
21
21
3
-
(3)
-
160
(160)
-
11,763
11,652
9,494
9,259
Note 26. Intangible assets (continued)
Goodwill has been allocated to the following CGUs:
$m
Consumer Bank
Business Bank
Westpac Institutional Bank
BT Financial Group (Australia)
New Zealand Consumer Banking and Wealth
BT New Zealand
Hastings
Total goodwill
Notes to the financial statements
Consolidated
2018
2017
Parent Entity
2018
2017
3,359
2,513
487
2,048
470
13
-
8,890
3,359
2,513
487
2,048
472
13
120
9,012
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 CGUs’ 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% (2017: 11.0%).
Group’s adjusted pre-tax equity rate for:
- Australia was 15.7% (2017: 15.7%); and
- New Zealand was 15.3% (2017: 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
2018
2017
Parent Entity
2018
2017
1,276
1,264
71
1,056
208
129
1,131
5,135
1,193
1,408
86
810
220
149
1,496
5,362
1,103
1,264
-
514
165
60
882
3,988
1,029
1,388
1
358
182
64
1,296
4,318
3
1 The sale of Hastings' overseas operations and subsequent exit of Hastings' Australian operations resulted in the entire balance of goodwill previously
allocated to Hastings being derecognised ($15m) or impaired ($105m) in 2018.
236
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237
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).
Compliance, Regulation and Remediation provisions
The compliance, regulation and remediation provisions relate to matters of potential misconduct in providing services to our
customers identified both as a result of regulatory action and internal reviews. An assessment of the likely cost to the Group of
these matters (including applicable customer refunds) is made on a case-by-case basis and specific provisions are made
where appropriate.
Further information on regulatory action and internal reviews is included in the contingent liabilities section of Note 31.
Critical accounting assumptions and estimates
The financial reporting of provisions for litigation and non-lending losses and for compliance, regulation and remediation
matters involves a significant degree of judgement in relation to identifying whether a present obligation exists and also in
estimating the probability, timing, nature and quantum of the outflows that may arise from past events. These judgments are
made based on the specific facts and circumstances relating to individual events.
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.
Annual
Leave Litigation Provision for
Impairment
Long and Other and Non-
Service Employee Lending
Compliance,
Regulation
and
on Credit Leasehold Restructuring Remediation
$m
Consolidated
Balance at 1 October 2017
Additions
Utilisation
Reversal of unutilised provisions
Unwinding of discount
Other
Balance at 30 September 2018
Parent Entity
Balance at 1 October 2017
Additions
Utilisation
Reversal of unutilised provisions
Unwinding of discount
Other
Balance at 30 September 2018
Leave Benefits Losses1 Commitments Premises
Provisions Provisions1 Total
399
77
(43)
(16)
-
-
417
367
72
(39)
(16)
-
2
386
737
960
(977)
(25)
-
4
699
644
888
(890)
(10)
-
7
639
38
97
(79)
(3)
-
-
53
25
71
(56)
(3)
-
-
37
253
-
-
-
4
(18)
239
224
-
-
-
3
(21)
206
26
4
(6)
-
-
-
24
26
4
(6)
-
-
-
24
5
29
(5)
(2)
-
-
27
5
29
(5)
(2)
-
-
27
181 1,639
414 1,581
(1,231)
(121)
(51)
(5)
4
-
(14)
-
469 1,928
181 1,472
392 1,456
(1,117)
(121)
(36)
(5)
3
-
(12)
-
447 1,766
1 Balance at 1 October 2017 has been revised for consistency.
238
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239
Notes to the financial statements
Note 28. Provisions (continued)
Legislative liabilities
The Group had the following assessed liabilities as at 30 September 2018:
$20 million (2017: $23 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 (2017: $9 million) based on actuarial assessment as a self-insurer under the Accident Compensation Act 1985
(Victoria);
$5 million (2017: $6 million) based on actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1986 (South Australia);
$2 million (2017: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Rehabilitation Act 2003 (Queensland);
1951 (Australian Capital Territory);
$1 million (2017: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act
$2 million (2017: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Injury Management Act 1981 (Western Australia); and
$1 million (2017: $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 program
Securities purchased not delivered
Trade creditors and other accrued expenses2
Other2
Total other liabilities
$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
2018
2017
2018
2017
398
367
25
2,968
308
1,343
1,410
2,374
9,193
396
339
43
2,727
284
1,315
1,109
2,393
8,606
-
-
9
23
1,343
1,125
2,159
7,292
2,633
2,416
Consolidated
Parent Entity
2018
2017
2018
570
1,564
1,819
3,953
548
1,591
1,994
4,133
498
1,356
1,460
3,314
-
-
30
16
1,315
890
2,282
6,949
2017
480
1,395
1,652
3,527
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:
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 $7 million (2017: $9 million) for the
Group and $6 million (2017: $9 million) for Parent Entity.
1 Refer to Note 38 for more details.
2 Comparatives have been revised for consistency. Liabilities of $177 million relating to compliance, regulation and remediation were reclassified to
compliance, regulation and remediation provisions included in Note 28.
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).
Compliance, Regulation and Remediation provisions
The compliance, regulation and remediation provisions relate to matters of potential misconduct in providing services to our
customers identified both as a result of regulatory action and internal reviews. An assessment of the likely cost to the Group of
these matters (including applicable customer refunds) is made on a case-by-case basis and specific provisions are made
where appropriate.
Further information on regulatory action and internal reviews is included in the contingent liabilities section of Note 31.
Critical accounting assumptions and estimates
The financial reporting of provisions for litigation and non-lending losses and for compliance, regulation and remediation
matters involves a significant degree of judgement in relation to identifying whether a present obligation exists and also in
estimating the probability, timing, nature and quantum of the outflows that may arise from past events. These judgments are
made based on the specific facts and circumstances relating to individual events.
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.
Annual
Leave Litigation Provision for
Long and Other and Non-
Impairment
Compliance,
Regulation
and
Service Employee Lending
on Credit Leasehold Restructuring Remediation
Leave Benefits Losses1 Commitments Premises
Provisions Provisions1 Total
$m
Consolidated
Additions
Utilisation
Balance at 1 October 2017
Reversal of unutilised provisions
Unwinding of discount
Other
Parent Entity
Balance at 1 October 2017
Additions
Utilisation
Other
Reversal of unutilised provisions
Unwinding of discount
399
77
(43)
(16)
-
-
367
72
(39)
(16)
-
2
Balance at 30 September 2018
417
699
737
960
(977)
(25)
-
4
644
888
(890)
(10)
-
7
38
97
(79)
(3)
-
-
53
25
71
(56)
(3)
-
-
37
Balance at 30 September 2018
386
639
1 Balance at 1 October 2017 has been revised for consistency.
253
-
-
-
4
(18)
239
224
-
-
-
3
(21)
206
26
4
(6)
-
-
-
24
26
4
(6)
-
-
-
24
5
29
(5)
(2)
-
-
27
5
29
(5)
(2)
-
-
27
181 1,639
414 1,581
(121)
(1,231)
(5)
-
-
(51)
4
(14)
469 1,928
181 1,472
392 1,456
(121)
(1,117)
(5)
-
-
(36)
3
(12)
447 1,766
Notes to the financial statements
Note 28. Provisions (continued)
Legislative liabilities
The Group had the following assessed liabilities as at 30 September 2018:
$20 million (2017: $23 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 (2017: $9 million) based on actuarial assessment as a self-insurer under the Accident Compensation Act 1985
(Victoria);
$5 million (2017: $6 million) based on actuarial assessment as a self-insurer under the Workers’ Rehabilitation and
Compensation Act 1986 (South Australia);
$2 million (2017: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Rehabilitation Act 2003 (Queensland);
$1 million (2017: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act
1951 (Australian Capital Territory);
$2 million (2017: $2 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation and
Injury Management Act 1981 (Western Australia); and
$1 million (2017: $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 program
Securities purchased not delivered
Trade creditors and other accrued expenses2
Other2
Total other liabilities
Consolidated
2018
2017
Parent Entity
2018
2017
398
367
25
2,968
308
1,343
1,410
2,374
9,193
396
339
43
2,727
284
1,315
1,109
2,393
8,606
-
-
9
-
-
30
2,633
2,416
23
1,343
1,125
2,159
7,292
16
1,315
890
2,282
6,949
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
2018
2017
2018
570
1,564
1,819
3,953
548
1,591
1,994
4,133
498
1,356
1,460
3,314
2017
480
1,395
1,652
3,527
3
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 $7 million (2017: $9 million) for the
Group and $6 million (2017: $9 million) for Parent Entity.
1 Refer to Note 38 for more details.
2 Comparatives have been revised for consistency. Liabilities of $177 million relating to compliance, regulation and remediation were reclassified to
compliance, regulation and remediation provisions included in Note 28.
238
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
239
Notes to the financial statements
Notes to the financial statements
Note 31. Contingent liabilities, contingent assets and credit commitments
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Accounting Policy
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.
Contingent assets
Contingent assets are possible assets whose existence will be confirmed only by uncertain future events. Contingent assets
are not recognised on the balance sheet but are disclosed if an inflow of economic benefits is probable.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present
obligations where the transfer of economic resources is not probable or cannot be reliably measured. Contingent liabilities are
not recognised on the balance sheet but are disclosed unless the outflow of economic resources is remote.
Undrawn credit commitments
Undrawn credit commitments expose the Group to liquidity risk when called upon and also to credit risk if the customer fails to
repay the amounts owed at the due date. The maximum exposure to credit loss is the contractual or notional amount of the
instruments disclosed below. Some of the arrangements can be cancelled by the Group at any time and a significant portion is
expected to expire without being drawn. The actual required liquidity and credit risk exposure is therefore less than the amounts
disclosed.
The Group uses the same credit policies when entering into these arrangements as it does for on-balance sheet instruments.
Refer to Note 22 for further details of liquidity risk and credit risk management.
Undrawn credit commitments excluding derivatives at 30 September are as follows:
$m
Undrawn credit commitments
Letters of credit and guarantees1
Commitments to extend credit2
Other
Total undrawn credit commitments
Consolidated 2018
$m
Letters of credit and guarantees
Commitments to extend credit
Other
Total undrawn credit commitments
Consolidated
2018
2017
Parent Entity
2018
2017
15,585
174,658
154
190,397
15,460
178,443
648
194,551
14,957
152,943
99
167,999
14,908
156,423
648
171,979
Up to
1 Year
8,983
50,292
-
59,275
Over 1
to 3 Years
2,717
49,320
74
52,111
Over 3
to 5 Years
890
14,637
25
15,552
Over
5 Years
2,995
60,409
55
63,459
Total
15,585
174,658
154
190,397
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
The Royal Commission and regulatory action
Globally, regulators and other bodies 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, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry (the Royal Commission) is currently investigating conduct, practices, behaviour or business activities by financial
services entities including the Group that may amount to potential misconduct or that may fall below community standards and
expectations. The Royal Commission may make findings that the Group (including persons or entities acting on its behalf) has
engaged in misconduct including breaches of law or conduct that falls below community standards and expectations.
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.
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
2018 the Group had offered $5.7 billion (2017: $5.5 billion) of facilities to customers, which had not yet been accepted.
Any findings made by the Royal Commission as it progresses, may result in litigation (including class action proceedings
against the Group), fines, penalties, revocation, suspension or variation of conditions of relevant regulatory licences or other
enforcement or administrative action being taken by regulators or other parties.
Regulators such as ASIC, APRA, ACCC, AUSTRAC and the ATO are also currently conducting reviews and inquiries (some of
which are industry-wide) that currently involve or may involve the Group in the future. These reviews are separately considering
a range of matters, including matters such as consumer credit insurance, responsible lending (including in the context of
reverse mortgages and interest only lending), anti-money laundering and counter-terrorism financing processes and
procedures (including in relation to customer on-boarding and ongoing customer due diligence), financial adviser conduct
(including compliance with the obligation to act in the client’s best interests), life insurance claims handling, and the pricing of
residential mortgages.
The Group has recently self-reported to AUSTRAC a failure to report a large number of International Funds Transfer
Instructions (IFTIs) (as required under Australia’s AML/CTF Act) in relation to one WIB product. These IFTIs relate to batch
instructions received from 2009 until recently from a small number of correspondent banks for payments made predominantly
to beneficiaries in Australia in Australian dollars. Through the product, Westpac facilitates payments on behalf of clients of
certain of its correspondent banks. The majority of the payments are low value and made by Government pension funds and
corporates. The Group is investigating and working with AUSTRAC to remediate the failure to report IFTIs. No provision has
been raised for this matter including in relation to any potential regulatory action.
Westpac has received various notices and requests for information from the Royal Commission, as well as from regulators as
part of both industry-wide and Westpac-specific reviews and inquiries.
These reviews and inquiries, which may be conducted by a regulator, and in some cases also an external third party assurance
provider retained either by the regulator or by the Group (including where a matter has been self-identified by the Group), may
result in litigation (including class action proceedings against the Group), fines, penalties, revocation, suspension or variation of
conditions of relevant regulatory licences or other enforcement or administrative action being taken by regulators or other
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 but cannot always be reliably estimated. Where appropriate, specific provisions have been
parties.
made. (refer to Note 28).
Litigation
There are ongoing 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 but cannot always be reliably estimated.
Where appropriate, specific provisions have been made (refer to Note 28).
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 was
the subject of the proceedings was alleged to have occurred between 6 April 2010 and 6 June 2012. ASIC sought
declarations from the court 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. The proceedings were heard in late 2017. On 24 May 2018, Justice Beach found that Westpac had not
engaged in market manipulation or misleading or deceptive conduct under the Corporations Act 2001 (Cth). His Honour
also found that there was no ‘trading practice’ of manipulating the BBSW rate. However, the Court found that Westpac
engaged in unconscionable conduct on 4 occasions and that Westpac breached its supervisory duty. Costs and penalties
will be determined in the coming months. While we have provided for our best estimate of these amounts, there remains a
risk that the final outcome may differ from this estimate.
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. No provision has been recognised in relation to this matter.
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). On 4 September 2018, Westpac
and ASIC agreed to settle the proceedings on the basis of a proposed $35 million penalty and declarations that Westpac
contravened the National Consumer Credit Protection Act 2009 (Cth). The proposed settlement is subject to Court
approval. A hearing on the proposed settlement was held on 24 October 2018 and judgement is reserved. While we have
provided for our best estimate of these amounts, there remains a risk that the final outcome may differ from this estimate.
240
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
241
Notes to the financial statements
Notes to the financial statements
Note 31. Contingent liabilities, contingent assets and credit commitments
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Accounting Policy
Undrawn credit commitments
and underwriting facilities.
Contingent assets
Contingent liabilities
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
Contingent assets are possible assets whose existence will be confirmed only by uncertain future events. Contingent assets
are not recognised on the balance sheet but are disclosed if an inflow of economic benefits is probable.
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present
obligations where the transfer of economic resources is not probable or cannot be reliably measured. Contingent liabilities are
not recognised on the balance sheet but are disclosed unless the outflow of economic resources is remote.
Undrawn credit commitments
Undrawn credit commitments expose the Group to liquidity risk when called upon and also to credit risk if the customer fails to
repay the amounts owed at the due date. The maximum exposure to credit loss is the contractual or notional amount of the
instruments disclosed below. Some of the arrangements can be cancelled by the Group at any time and a significant portion is
expected to expire without being drawn. The actual required liquidity and credit risk exposure is therefore less than the amounts
disclosed.
The Group uses the same credit policies when entering into these arrangements as it does for on-balance sheet instruments.
Refer to Note 22 for further details of liquidity risk and credit risk management.
Undrawn credit commitments excluding derivatives at 30 September are as follows:
$m
Other
$m
Other
Undrawn credit commitments
Letters of credit and guarantees1
Commitments to extend credit2
Total undrawn credit commitments
Consolidated 2018
Letters of credit and guarantees
Commitments to extend credit
Total undrawn credit commitments
Contingent assets
Consolidated
Parent Entity
2018
2017
2018
2017
15,585
15,460
14,957
14,908
174,658
178,443
152,943
156,423
154
648
99
648
190,397
194,551
167,999
171,979
Up to
Over 1
Over 3
Over
1 Year
to 3 Years
to 5 Years
5 Years
8,983
50,292
-
2,717
49,320
74
890
2,995
14,637
60,409
174,658
25
55
154
59,275
52,111
15,552
63,459
190,397
Total
15,585
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
The Royal Commission and regulatory action
Globally, regulators and other bodies 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, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry (the Royal Commission) is currently investigating conduct, practices, behaviour or business activities by financial
services entities including the Group that may amount to potential misconduct or that may fall below community standards and
expectations. The Royal Commission may make findings that the Group (including persons or entities acting on its behalf) has
engaged in misconduct including breaches of law or conduct that falls below community standards and expectations.
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.
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
2018 the Group had offered $5.7 billion (2017: $5.5 billion) of facilities to customers, which had not yet been accepted.
Any findings made by the Royal Commission as it progresses, may result in litigation (including class action proceedings
against the Group), fines, penalties, revocation, suspension or variation of conditions of relevant regulatory licences or other
enforcement or administrative action being taken by regulators or other parties.
Regulators such as ASIC, APRA, ACCC, AUSTRAC and the ATO are also currently conducting reviews and inquiries (some of
which are industry-wide) that currently involve or may involve the Group in the future. These reviews are separately considering
a range of matters, including matters such as consumer credit insurance, responsible lending (including in the context of
reverse mortgages and interest only lending), anti-money laundering and counter-terrorism financing processes and
procedures (including in relation to customer on-boarding and ongoing customer due diligence), financial adviser conduct
(including compliance with the obligation to act in the client’s best interests), life insurance claims handling, and the pricing of
residential mortgages.
The Group has recently self-reported to AUSTRAC a failure to report a large number of International Funds Transfer
Instructions (IFTIs) (as required under Australia’s AML/CTF Act) in relation to one WIB product. These IFTIs relate to batch
instructions received from 2009 until recently from a small number of correspondent banks for payments made predominantly
to beneficiaries in Australia in Australian dollars. Through the product, Westpac facilitates payments on behalf of clients of
certain of its correspondent banks. The majority of the payments are low value and made by Government pension funds and
corporates. The Group is investigating and working with AUSTRAC to remediate the failure to report IFTIs. No provision has
been raised for this matter including in relation to any potential regulatory action.
Westpac has received various notices and requests for information from the Royal Commission, as well as from regulators as
part of both industry-wide and Westpac-specific reviews and inquiries.
These reviews and inquiries, which may be conducted by a regulator, and in some cases also an external third party assurance
provider retained either by the regulator or by the Group (including where a matter has been self-identified by the Group), may
result in litigation (including class action proceedings against the Group), fines, penalties, revocation, suspension or variation of
conditions of relevant regulatory licences or other enforcement or administrative action being taken by regulators or other
parties.
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 but cannot always be reliably estimated. Where appropriate, specific provisions have been
made. (refer to Note 28).
Litigation
There are ongoing 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 but cannot always be reliably estimated.
Where appropriate, specific provisions have been made (refer to Note 28).
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 was
the subject of the proceedings was alleged to have occurred between 6 April 2010 and 6 June 2012. ASIC sought
declarations from the court 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. The proceedings were heard in late 2017. On 24 May 2018, Justice Beach found that Westpac had not
engaged in market manipulation or misleading or deceptive conduct under the Corporations Act 2001 (Cth). His Honour
also found that there was no ‘trading practice’ of manipulating the BBSW rate. However, the Court found that Westpac
engaged in unconscionable conduct on 4 occasions and that Westpac breached its supervisory duty. Costs and penalties
will be determined in the coming months. While we have provided for our best estimate of these amounts, there remains a
risk that the final outcome may differ from this estimate.
3
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. No provision has been recognised in relation to this matter.
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). On 4 September 2018, Westpac
and ASIC agreed to settle the proceedings on the basis of a proposed $35 million penalty and declarations that Westpac
contravened the National Consumer Credit Protection Act 2009 (Cth). The proposed settlement is subject to Court
approval. A hearing on the proposed settlement was held on 24 October 2018 and judgement is reserved. While we have
provided for our best estimate of these amounts, there remains a risk that the final outcome may differ from this estimate.
240
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
241
Notes to the financial statements
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Settlement risk
The Group is subject to a credit risk exposure in the event that another counterparty fails to settle for its payments clearing
activities (including foreign exchange). The Group seeks to minimise credit risk arising from settlement risk in the payments
system by aligning our processing method with the legal certainty of settlement in the relevant clearing mechanism.
Parent Entity guarantees and undertakings
The Parent Entity makes the following guarantees and undertakings to subsidiaries:
letters of comfort for certain subsidiaries which recognise that Westpac has a responsibility that those subsidiaries continue
to meet their obligations; and
guarantees to certain wholly owned subsidiaries which are Australian financial services or credit licensees to comply with
legislative requirements. Each guarantee is capped at $40 million per year and can only be utilised if the entity concerned
becomes legally obliged to pay for a claim under the relevant licence. The Parent Entity has a right to recover any funds
payable under the guarantees from the relevant subsidiary.
Notes to the financial statements
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
On 22 December 2016, ASIC commenced Federal Court proceedings against BT Funds Management Limited and
Westpac Securities Administration Limited 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. The proceedings were heard in February 2018. Judgment is pending. No
provision has been recognised in relation to this matter.
On 12 October 2017, a class action against Westpac and Westpac Life Insurance Services Limited (WLIS) was filed in the
Federal Court of Australia. The class action was filed on behalf of customers who, since October 2011, obtained insurance
issued by WLIS on the recommendation of certain financial advisers employed within the Westpac Group. The plaintiffs
have alleged that aspects of the financial advice provided by those advisers breached fiduciary and statutory duties owed
to the advisers’ clients, including the duty to act in the best interests of the client and that WLIS was knowingly involved in
those alleged breaches. Westpac and WLIS are defending the proceedings. These proceedings are currently stayed by
order of the Court, pending the outcome of an appeal concerning a procedural issue unrelated to the substantive claims
made in the class action. No provision has been recognised in relation to this matter.
Internal reviews and remediation
Westpac is currently 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, issues in respect of which we are, or will
be, taking steps to put things right (including in relation to areas of industry focus such as compliance with responsible lending
obligations and the way some product terms and conditions are operationalised) so that our customers are not at a
disadvantage from certain past practices. By undertaking these reviews we can also improve our processes (including in
relation to responsible lending controls and financial planning controls). An assessment of the Group’s likely loss has been
made on a case-by-case basis for the purpose of the financial statements but cannot always be reliably estimated. Where
appropriate, specific provisions have been made (refer to Note 28). Contingent liabilities may exist in respect of actual or
potential claims, compensation payments and/or refunds identified as part of these reviews (including in relation to the reviews
described below).
One of the reviews relates to ongoing advice services provided from 2008 by approximately 1,660 planners operating in aligned
dealer groups who were at the time authorised representatives of the Group’s wholly owned subsidiaries Securitor Financial
Group (Securitor) and Magnitude Group Pty Ltd (Magnitude). Securitor and Magnitude, as the AFSL licensees, retained a
portion of the ongoing advice fees paid to those dealer groups by clients since 2008. Westpac is in the early stages of engaging
each authorised representative to determine the agreements in place between those representatives and their clients, and the
services provided. Given the early stage of the review, the time period under consideration and availability of records in relation
to the relevant period, it is not practicable to provide an estimate of any potential remediation costs for circumstances where a
client has paid ongoing service fees but those services have not been provided. No provision has been recognised in relation to
this matter.
Following an error in the Group’s systems, certain customers with an interest only home loan did not have their loans
automatically switched to principal and interest repayments at the end of the contracted interest only period. The Group is
undertaking a program of work to remediate this issue for affected customers and is engaging with ASIC on potential
remediation options. While we have provided for our best estimate of these amounts, there remains a risk that the final
outcome may exceed this estimate.
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 (including both historical and present-
day transactions) undertaken by the Group in the course of normal business activities and the claiming of tax incentives
(including research and development tax incentives) and GST. 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 and holds provisions.
242
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243
Notes to the financial statements
Notes to the financial statements
Note 24. Offsetting financial assets and financial liabilities (continued)
Note 31. Contingent liabilities, contingent assets and credit commitments (continued)
Settlement risk
The Group is subject to a credit risk exposure in the event that another counterparty fails to settle for its payments clearing
activities (including foreign exchange). The Group seeks to minimise credit risk arising from settlement risk in the payments
system by aligning our processing method with the legal certainty of settlement in the relevant clearing mechanism.
Parent Entity guarantees and undertakings
The Parent Entity makes the following guarantees and undertakings to subsidiaries:
letters of comfort for certain subsidiaries which recognise that Westpac has a responsibility that those subsidiaries continue
to meet their obligations; and
guarantees to certain wholly owned subsidiaries which are Australian financial services or credit licensees to comply with
legislative requirements. Each guarantee is capped at $40 million per year and can only be utilised if the entity concerned
becomes legally obliged to pay for a claim under the relevant licence. The Parent Entity has a right to recover any funds
payable under the guarantees from the relevant subsidiary.
3
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2018 Westpac Group Annual Report
243
Derivative financial instruments
32,289
(8,727)
(15,862)
(1,748)
Parent Entity
$m
2018
Assets
Receivables due from other
financial institutions1
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
2017
Assets
Receivables due from other
financial institutions1
Securities purchased under
agreement to resell2
Loans3
Other assets4
Total assets
Liabilities
Effects of Offsetting
on Balance Sheet
Amounts Subject to Enforceable
Netting Arrangements But Not Offset
Net Amounts
Other
Reported on Recognised
Financial
Gross Amounts
the Balance
Financial
Cash
Instrument
Net
Amounts
Offset
Sheet
Instruments Collateral
Collateral Amount
14
1,379
8,519
4,243
-
-
(8,420)
(4,162)
37,118
(12,889)
9,522
20,486
-
(8,420)
-
-
15
-
-
6,887
15,990
(15,925)
2,269
(1,615)
46,444
(21,309)
25,135
(15,862)
(1,751)
(1,404)
6,118
(15,862)
(4,423)
67,126
(21,309)
45,817
(15,862)
(4,423)
(11,066)
14,466
14
23,562
1,379
99
81
24,229
9,522
12,066
-
15
23,823
6,887
65
654
24,911
12,942
5,424
12
43,289
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3)
-
-
-
-
-
-
-
-
(2)
-
-
(14)
(14)
-
5,938
(1,376)
-
99
81
(1,544)
(9,522)
2,400
12,066
-
-
-
-
-
-
-
-
-
-
(14)
(18)
1
4,941
(42)
(6,814)
31
65
654
1,789
-
5,424
12
(16,522)
(5,179)
(1,421)
(12,940)
(16,522)
(5,181)
(14,361)
7,225
56,637
(25,193)
31,444
(16,552)
(2,354)
(6,846)
5,692
Derivative financial instruments
Security repurchase agreements5
Deposits and other borrowings3
Other liabilities4
Total liabilities
34,178
12,942
21,349
13
(9,267)
(15,925)
-
(1)
68,482
(25,193)
Other recognised financial instruments
Derivative financial instruments
31,476
(7,653)
(16,552)
(2,312)
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.
1 Consist of stock borrowing arrangements, reported as part of cash collateral in Note 10.
2 Securities purchased under agreement to resell form part of Note 11.
3 Consist of debt and interest set-off accounts which meet the requirements for offsetting as described above. These accounts form part of business
loans in Note 13 and part of Deposits and other borrowings at amortised cost in Note 17.
4 Gross amounts consist of initial and variation margin held directly with central clearing counterparties, 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
5 Security repurchase agreements form part of Note 16 recognised at amortised cost and part of Note 18 recognised at fair value through income
margin.
statement.
232
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. Treasury
shares are shares in the Parent Entity, purchased by the Parent Entity or other entities within the Group. These shares are
adjusted against share capital as the net of the consideration paid to purchase the shares and, where applicable, any
consideration received from the subsequent sale or reissue of these shares.
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 any related hedge accounting
adjustments and 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.
$m
Share capital
Ordinary share capital, fully paid
Treasury shares held for RSP1
Other treasury shares held2
Total treasury shares held
Total share capital
Non-controlling interests
Consolidated
2018
2017
Parent Entity
2018
2017
36,054
34,889
36,054
34,889
(505)
12
(493)
(434)
(61)
(495)
(505)
(3)
(508)
(434)
(3)
(437)
35,561
52
34,394
54
35,546
-
34,452
-
Notes to the financial statements
Note 32. Shareholders’ equity (continued)
Ordinary shares
Westpac does not have authorised capital and the ordinary shares have no par value. Ordinary shares entitle the holder to
participate in dividends and, in the event of Westpac winding up, to a share of the proceeds in proportion to the number of and
amounts paid on the shares held.
Each ordinary share entitles the holder to one vote, either in person or by proxy, at a shareholder meeting.
Reconciliation of movement in number of ordinary shares.
Consolidated and Parent Entity
(number)
Opening balance
Dividend reinvestment plan1
Conversion of Westpac Convertible Preference Shares2
Closing balance
Ordinary shares purchased and sold on market
Consolidated and Parent Entity
For share-based payment arrangements:
Employee share plan (ESP)
RSP3
Westpac Performance Plan (WPP) - share rights exercised
Westpac Long Term Incentive Plan (LTIP) - options exercised4
LTIP - share rights exercised
As treasury shares:
Treasury shares purchased (excluding RSP)5
Treasury shares sold
Net number of ordinary shares purchased/(sold) on market6
For details of the share-based payment arrangements refer to Note 37.
2018
2017
3,394,364,279
3,346,166,853
21,242,667
19,189,765
48,197,426
-
3,434,796,711
3,394,364,279
2018
2018
Number
Average Price ($)
854,267
2,291,897
156,691
103,686
2,929
93,052
(2,715,836)
786,686
31.86
31.32
31.49
28.80
28.42
28.97
28.10
1 2018: 3,943,660, unvested shares held (2017: 3,549,035).
2 2018: 2,029,795 shares held (2017: 4,652,579).
244
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245
1 The price per share for the issuance of shares in relation to the dividend reinvestment plan for the 2018 interim dividend was $28.11 and 2017 final
dividend was $31.62 (2017: 2017 interim dividend was $29.79 and 2016 final dividend was $31.32).
2 The conversion price per share for the issuance of shares in relation to the conversion of Westpac Convertible Preference Shares was $29.49.
3 Ordinary shares allocated to employees under the RSP are classified as treasury shares until the shares vest.
4 No WPP options were exercised during the period. The average exercise price per share received was $24.23 on the exercise of the LTI options.
5 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.
6 The purchase of ordinary shares on market resulted in a tax benefit of $0.22 million being recognised as contributed equity.
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. Treasury
shares are shares in the Parent Entity, purchased by the Parent Entity or other entities within the Group. These shares are
adjusted against share capital as the net of the consideration paid to purchase the shares and, where applicable, any
consideration received from the subsequent sale or reissue of these shares.
Non-controlling interests represent the share in the net assets of subsidiaries attributable to equity interests that are not owned
Non-controlling interests
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 any related hedge accounting
adjustments and tax. These changes are transferred to non-interest income in the income statement when the asset is either
This comprises the fair value gains and losses associated with the effective portion of designated cash flow hedging
This comprises the fair value of equity-settled share-based payments recognised as an expense.
Other reserves for the Parent Entity relates to certain historic internal group restructurings performed at fair value. The reserve
Other reserves for the Group consist of transactions relating to changes in the Parent Entity’s ownership of a subsidiary that do
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.
disposed of or impaired.
Cash flow hedging reserve
instruments, net of tax.
Share-based payment reserve
Other reserves
is eliminated on consolidation.
not result in a loss of control.
$m
Share capital
Ordinary share capital, fully paid
Treasury shares held for RSP1
Other treasury shares held2
Total treasury shares held
Total share capital
Non-controlling interests
Consolidated
Parent Entity
2018
2017
2018
2017
36,054
34,889
36,054
34,889
(505)
12
(493)
(434)
(61)
(495)
(505)
(3)
(508)
(434)
(3)
(437)
35,561
34,394
35,546
34,452
52
54
-
-
Notes to the financial statements
Note 32. Shareholders’ equity (continued)
Ordinary shares
Westpac does not have authorised capital and the ordinary shares have no par value. Ordinary shares entitle the holder to
participate in dividends and, in the event of Westpac winding up, to a share of the proceeds in proportion to the number of and
amounts paid on the shares held.
Each ordinary share entitles the holder to one vote, either in person or by proxy, at a shareholder meeting.
Reconciliation of movement in number of ordinary shares.
Consolidated and Parent Entity
(number)
Opening balance
Dividend reinvestment plan1
Conversion of Westpac Convertible Preference Shares2
Closing balance
Ordinary shares purchased and sold on market
Consolidated and Parent Entity
For share-based payment arrangements:
Employee share plan (ESP)
RSP3
Westpac Performance Plan (WPP) - share rights exercised
Westpac Long Term Incentive Plan (LTIP) - options exercised4
LTIP - share rights exercised
As treasury shares:
Treasury shares purchased (excluding RSP)5
Treasury shares sold
Net number of ordinary shares purchased/(sold) on market6
For details of the share-based payment arrangements refer to Note 37.
2018
2017
3,394,364,279
3,346,166,853
21,242,667
48,197,426
19,189,765
3,434,796,711
-
3,394,364,279
2018
Number
2018
Average Price ($)
854,267
2,291,897
156,691
103,686
2,929
93,052
(2,715,836)
786,686
31.86
31.32
31.49
28.80
28.42
28.97
28.10
3
1 2018: 3,943,660, unvested shares held (2017: 3,549,035).
2 2018: 2,029,795 shares held (2017: 4,652,579).
1 The price per share for the issuance of shares in relation to the dividend reinvestment plan for the 2018 interim dividend was $28.11 and 2017 final
dividend was $31.62 (2017: 2017 interim dividend was $29.79 and 2016 final dividend was $31.32).
2 The conversion price per share for the issuance of shares in relation to the conversion of Westpac Convertible Preference Shares was $29.49.
3 Ordinary shares allocated to employees under the RSP are classified as treasury shares until the shares vest.
4 No WPP options were exercised during the period. The average exercise price per share received was $24.23 on the exercise of the LTI options.
5 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.
6 The purchase of ordinary shares on market resulted in a tax benefit of $0.22 million being recognised as contributed equity.
244
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245
Notes to the financial statements
Note 32. Shareholders’ equity (continued)
Reconciliation of movement in reserves
$m
Available-for-sale securities reserve
Opening balance
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Exchange differences
Closing balance
Share-based payment reserve
Opening balance
Share-based payment expense
Closing balance
Cash flow hedge 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)
Transferred to income statements
Closing balance
Other reserves
Opening balance
Transactions with owners
Closing balance
Total reserves
Consolidated
2018
2017
Parent Entity
2018
2017
64
(104)
34
66
(25)
2
37
1,431
103
1,534
(154)
(161)
47
203
(60)
10
75
(19)
(3)
1
-
64
1,333
98
1,431
(172)
(91)
27
115
(33)
(125)
(154)
(413)
(116)
-
(529)
181
(3)
(351)
(18)
-
(18)
1,077
70
(34)
13
(33)
6
2
24
10
88
(26)
(3)
1
-
70
1,322
103
1,425
1,221
101
1,322
(94)
(125)
38
160
(48)
(69)
(481)
174
-
(78)
(42)
13
19
(6)
(94)
(404)
(77)
-
(529)
(307)
(481)
(19)
1
(18)
794
41
-
41
1,114
41
-
41
858
Notes to the financial statements
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 AT1 Capital. AT1 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 CET1 ratio of at
least 4.5%, Tier 1 Capital ratio of at least 6.0% and Total Regulatory Capital ratio 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
Zealand.
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
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, AT1 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:
contingency plans;
the development of a capital management strategy, including consideration of regulatory minimums, capital buffers and
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 benchmarks on 19 July 2017, Westpac will seek to operate
with a CET1 capital ratio of at least 10.5% in March and September as measured under the existing capital framework. This
also takes into consideration:
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.
Westpac will revise its target capital level once APRA finalises its review of the capital adequacy framework.
246
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247
Notes to the financial statements
Note 32. Shareholders’ equity (continued)
Reconciliation of movement in reserves
$m
Available-for-sale securities reserve
Opening balance
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Exchange differences
Closing balance
Share-based payment reserve
Opening balance
Share-based payment expense
Closing balance
Cash flow hedge reserve
Opening balance
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Closing balance
Opening balance
Foreign currency translation reserve
Transferred to income statements
Closing balance
Other reserves
Opening balance
Transactions with owners
Closing balance
Total reserves
Exchange differences on translation of foreign operations (net of associated hedges)
Consolidated
Parent Entity
2018
2017
2018
2017
1,322
103
1,425
1,221
101
1,322
64
(104)
34
66
(25)
2
37
1,431
103
1,534
(154)
(161)
47
203
(60)
(529)
181
(3)
(351)
(18)
-
(18)
1,077
10
75
(19)
(3)
1
-
64
1,333
98
1,431
(172)
(91)
27
115
(33)
(413)
(116)
-
(19)
1
(18)
794
70
(34)
13
(33)
6
2
24
(94)
(125)
38
160
(48)
(69)
(481)
174
-
41
-
41
1,114
(125)
(154)
10
88
(26)
(3)
1
-
70
(78)
(42)
13
19
(6)
(94)
(404)
(77)
-
41
-
41
858
(529)
(307)
(481)
Notes to the financial statements
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 AT1 Capital. AT1 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 CET1 ratio of at
least 4.5%, Tier 1 Capital ratio of at least 6.0% and Total Regulatory Capital ratio 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, AT1 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.
3
246
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Westpac will revise its target capital level once APRA finalises its review of the capital adequacy framework.
In light of APRA’s announcement on ‘unquestionably strong’ capital benchmarks on 19 July 2017, Westpac will seek to operate
with a CET1 capital ratio of at least 10.5% in March and September as measured under the existing capital framework. This
also takes into consideration:
current regulatory capital minimums and the CCB, which together are the total CET1 requirement;
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
stress testing to calibrate an appropriate buffer against a downturn; and
Notes to the financial statements
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 (2017: 94 cents, 2016: 94 cents)
all fully franked at 30%
Total dividends not recognised at year end
Consolidated
2017
2018
2016
Parent Entity
2018
2017
3,227
3,227
3,186
3,186
3,142
3,142
3,229
3,229
3,191
3,191
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 2018 final dividend. The DRP
will not include a discount.
Details of dividends recognised during the year are provided in the statement of changes in equity.
Australian franking credits
Australian franking credits available to the Parent Entity for subsequent years are $1,357 million (2017: $1,063 million; 2016:
$911 million). This is calculated as the year end franking credit balance, adjusted for the Australian current tax liability and the
proposed 2018 final dividend.
New Zealand imputation credits
New Zealand imputation credits of NZ$0.07 (2017: NZ$0.07, 2016: NZ$0.07) per share will be attached to the proposed 2018
final dividend. New Zealand imputation credits available to the Parent Entity for subsequent years are NZ$530 million (2017:
NZ$375 million, 2016: NZ$423 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.
Name
Advance Asset Management Limited
Asgard Capital Management Limited
Asgard Wealth Solutions Limited
BT Financial Group Pty Limited
BT Funds Management Limited
BT Portfolio Services Limited
Capital Finance Australia Limited
Crusade ABS Series 2016-1 Trust
Crusade ABS Series 2017-1 Trust
Crusade ABS Series 2017-1P Trust
Crusade Trust No.2P of 2008
Hastings Funds Management Limited
Series 2008-1M WST Trust
Series 2014-1 WST Trust
Series 2014-2 WST Trust
Series 2015-1 WST Trust
St.George Finance Limited
St.George Motor Finance Limited
Westpac Covered Bond Trust
Percentage Owned
St.George Motor Finance Limited
Westpac Bank-PNG-Limited
Westpac NZ Covered Bond Limited
Westpac NZ Securitisation Limited
Non-controlling interests
to the Group.
Significant restrictions
Note 35. Investments in subsidiaries and associates (continued)
The following table includes the material controlled entities of the Group as at 30 September 2018.
Notes to the financial statements
Country of
Incorporation
Name
Australia
Australia
Westpac Equity Holdings Pty Limited
Westpac Financial Services Group Limited
Australia
Westpac General Insurance Limited
Australia
Westpac General Insurance Services Limited
Australia
Westpac Lenders Mortgage Insurance Limited
Australia
Westpac Life Insurance Services Limited
Australia
Westpac Securities Limited
Australia
Westpac Securitisation Holdings Pty Limited
Australia
BT Funds Management (NZ) Limited
Australia
Westpac Financial Services Group-NZ-Limited
Australia
Westpac Life-NZ-Limited
Australia
Westpac New Zealand Group Limited
Australia
Westpac New Zealand Limited
Australia
Australia
Westpac NZ Covered Bond Limited1
Westpac NZ Securitisation Limited1
Australia
Westpac Securities NZ Limited
Australia
Westpac Term Pie Fund2
Australia
Westpac Bank-PNG-Limited
Australia
Country of
Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Papua New Guinea
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:
2018
75.0%
89.9%
19.0%
19.0%
2017
75.0%
89.9%
19.0%
19.0%
Details of the balance of non-controlling interests are set out in Note 32. There are no non-controlling interests that are material
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
There are no associates that are material to the Group.
On 26 May 2017, the Group sold 60 million shares of Pendal Group Limited, which reduced the Group’s ownership to
approximately 10%. Following completion of the sale, the remaining interest in Pendal Group Limited was reclassified to
available-for-sale securities.
The following table summarises the financial information of Pendal Group Limited and reconciles the summarised financial
information to the carrying amount of the Group’s 29.0% investment in Pendal Group Limited as at 26 May 2017 immediately
prior to the sale. The table also summarises the gain recognised on the sale of the Group’s interest in Pendal Group Limited as
well as the fair value of the remaining interest in Pendal Group Limited initially recognised in available-for-sale securities.
1 The Group indirectly owns 19% of Westpac NZ Covered Bond Limited (WNZCBL) and Westpac NZ Securitisation Limited (WNZSL), however, due to
contractual and structural arrangements both WNZCBL and WNZSL are considered to be 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 as 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.
248
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249
Notes to the financial statements
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 (2017: 94 cents, 2016: 94 cents)
all fully franked at 30%
Total dividends not recognised at year end
Consolidated
Parent Entity
2018
2017
2016
2018
2017
3,227
3,227
3,186
3,186
3,142
3,142
3,229
3,229
3,191
3,191
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 2018 final dividend. The DRP
Details of dividends recognised during the year are provided in the statement of changes in equity.
Australian franking credits available to the Parent Entity for subsequent years are $1,357 million (2017: $1,063 million; 2016:
$911 million). This is calculated as the year end franking credit balance, adjusted for the Australian current tax liability and the
New Zealand imputation credits of NZ$0.07 (2017: NZ$0.07, 2016: NZ$0.07) per share will be attached to the proposed 2018
final dividend. New Zealand imputation credits available to the Parent Entity for subsequent years are NZ$530 million (2017:
NZ$375 million, 2016: NZ$423 million). This is calculated on the same basis as the Australian franking credits but using the
will not include a discount.
Australian franking credits
proposed 2018 final dividend.
New Zealand imputation credits
New Zealand current tax liability.
GROUP STRUCTURE
Accounting policy
Subsidiaries
Note 35. Investments in subsidiaries and associates
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.
Note 35. Investments in subsidiaries and associates (continued)
The following table includes the material controlled entities of the Group as at 30 September 2018.
Notes to the financial statements
Name
Advance Asset Management Limited
Asgard Capital Management Limited
Asgard Wealth Solutions Limited
BT Financial Group Pty Limited
BT Funds Management Limited
BT Portfolio Services Limited
Capital Finance Australia Limited
Crusade ABS Series 2016-1 Trust
Crusade ABS Series 2017-1 Trust
Crusade ABS Series 2017-1P Trust
Crusade Trust No.2P of 2008
Hastings Funds Management Limited
Series 2008-1M WST Trust
Series 2014-1 WST Trust
Series 2014-2 WST Trust
Series 2015-1 WST Trust
St.George Finance Limited
St.George Motor Finance Limited
Westpac Covered Bond Trust
Country of
Incorporation
Name
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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 Financial Services Group-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
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Papua New Guinea
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
2018
75.0%
89.9%
19.0%
19.0%
2017
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.
3
Associates
There are no associates that are material to the Group.
On 26 May 2017, the Group sold 60 million shares of Pendal Group Limited, which reduced the Group’s ownership to
approximately 10%. Following completion of the sale, the remaining interest in Pendal Group Limited was reclassified to
available-for-sale securities.
The following table summarises the financial information of Pendal Group Limited and reconciles the summarised financial
information to the carrying amount of the Group’s 29.0% investment in Pendal Group Limited as at 26 May 2017 immediately
prior to the sale. The table also summarises the gain recognised on the sale of the Group’s interest in Pendal Group Limited as
well as the fair value of the remaining interest in Pendal Group Limited initially recognised in available-for-sale securities.
1 The Group indirectly owns 19% of Westpac NZ Covered Bond Limited (WNZCBL) and Westpac NZ Securitisation Limited (WNZSL), however, due to
contractual and structural arrangements both WNZCBL and WNZSL are considered to be 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 as 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.
248
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249
Notes to the financial statements
Note 35. Investments in subsidiaries and associates (continued)
Consolidated
$m
Summarised results
Revenue for the period
Net profit for the period
Other comprehensive income for the period
Total comprehensive income (100%)
Group's share of net 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
Fair value adjustments (including notional goodwill) on acquisition (net of amortisation)
Carrying amount of interest in Pendal Group Limited2
Carrying amount of interest in Pendal Group Limited sold
Carrying amount of remaining interest reclassified to available-for-sale securities
Remaining interest in Pendal Group Limited accounted for under equity method
Fair value of remaining interest reclassified to available-for-sale securities
Proceeds from sale of Pendal Group Limited interest, net of transaction costs
Amount of reserves recycled to profit or loss
Gain on sale of interest in Pendal Group Limited
Fair value of investment
Period ended
26 May 2017
Note 36. Structured entities
Accounting policy
262
90
11
101
26
(13)
13
4
(1)
16
22
887
(122)
765
222
491
713
(471)
(242)
-
375
630
(13)
279
n/a
Changes in ownership of subsidiaries
Businesses disposed during the year ending 30 September 2018
Westpac sold its interest in a number of Hastings offshore subsidiaries to Northill Capital. Completion of the sale of the US and
UK entities occurred on 28 February 2018 and completion of the Singapore entity occurred on 23 March 2018, with a total loss
of $9 million recognised in non-interest income. The total cash consideration received, net of transaction costs and cash held,
was $9 million.
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.
Notes to the financial statements
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.
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.
Consolidated structured entities
Securitisation and covered bonds
Refer to Note 25 for further details.
Group managed funds
Non-contractual financial support
Unconsolidated structured entities
agreements.
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 an agent then it consolidates the fund. The principal vs. agent
decision requires judgement of whether the Group has sufficient exposure to variable returns.
The Group does not provide non-contractual financial support to these consolidated 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
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
with the structured entity. The Group earns interest income on these securities and also
The Group actively trades interests in structured entities and normally has no other involvement
recognises fair value changes through trading income in non-interest income.
Available-for-sale
securities
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
approval processes, in order to earn interest and fee income. The structured entities are mainly
commitments
property trusts, securitisation entities and those associated with project and property
The Group lends to unconsolidated structured entities, subject to the Group’s collateral and credit
financing transactions.
The Group manages funds that provide customers with investment opportunities. The Group also
manages superannuation funds for its employees. The Group earns management and
Investment management
performance fee income which is recognised in non-interest income.
agreements
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.
1 Represents the Group's share of Pendal (26 May 2017: 29.0%).
2 The amount disclosed as at 26 May 2017 represented the carrying value of interest in Pendal immediately prior to the sale.
250
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251
Notes to the financial statements
Notes to the financial statements
Note 35. Investments in subsidiaries and associates (continued)
Note 36. Structured entities
Period ended
26 May 2017
262
90
11
101
26
(13)
13
4
(1)
16
22
887
(122)
765
222
491
713
(471)
(242)
-
375
630
(13)
279
n/a
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
Fair value adjustments (including notional goodwill) on acquisition (net of amortisation)
Carrying amount of interest in Pendal Group Limited2
Carrying amount of interest in Pendal Group Limited sold
Carrying amount of remaining interest reclassified to available-for-sale securities
Remaining interest in Pendal Group Limited accounted for under equity method
Fair value of remaining interest reclassified to available-for-sale securities
Proceeds from sale of Pendal Group Limited interest, net of transaction costs
Amount of reserves recycled to profit or loss
Gain on sale of interest in Pendal Group Limited
Fair value of investment
Changes in ownership of subsidiaries
Businesses disposed during the year ending 30 September 2018
was $9 million.
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 interest in a number of Hastings offshore subsidiaries to Northill Capital. Completion of the sale of the US and
UK entities occurred on 28 February 2018 and completion of the Singapore entity occurred on 23 March 2018, with a total loss
of $9 million recognised in non-interest income. The total cash consideration received, net of transaction costs and cash held,
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.
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 an 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
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.
Available-for-sale
securities
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.
3
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.
1 Represents the Group's share of Pendal (26 May 2017: 29.0%).
2 The amount disclosed as at 26 May 2017 represented the carrying value of interest in Pendal immediately prior to the sale.
250
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251
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 2018
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
Maximum exposure to loss
Size of structured entities2
Consolidated 2017
-
2,108
7,352
-
-
-
9,460
-
9,460
58,976
-
-
-
21,977
-
-
-
6
-
-
4,702
47
-
139
-
-
2,247
7,352
22,894
44,877
1,843
6,545
-
47
21,977
4,755
24,876
61,068
5,145
27,122
27,122
60
7,988
13,193
4,815
66,524
32,864
100,427
74,261
253,049
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
Maximum exposure to loss
Size of structured entities2
-
1,740
6,981
-
-
-
8,721
-
8,721
60,573
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
26,226
26,226
66
7,718
13,586
4,506
70,070
32,615
134,548
72,068
291,417
Non-contractual financial support
The Group does not provide non-contractual financial support to these unconsolidated structured entities.
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).
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253
Notes to the financial statements
EMPLOYEE BENEFITS
Note 37. Share-based payments
Accounting policy
The Group enters into various share-based payment arrangements with its employees as a component of overall compensation
for services provided. Share-based payment arrangements comprise options to purchase shares at a pre-determined price
(share options), rights to receive shares for free (share rights) and restricted shares (issued at no cost). Share-based payment
arrangements typically require a specified period of continuing employment (the service period or vesting period) and may
include performance targets (vesting conditions). Specific details of each arrangement are provided below.
Share-based payments must be classified as either cash-settled or equity-settled arrangements. The Group’s significant
arrangements are equity-settled, as the Group is not obliged to settle in cash.
Options and share rights
Options and share rights are equity-settled arrangements. The fair value is measured at grant date and is recognised as an
expense over the service period, with a corresponding increase in the share-based payment reserve in equity.
The fair value of share options and share rights is estimated at grant date using a binomial/Monte Carlo simulation pricing
model which incorporates the vesting and market-related performance targets of the grants. The fair value of share options and
rights excludes non-market vesting conditions such as employees’ continuing employment by the Group. The non-market
vesting conditions are instead incorporated in estimating the number of share options and rights that are expected to vest and
are therefore recognised as an expense. At each reporting date the non-market vesting assumptions are revised and the
expense recognised each year takes into account the most recent estimates. The market-related assumptions are not revised
each year as the fair value is not re-estimated after the grant date.
Restricted share plan (RSP)
The RSP is accounted for as an equity-settled arrangement. The fair value of shares allocated to employees for nil
consideration is recognised as an expense over the vesting period with a corresponding increase in the share-based payments
reserve in equity. The fair value of ordinary shares issued to satisfy the obligation to employees is measured at grant date and
is recognised as a separate component of equity.
Employee share plan (ESP)
The value of shares expected to be allocated to employees for nil consideration is recognised as an expense over the financial
year and provided for as other employee benefits. The fair value of any ordinary shares 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
Westpac Long Term
Incentive Plan (LTI)
Westpac Performance Plan (WPP)
Restricted Share
Employee Share Plan
Plan (RSP)
(ESP)
Share rights (allocated at
Type of share-
no cost).
based
payment
Share options (no longer
issued since October
2009).
Share rights (allocated at no
cost).
Share options (no longer issued
since October 2009).
Westpac
ordinary shares
(allocated at no
cost).
How it is used
accountability with
for New Zealand employees and
respect of the
already been provided
Aligns executive
remuneration and
The mandatory deferral of a
portion of short-term incentives
To reward key
employees in
shareholder interests over
key employees based outside
previous
the long term.
Australia.
financial year.
Westpac ordinary
shares (allocated at no
cost) of up to $1,000
per employee per
year.
To reward eligible
Australian employees
(unless they have
instruments under
another scheme for
the previous year).
Exercise price:
Shares rights
Nil.
Share options
Nil.
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
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
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.
of loss.
$m
Assets
Consolidated 2018
Available-for-sale securities
Loans
Life insurance assets
Other assets
Maximum exposure to loss
Size of structured entities2
Consolidated 2017
$m
Assets
Available-for-sale securities
Loans
Life insurance assets
Other assets
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Total on-balance sheet exposures
9,460
21,977
4,755
24,876
61,068
Total notional amounts of off-balance sheet exposures
Investment in
Third Party
Mortgage and
Other
Financing to
Group
in Other
Asset-Backed Securitisation Managed Structured
Securities1
Vehicles
Funds
Entities
Total
Interest
-
-
-
-
-
21,977
-
-
-
6
4,702
47
139
-
-
-
2,247
7,352
22,894
44,877
1,843
6,545
-
47
5,145
27,122
27,122
60
7,988
13,193
4,815
66,524
32,864
74,261
100,427
253,049
Investment in
Third Party
Mortgage and
Other
Financing to
Group
in Other
Asset-Backed Securitisation Managed Structured
Securities1
Vehicles
Funds
Entities
Total
Interest
-
-
-
674
-
-
392
2,414
6,981
20,032
44
22,488
42,564
4,344
52
1,735
6,079
-
52
392
-
-
-
-
5,802
26,226
26,226
66
7,718
13,586
4,506
70,070
32,615
134,548
72,068
291,417
-
2,108
7,352
-
-
-
-
9,460
58,976
-
1,740
6,981
-
-
-
-
8,721
60,573
Receivables due from other financial institutions
Trading securities and financial assets designated at fair value
Total on-balance sheet exposures
8,721
20,424
4,440
24,897
58,482
Total notional amounts of off-balance sheet exposures
Maximum exposure to loss
Size of structured entities2
Non-contractual financial support
The Group does not provide non-contractual financial support to these unconsolidated structured entities.
Notes to the financial statements
EMPLOYEE BENEFITS
Note 37. Share-based payments
Accounting policy
The Group enters into various share-based payment arrangements with its employees as a component of overall compensation
for services provided. Share-based payment arrangements comprise options to purchase shares at a pre-determined price
(share options), rights to receive shares for free (share rights) and restricted shares (issued at no cost). Share-based payment
arrangements typically require a specified period of continuing employment (the service period or vesting period) and may
include performance targets (vesting conditions). Specific details of each arrangement are provided below.
Share-based payments must be classified as either cash-settled or equity-settled arrangements. The Group’s significant
arrangements are equity-settled, as the Group is not obliged to settle in cash.
Options and share rights
Options and share rights are equity-settled arrangements. The fair value is measured at grant date and is recognised as an
expense over the service period, with a corresponding increase in the share-based payment reserve in equity.
The fair value of share options and share rights is estimated at grant date using a binomial/Monte Carlo simulation pricing
model which incorporates the vesting and market-related performance targets of the grants. The fair value of share options and
rights excludes non-market vesting conditions such as employees’ continuing employment by the Group. The non-market
vesting conditions are instead incorporated in estimating the number of share options and rights that are expected to vest and
are therefore recognised as an expense. At each reporting date the non-market vesting assumptions are revised and the
expense recognised each year takes into account the most recent estimates. The market-related assumptions are not revised
each year as the fair value is not re-estimated after the grant date.
Restricted share plan (RSP)
The RSP is accounted for as an equity-settled arrangement. The fair value of shares allocated to employees for nil
consideration is recognised as an expense over the vesting period with a corresponding increase in the share-based payments
reserve in equity. The fair value of ordinary shares issued to satisfy the obligation to employees is measured at grant date and
is recognised as a separate component of equity.
Employee share plan (ESP)
The value of shares expected to be allocated to employees for nil consideration is recognised as an expense over the financial
year and provided for as other employee benefits. The fair value of any ordinary shares 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
Westpac Long Term
Incentive Plan (LTI)
Westpac Performance Plan (WPP)
Restricted Share
Plan (RSP)
Employee Share Plan
(ESP)
Type of share-
based
payment
Share rights (allocated at
no cost).
Share options (no longer
issued since October
2009).
Share rights (allocated at no
cost).
Share options (no longer issued
since October 2009).
Westpac
ordinary shares
(allocated at no
cost).
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.
Westpac ordinary
shares (allocated at no
cost) of up to $1,000
per employee per
year.
To reward eligible
Australian employees
(unless they have
already been provided
instruments under
another scheme for
the previous year).
3
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
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).
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253
Notes to the financial statements
Note 37. Share-based payments (continued)
Scheme name
Westpac Long Term
Incentive Plan (LTI)
Westpac Performance Plan (WPP)
Restricted Share
Plan (RSP)
Employee Share Plan
(ESP)
Performance
hurdles
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.
None.
None.
None.
Service
conditions
Continued employment
throughout the vesting
period or as determined
by the Board.
Continued employment
throughout the vesting period or
as determined by the Board.
Continued
employment
throughout the
restriction
period or as
determined by
the Board.
Shares must normally
remain within the ESP
for three years from
granting unless the
employee leaves
Westpac.
Vesting period
(period over
which
expenses are
recognised)
4 years2
Defined period set out at time of
grant.
Defined period
set out at time
of grant.
1 year
Outstanding at
Granted Exercised
Lapsed
During
1 October
During
During
Outstanding at
2017
the Year
the Year
the Year
30 September 2018
Outstanding
and Exercisable at
30 September 2018
Treatment at
end of term
Lapse if not exercised.
Lapse if not exercised.
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.
Shares are released at
the end of the
restriction period or
when the employee
leaves Westpac.
Does the
employee
receive
dividends and
voting rights
during the
vesting
period?
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.
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.
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255
Notes to the financial statements
Outstanding at
Granted Exercised
1 October
During
During
Lapsed
During
Outstanding at
2017
the Year
the Year
the Year
30 September 2018
Outstanding
and Exercisable at
30 September 2018
Note 37. Share-based payments (continued)
Each share-based payment scheme is quantified below:
(i) Westpac Long Term Incentive Plan
Weighted average exercise price
Weighted average remaining
Weighted average remaining
2018
Share options
contractual life
Share rights
contractual life
2017
Share options
256,840
$26.36
-
-
103,686
$24.23
100,804
-
5,231,904
808,290
2,929
1,324,422
0.7 years
10.3 years
1 Oct 2016
583,018
$27.58
Weighted average exercise price
Performance share rights
-
-
326,178
$28.54
-
-
5,275,652
930,012
-
973,760
The weighted average fair value at grant date of LTI share rights issued during the year was $17.86 (2017: $19.17).
(ii) Westpac Performance Plan (WPP)
2018
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
2017
Share options
Weighted average exercise price
Performance share rights
(iii) Restricted Share Plan (RSP)
Allocation date1
Granted prior to October 2009
Granted subsequent to October 2009
Total 2018
Total 2017
155,419
233,456
104,382
126,522
72,000
88,967
43,589
42,346
66,357
60,882
29,452
-
20,531
8,151
780
6,639
619,779
246,902
156,691
36,101
12.3 years
1 Oct 2016
74,094
$23.98
-
-
52,745
$23.98
21,349
-
391,503
393,536
142,093
23,167
619,779
The weighted average fair value at grant date of WPP share rights issued during the year was $27.83 (2017: $27.40).
Outstanding at
1 October
2017
675,329
3,529,424
4,204,753
4,426,872
Granted
During
the Year
-
2,479,975
2,479,975
2,195,572
Released
328,597
1,896,648
2,225,245
2,332,985
Forfeited
During
-
269,839
269,839
84,706
Outstanding at
the Year
30 September 2018
346,732
3,842,912
4,189,644
4,204,753
The weighted average fair value at grant date of RSP share rights issued during the year was $31.29 (2017: $32.24).
52,350
$23.40
0 years
4,712,843
10.9 years
30 Sept 2017
256,840
$26.36
5,231,904
140,531
253,390
117,739
162,229
673,889
12.4 years
30 Sept 2017
-
-
52,350
$23.40
3,719
256,840
$26.36
6,648
53,644
42,455
28,426
-
124,525
-
-
118,912
Notes to the financial statements
Note 37. Share-based payments (continued)
Scheme name
Westpac Long Term
Incentive Plan (LTI)
Westpac Performance Plan (WPP)
Restricted Share
Employee Share Plan
Plan (RSP)
(ESP)
Performance
hurdles
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.
Service
conditions
Continued employment
throughout the vesting
period or as determined
by the Board.
Continued employment
throughout the vesting period or
restriction
as determined by the Board.
Continued
employment
throughout the
period or as
determined by
the Board.
Shares must normally
remain within the ESP
for three years from
granting unless the
employee leaves
Westpac.
Vesting period
(period over
which
expenses are
recognised)
4 years2
Defined period set out at time of
grant.
Defined period
set out at time
of grant.
1 year
Treatment at
end of term
Lapse if not exercised.
Lapse if not exercised.
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.
Shares are released at
the end of the
restriction period or
when the employee
leaves Westpac.
No
No
Yes
Yes
Notes to the financial statements
Note 37. Share-based payments (continued)
Each share-based payment scheme is quantified below:
(i) Westpac Long Term Incentive Plan
2018
Share options
Weighted average exercise price
Weighted average remaining
contractual life
Share rights
Weighted average remaining
contractual life
2017
Share options
Weighted average exercise price
Performance share rights
Outstanding at
1 October
2017
Granted Exercised
During
the Year
During
the Year
256,840
$26.36
-
-
103,686
$24.23
Lapsed
During
the Year
100,804
-
0.7 years
5,231,904
808,290
2,929
1,324,422
10.3 years
1 Oct 2016
583,018
$27.58
5,275,652
-
-
930,012
326,178
$28.54
-
-
-
973,760
Outstanding at
30 September 2018
52,350
$23.40
0 years
4,712,843
10.9 years
30 Sept 2017
256,840
$26.36
5,231,904
Outstanding
and Exercisable at
30 September 2018
52,350
$23.40
3,719
256,840
$26.36
6,648
The weighted average fair value at grant date of LTI share rights issued during the year was $17.86 (2017: $19.17).
(ii) Westpac Performance Plan (WPP)
2018
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
2017
Share options
Weighted average exercise price
Performance share rights
Outstanding at
1 October
2017
Granted Exercised
During
the Year
During
the Year
Lapsed
During
the Year
Outstanding at
30 September 2018
Outstanding
and Exercisable at
30 September 2018
155,419
233,456
104,382
126,522
72,000
88,967
43,589
42,346
66,357
60,882
29,452
-
619,779
246,902
156,691
20,531
8,151
780
6,639
36,101
12.3 years
1 Oct 2016
74,094
$23.98
391,503
-
-
393,536
52,745
$23.98
142,093
21,349
-
23,167
140,531
253,390
117,739
162,229
673,889
12.4 years
30 Sept 2017
-
-
619,779
53,644
42,455
28,426
-
124,525
-
-
118,912
The weighted average fair value at grant date of WPP share rights issued during the year was $27.83 (2017: $27.40).
(iii) Restricted Share Plan (RSP)
Allocation date1
Granted prior to October 2009
Granted subsequent to October 2009
Total 2018
Total 2017
Outstanding at
1 October
2017
675,329
3,529,424
4,204,753
4,426,872
Granted
During
the Year
-
2,479,975
2,479,975
2,195,572
Released
328,597
1,896,648
2,225,245
2,332,985
Forfeited
During
the Year
-
269,839
269,839
84,706
Outstanding at
30 September 2018
346,732
3,842,912
4,189,644
4,204,753
3
The weighted average fair value at grant date of RSP share rights issued during the year was $31.29 (2017: $32.24).
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
2018 Westpac Group Annual Report
2018 Westpac Group Annual Report
255
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.
Does the
employee
receive
dividends and
voting rights
during the
vesting
period?
improved.
254
Notes to the financial statements
Note 37. Share-based payments (continued)
(iv) Employee Share Plan (ESP)
Allocation
Date
Number of
Participants
Average Number
of Shares Allocated
per Participant
Total Number
of Shares
Allocated
2018
2017
24 November 2017
25 November 2016
27,557
26,966
31
32
854,267
862,912
The 2017 ESP award was satisfied through the purchase of shares on market.
Market
Price per Share1
$31.80
$31.25
Total
Fair Value
$27,165,691
$26,966,000
The liability accrued for the ESP at 30 September 2018 is $28 million (2017: $28 million) and is provided for as other employee
benefits.
(v) CEO plans
Details of share-based payment arrangements held by the CEO, Brian Hartzer, which are on the same terms and conditions as
described above for the relevant plan, are provided in the Remuneration report in Section 1.
(vi) Other plans
Westpac also provides plans for small, specialised parts of the Group. The benefits under these plans are directly linked to
growth and performance of the relevant part of the business. The plans individually and in aggregate are not material to the
Group in terms of expenses and dilution of earnings.
The names of all persons who hold share options and/or rights currently on issue are entered in Westpac’s register of option
holders which may be inspected at Link Market Services, Level 12, 680 George Street, Sydney, New South Wales.
(vii) Fair value assumptions
The fair values of share options and share rights have been independently calculated at their respective grant dates.
The fair value of share rights with performance targets based on relative TSR 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, (i.e. share rights with Cash EPS CAGR, economic profit
and ROE performance targets), have been determined 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 return of 2.6%, applied to TSR-hurdled grants;
a dividend yield on Westpac shares of 6.0%, applied to TSR and ROE-hurdled grants;
volatility in Westpac’s TSR of 19.9%, applied to TSR-hurdled grants; and
volatilities of, and correlation factors between, TSR of the comparator group and Westpac for TSR-hurdled grants.
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.
Notes to the financial statements
Note 38. Superannuation commitments (continued)
Westpac had the following defined benefit plans at 30 September 2018:
Date of Last Actuarial
Assessment of the
Funding Status
30 June 2015
Name of Plan
Westpac Group Plan (WGP)1
Westpac New Zealand
Superannuation Scheme (WNZS)
Westpac Banking Corporation UK
Staff Superannuation Scheme
Type
Defined benefit and
accumulation
Defined benefit and
accumulation
Defined benefit
Form of Benefit
Indexed pension and
lump sum
lump sum
lump sum
Indexed pension and
30 June 2017
Indexed pension and
5 April 2015
Westpac UK Medical Benefits
Defined benefit
Medical benefits
n/a
(UKSS)1
Scheme
The defined benefit sections of the schemes are closed to new members. The Group has no obligation beyond the annual
contributions for the accumulation or defined contribution sections of the schemes.
The WGP is the Group’s principal defined benefit plan and is managed and administered in accordance with the terms of its
trust deed and relevant legislation in Australia. Its defined benefit liabilities are based on salary and length of membership for
active members and inflation in the case of pensioners.
The defined benefit schemes expose the Group to the following risks:
discount rate – reductions in the discount rate would increase the present value of the future payments;
inflation rate – increases in the inflation rate would increase the payments to pensioners;
investment risk – lower investment returns would increase the contributions needed to offset the shortfall;
mortality risk – members may live longer than expected extending the cash flows payable by the Group; and
legislative risk – legislative changes could be made which increase the cost of providing defined benefits.
Investment risk is managed by setting benchmarks for the allocation of plan assets between asset classes. The long-term
investment strategy will often adopt relatively high levels of equity investment in order to:
secure attractive long term investment returns; and
provide an opportunity for capital appreciation and dividend growth, which gives some protection against inflation.
Funding recommendations for the WGP, WNZS and the UKSS are made based on triennial actuarial valuations. These
valuations resulted in a funding surplus of $324 million for the year ended 30 September 2018 (2017: $315 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.
Expected employer contributions for the year ended 30 September 2019 are $29 million.
Contributions
$m
Employer contributions
Member contributions
Expense recognised
$m
Current service cost
Net interest cost on net benefit liability
Total defined benefit expense
Consolidated
Parent Entity
2018
2017
2018
2017
30
12
33
13
30
11
33
12
Consolidated
Parent Entity
2018
2017
2016
2018
2017
37
1
38
42
8
50
43
7
50
37
-
37
41
7
48
1 The market price per share for the allocation is based on the five day volume-weighted average price up to the grant date.
1 The 2018 final actuarial assessment of the funding status for WGP and UKSS will be available in 2019.
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Notes to the financial statements
Note 37. Share-based payments (continued)
(iv) Employee Share Plan (ESP)
Allocation
Number of
of Shares Allocated
Date
Participants
per Participant
of Shares
Allocated
Market
Price per Share1
Average Number
Total Number
2018
2017
24 November 2017
25 November 2016
27,557
26,966
31
32
854,267
862,912
$31.80
$31.25
Total
Fair Value
$27,165,691
$26,966,000
The 2017 ESP award was satisfied through the purchase of shares on market.
The liability accrued for the ESP at 30 September 2018 is $28 million (2017: $28 million) and is provided for as other employee
benefits.
(v) CEO plans
(vi) Other 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.
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 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, (i.e. share rights with Cash EPS CAGR, economic profit
and ROE performance targets), have been determined 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 return of 2.6%, applied to TSR-hurdled grants;
a dividend yield on Westpac shares of 6.0%, applied to TSR and ROE-hurdled grants;
volatility in Westpac’s TSR of 19.9%, applied to TSR-hurdled grants; and
volatilities of, and correlation factors between, TSR of the comparator group and Westpac for TSR-hurdled grants.
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.
Notes to the financial statements
Note 38. Superannuation commitments (continued)
Westpac had the following defined benefit plans at 30 September 2018:
Name of Plan
Westpac Group Plan (WGP)1
Westpac New Zealand
Superannuation Scheme (WNZS)
Westpac Banking Corporation UK
Staff Superannuation Scheme
(UKSS)1
Westpac UK Medical Benefits
Scheme
Type
Defined benefit and
accumulation
Defined benefit and
accumulation
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 2017
5 April 2015
Defined benefit
Medical benefits
n/a
The defined benefit sections of the schemes are closed to new members. The Group has no obligation beyond the annual
contributions for the accumulation or defined contribution sections of the schemes.
The WGP is the Group’s principal defined benefit plan and is managed and administered in accordance with the terms of its
trust deed and relevant legislation in Australia. Its defined benefit liabilities are based on salary and length of membership for
active members and inflation in the case of pensioners.
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 $324 million for the year ended 30 September 2018 (2017: $315 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
2018
2017
Parent Entity
2018
2017
3
30
12
33
13
30
11
33
12
Expected employer contributions for the year ended 30 September 2019 are $29 million.
Expense recognised
$m
Current service cost
Net interest cost on net benefit liability
Total defined benefit expense
Consolidated
2017
2018
37
1
38
42
8
50
2016
43
7
50
Parent Entity
2018
2017
37
-
37
41
7
48
1 The market price per share for the allocation is based on the five day volume-weighted average price up to the grant date.
1 The 2018 final actuarial assessment of the funding status for WGP and UKSS will be available in 2019.
256
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257
Notes to the financial statements
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)
Consolidated
2018
2017
Parent Entity
2018
2017
2,314
2,378
2,284
2,289
2,239
2,319
2,209
2,227
64
89
(25)
64
5
48
(43)
5
80
89
(9)
80
18
48
(30)
18
The average duration of the defined benefit obligation is 11 years (2017: 11 years).
Significant assumptions
2018
2017
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
4.1% 2.6%-2.9%
4.2%
2.7%-3%
2.9%
3%-5%
3.0%
3%-5%
1.9%
2%-3.5%
2.0%
2%-3.5%
31.0
33.9
27.9-28.4
29.4-29.6
30.8
33.7
27.7-28.9
29.2-30.3
Sensitivity to changes in significant assumptions
The table below shows the impact of changes in assumptions on the defined benefit obligation for the WGP. 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
2017
2018
120
8
111
38
116
10
106
29
2018
2017
Australian Overseas Australian Overseas
Funds
Funds
Funds
Funds
5%
45%
28%
10%
12%
100%
2%
7%
80%
1%
10%
100%
4%
44%
29%
10%
13%
100%
2%
13%
65%
10%
10%
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.
258
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259
Notes to the financial statements
Note 39. Auditor’s remuneration
The fees payable to the auditor, PricewaterhouseCoopers (PwC), and overseas firms belonging to the PwC network of firms
OTHER
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
Overseas PwC network firms
Tax fees
PwC Australia
Total tax fees
Other fees
PwC Australia
Overseas PwC network firms
Total other fees
Total audit and non-audit fees
Consolidated
Parent Entity
2018
2017
2018
2017
19,999
17,886
19,967
17,833
3,338
3,225
68
852
23,337
21,111
20,035
18,685
2,316
3,938
2,224
3,739
117
68
-
65
2,433
4,006
2,224
3,804
25,770
25,117
22,259
22,489
169
-
169
5
8
13
49
-
49
1,581
1,853
1,501
-
90
-
1,581
1,943
1,501
1,002
27,520
27,073
23,809
23,491
-
-
-
912
90
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
Tax
Other
Consultations regarding accounting standards and reporting requirements, regulatory compliance reviews
and assurance related to debt and capital offerings.
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 $7.5 million (2017: $6.0 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.
Notes to the financial statements
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)
Significant assumptions
Consolidated and Parent Entity
Discount rate
Salary increases
Inflation rate (pensioners receive inflationary increases)
Life expectancy of a 60-year-old male
Life expectancy of a 60-year-old female
Sensitivity to changes in significant assumptions
The average duration of the defined benefit obligation is 11 years (2017: 11 years).
0.5% increase in inflation rate (pensioners receive inflationary increases)
benefit obligation.
Change in assumption
0.5% decrease in discount rate
0.5% increase in annual salary increases
1 year increase in life expectancy
Asset allocation
Consolidated and Parent Entity
%
Cash
Equity instruments
Debt instruments
Property
Other Assets
Total
Consolidated
Parent Entity
2018
2017
2018
2,314
2,378
2,284
2,289
2,239
2,319
64
89
(25)
64
5
48
(43)
5
80
89
(9)
80
2017
2,209
2,227
18
48
(30)
18
2018
2017
Australian Overseas Australian Overseas
Funds
Funds
Funds
Funds
4.1% 2.6%-2.9%
4.2%
2.7%-3%
2.9%
3%-5%
3.0%
3%-5%
1.9%
2%-3.5%
2.0%
2%-3.5%
31.0
27.9-28.4
33.9
29.4-29.6
30.8
33.7
27.7-28.9
29.2-30.3
Increase in obligation
2018
2017
120
8
111
38
116
10
106
29
2018
2017
Australian Overseas Australian Overseas
Funds
Funds
Funds
Funds
5%
45%
28%
10%
12%
100%
2%
7%
80%
1%
10%
100%
4%
44%
29%
10%
13%
2%
13%
65%
10%
10%
100%
100%
The table below shows the impact of changes in assumptions on the defined benefit obligation for the WGP. No reasonably
possible changes in the assumptions of the Group’s other defined benefit plans would have a material impact on the defined
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.
Notes to the financial statements
OTHER
Note 39. Auditor’s remuneration
The fees payable to the auditor, PricewaterhouseCoopers (PwC), and overseas firms belonging to the PwC network of firms
were:
$'000
Audit and audit-related fees
Audit fees
PwC Australia
Overseas PwC network firms
Total audit fees
Audit-related fees
PwC Australia
Overseas PwC network firms
Total audit-related fees
Total audit and audit-related fees
Tax fees
PwC Australia
Overseas PwC network firms
Total tax fees
Other fees
PwC Australia
Overseas PwC network firms
Total other fees
Total audit and non-audit fees
Consolidated
2018
2017
Parent Entity
2018
2017
19,999
17,886
19,967
17,833
3,338
3,225
68
852
23,337
21,111
20,035
18,685
2,316
3,938
2,224
3,739
117
68
-
65
2,433
4,006
2,224
3,804
25,770
25,117
22,259
22,489
169
-
169
5
8
13
49
-
49
1,581
1,853
1,501
-
90
-
-
-
-
912
90
1,581
27,520
1,943
27,073
1,501
23,809
1,002
23,491
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.
3
PwC also received fees of $7.5 million (2017: $6.0 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.
258
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259
Managing Director & Chief Executive Officer
Latest Date of Exercise
Brian Hartzer
Ranges from 1 October 2024 to 1 October 2032
Group Executives
Lyn Cobley
Brad Cooper
David Curran
George Frazis
Peter King
David Lees
Rebecca Lim
David Linberg
Carolyn McCann
David McLean
Christine Parker
Gary Thursby
Ranges from 1 October 2030 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2018 to 1 October 2030
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2022 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Former Group Executive
Alexandra Holcomb
Ranges from 1 October 2024 to 1 October 2032
292,576
Further details of the equity holdings of KMP are included in the Remuneration report in Section 1.
25,562
23.40
767,080
261,846
329,216
288,436
300,880
314,259
31,402
144,092
254,369
42,816
295,136
240,311
154,553
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Notes to the financial statements
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.
Notes to the financial statements
Note 40. Related party disclosures (continued)
Options and share rights holdings
For compliance with SEC disclosure requirements, the following table sets out certain details of the performance options,
performance share rights and unhurdled share rights held at 30 September 2018 by the CEO and other key management
personnel (including their related parties):
Number of
Number
Exercise Price
Share Rights
of Options
of Options
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 and Interest expense
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 $348 million (2017: $329 million) to defined contribution plans and $30 million to defined benefit plans
(2017: $33 million; refer to Note 38).
Remuneration of KMP
Total remuneration of the KMP was:
$
Consolidated
2018
2017
Parent Entity
2018
2017
Short-term Post Employment
Benefits
Benefits
Other Long-term
Benefits
Termination Share-based
Payments
Benefits
Total
23,210,820
25,048,403
21,807,008
23,859,466
618,631
621,606
537,187
545,524
297,495
156,590
297,495
156,590
-
-
-
-
16,086,623
40,213,569
16,106,111
41,932,710
15,301,417
15,268,712
37,943,107
39,830,292
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:
$
2018
2017
Interest Payable
for the Year
Closing Loan
Balance
Number of KMP
with Loans
650,969
739,466
17,498,526
15,290,320
13
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.
260
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261
The Group provides a wide range of banking and other financial facilities and funds management activities to its associates on
Further details of the equity holdings of KMP are included in the Remuneration report in Section 1.
Former Group Executive
Alexandra Holcomb
Ranges from 1 October 2024 to 1 October 2032
292,576
Notes to the financial statements
Note 40. Related party disclosures (continued)
Options and share rights holdings
For compliance with SEC disclosure requirements, the following table sets out certain details of the performance options,
performance share rights and unhurdled share rights held at 30 September 2018 by the CEO and other key management
personnel (including their related parties):
Number of
Share Rights
Number
of Options
Exercise Price
of Options
Managing Director & Chief Executive Officer
Brian Hartzer
Ranges from 1 October 2024 to 1 October 2032
Latest Date of Exercise
Group Executives
Lyn Cobley
Brad Cooper
David Curran
George Frazis
Peter King
David Lees
Rebecca Lim
David Linberg
Carolyn McCann
David McLean
Christine Parker
Gary Thursby
Ranges from 1 October 2030 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2018 to 1 October 2030
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2022 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
Ranges from 1 October 2024 to 1 October 2032
767,080
261,846
329,216
288,436
300,880
314,259
31,402
144,092
254,369
42,816
295,136
240,311
154,553
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
25,562
23.40
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3
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261
Notes to the financial statements
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.
Westpac Banking Corporation is the ultimate parent company of the Group.
Parent Entity
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
Details disclosed in
Balance Sheet
Dividend income / Transactions with subsidiaries
Interest income and Interest expense
Tax consolidated group transactions and undertakings
Guarantees and undertakings
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
commercial terms and conditions.
Superannuation plans
(2017: $33 million; refer to Note 38).
Remuneration of KMP
Total remuneration of the KMP was:
The Group contributed $348 million (2017: $329 million) to defined contribution plans and $30 million to defined benefit plans
Consolidated
Parent Entity
$
2018
2017
2018
2017
Short-term Post Employment
Other Long-term
Termination Share-based
Benefits
Benefits
Benefits
Benefits
Payments
Total
23,210,820
25,048,403
21,807,008
23,859,466
618,631
621,606
537,187
545,524
297,495
156,590
297,495
156,590
-
-
-
-
16,086,623
40,213,569
16,106,111
41,932,710
15,301,417
15,268,712
37,943,107
39,830,292
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
Closing Loan
Number of KMP
for the Year
Balance
with Loans
650,969
739,466
17,498,526
15,290,320
13
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.
$
2018
2017
260
Notes to the financial statements
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.
Reconciliation of net cash provided by/(used in) operating activities to net profit for the year is set out below:
$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 provisions1
Other non-cash items1
Cash flows from operating activities before changes in
Consolidated
2017
2018
2016
Parent Entity
2018
2017
8,099
7,997
7,460
8,144
7,843
1,144
889
(96)
(83)
241
289
332
1,269
1,021
(34)
(75)
148
219
1,228
1,261
(285)
25
(47)
(68)
(419)
(331)
952
820
(598)
(74)
217
294
420
1,122
991
(572)
(81)
154
28
219
operating assets and liabilities
10,815
10,126
9,243
10,175
9,704
Net (increase)/decrease in derivative financial instruments
8,584
(5,042)
(5,107)
8,263
(5,378)
Net (increase)/decrease in life insurance assets and liabilities
(230)
219
(253)
-
-
(Increase)/decrease in other operating assets:
Total equity attributable to owners of Westpac Banking Corporation
Trading securities and financial assets designated at fair value
3,827
(5,054)
6,755
3,150
(5,194)
Loans
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
Other assets
(Decrease)/increase in other operating liabilities:
(24,740)
(26,815)
(38,082)
(23,661)
(27,677)
1,678
2,653
(303)
160
308
200
(896)
(209)
(476)
987
(299)
210
1,817
294
136
Other financial liabilities at fair value through income statement
243
(681)
(4,488)
261
(325)
Deposits and other borrowings
Payables due to other financial institutions
Other liabilities
Net cash provided by/(used in) operating activities
23,928
23,062
38,771
20,783
22,518
(4,072)
(88)
19,802
3,859
(15)
2,820
(73)
(4,396)
3,792
312
5,497
(196)
15,277
78
(235)
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.
Notes to the financial statements
$m
Assets:
Loans
Cash and balances with central banks
Available-for-sale securities
Regulatory deposits with central banks overseas
Property and equipment
Deferred tax assets
Intangible assets
Other assets
Total assets
Liabilities:
Deposits and other borrowings
Current tax liabilities
Provisions
Other liabilities
Total liabilities
Cash proceeds (net of transaction costs)
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
Non-cash financing activities
$m
Shares issued under the dividend reinvestment plan
Shares issued from the conversion of Westpac CPS
Cash consideration (paid)/received (net of transaction costs and cash held)
Consolidated
Parent Entity
2018
2017
2016
2018
2017
10
-
-
-
2
4
15
5
36
-
-
2
3
5
31
19
19
3
(9)
19
(10)
9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
138
1
132
5
3
1
1
27
308
264
2
1
6
273
35
34
34
2
1
34
(138)
(104)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated
Parent Entity
2018
2017
2016
2018
631
566
1,452
726
-
-
631
566
2017
1,452
-
On 13 March 2018, 6,233,643 Westpac CPS were converted to Westpac Capital Notes 5 for a total value of $623 million. On
3 April 2018, the remaining $566 million of Westpac CPS were transferred to the Westpac CPS nominated party for $100 each.
Following the transfer, those remaining Westpac CPS were converted into 19,189,765 ordinary shares.
Restricted cash
and nil for the Parent Entity (2017: nil).
The amount of cash and cash equivalents not available for use at 30 September 2018 was nil (2017: $38 million) for the Group
1 Comparatives have been revised for consistency.
262
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263
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.
Notes to the financial statements
$m
Assets:
Cash and balances with central banks
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
Current tax liabilities
Provisions
Other liabilities
Total liabilities
(Increase)/decrease in other operating assets:
Total equity attributable to owners of Westpac Banking Corporation
Cash proceeds (net of transaction costs)
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
2018
2017
2016
Parent Entity
2018
2017
10
-
-
-
2
4
15
5
36
-
-
2
3
5
31
19
19
3
(9)
19
(10)
9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
138
1
132
5
3
1
1
27
308
264
2
1
6
273
35
34
34
2
1
34
(138)
(104)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Notes to the financial statements
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.
Reconciliation of net cash provided by/(used in) operating activities to net profit for the year is set out below:
$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 provisions1
Other non-cash items1
Cash flows from operating activities before changes in
Loans
Other assets
Receivables due from other financial institutions
Regulatory deposits with central banks overseas
(Decrease)/increase in other operating liabilities:
Deposits and other borrowings
Payables due to other financial institutions
Other liabilities
operating assets and liabilities
10,815
10,126
9,243
10,175
9,704
Net (increase)/decrease in derivative financial instruments
8,584
(5,042)
(5,107)
8,263
(5,378)
Net (increase)/decrease in life insurance assets and liabilities
(230)
219
(253)
-
-
Trading securities and financial assets designated at fair value
3,827
(5,054)
6,755
3,150
(5,194)
Other financial liabilities at fair value through income statement
243
(681)
(4,488)
261
(325)
Consolidated
Parent Entity
2018
2017
2016
2018
2017
8,099
7,997
7,460
8,144
7,843
1,144
889
(96)
(83)
241
289
332
1,269
1,021
(34)
(75)
148
219
1,228
1,261
(285)
25
(47)
(68)
(419)
(331)
952
820
(598)
(74)
217
294
420
1,122
991
(572)
(81)
154
28
219
(24,740)
(26,815)
(38,082)
(23,661)
(27,677)
1,678
2,653
(303)
160
308
200
(896)
(209)
(476)
987
(299)
210
1,817
294
136
23,928
23,062
38,771
20,783
22,518
(4,072)
3,859
(88)
(15)
(73)
312
(4,396)
3,792
(196)
78
(235)
Net cash provided by/(used in) operating activities
19,802
2,820
5,497
15,277
Consolidated
$m
Shares issued under the dividend reinvestment plan
Shares issued from the conversion of Westpac CPS
2018
631
566
2017
1,452
2016
726
-
-
566
Parent Entity
2018
631
2017
1,452
-
On 13 March 2018, 6,233,643 Westpac CPS were converted to Westpac Capital Notes 5 for a total value of $623 million. On
3 April 2018, the remaining $566 million of Westpac CPS were transferred to the Westpac CPS nominated party for $100 each.
Following the transfer, those remaining Westpac CPS were converted into 19,189,765 ordinary shares.
3
Restricted cash
The amount of cash and cash equivalents not available for use at 30 September 2018 was nil (2017: $38 million) for the Group
and nil for the Parent Entity (2017: nil).
1 Comparatives have been revised for consistency.
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263
Notes to the financial statements
Note 42. Subsequent events
No other matters have arisen since the year ended 30 September 2018 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.
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 2018’ 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
2018 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
5 November 2018
Brian Hartzer
Managing Director &
Chief Executive Officer
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265
Notes to the financial statements
Note 42. Subsequent events
No other matters have arisen since the year ended 30 September 2018 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.
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 2018’ 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
2018 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
5 November 2018
Brian Hartzer
Managing Director &
Chief Executive Officer
3
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265
Statutory statements
Management’s report on internal control over financial reporting
The following report is required by rules of the US Securities and Exchange Commission.
The management of Westpac is responsible for establishing and maintaining adequate internal control over financial reporting
for Westpac as defined in Rule 13a – 15 (f) under the Securities Exchange Act of 1934, as amended. Westpac’s internal control
system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with applicable accounting standards.
Westpac’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records
that in reasonable detail accurately reflect the transactions and dispositions of the assets of Westpac and its consolidated
entities; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with applicable accounting standards, and that receipts and expenditures of Westpac are being
made only in accordance with authorizations of management and directors of Westpac and its consolidated entities; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
assets of Westpac and its consolidated entities that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Westpac management, with the participation of the CEO and CFO, assessed the effectiveness of Westpac’s internal control
over financial reporting as of 30 September 2018 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 2018 was effective.
The effectiveness of Westpac’s internal control over financial reporting as of 30 September 2018 has been audited by
PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which is included herein.
Statutory statements
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Statutory statements
Management’s report on internal control over financial reporting
The following report is required by rules of the US Securities and Exchange Commission.
The management of Westpac is responsible for establishing and maintaining adequate internal control over financial reporting
for Westpac as defined in Rule 13a – 15 (f) under the Securities Exchange Act of 1934, as amended. Westpac’s internal control
system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with applicable accounting standards.
Westpac’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records
that in reasonable detail accurately reflect the transactions and dispositions of the assets of Westpac and its consolidated
entities; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with applicable accounting standards, and that receipts and expenditures of Westpac are being
made only in accordance with authorizations of management and directors of Westpac and its consolidated entities; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
assets of Westpac and its consolidated entities that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Westpac management, with the participation of the CEO and CFO, assessed the effectiveness of Westpac’s internal control
over financial reporting as of 30 September 2018 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 2018 was effective.
The effectiveness of Westpac’s internal control over financial reporting as of 30 September 2018 has been audited by
PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which is included herein.
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 the Group's financial positions as at 30 September
2018 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 Parent Entity and Group financial report comprises:
the Consolidated and Parent Entity balance sheets as at 30 September 2018
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, and
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 Parent Entity and 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 for the Group
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.
3
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267
Statutory statements
Statutory statements
Materiality for the Group audit
For the purpose of our audit we used overall Group materiality of $576 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 Group 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 ensure that we performed enough work to be able to give 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 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.
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Statutory statements
Statutory statements
Key audit matter
How our audit addressed the key audit matter
Provisions for impairment charges
(Refer to Note 14 of the financial statements)
We focused on provisions for impairment charges
on loans because of the subjective and complex
judgements made by the Group in determining
the necessity for, and then estimating the size of,
impairment provisions for 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:
•
•
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; and
the application of impairment models used in the
collectively assessed provision calculations, the
appropriateness of the key assumptions used in
the impairment models, the probability of
default (PD) and the loss given default (LGD)
factors.
Given the high level of subjectivity involved in
estimating loan impairment provisions, we consider
whether the calculations and underlying
assumptions are consistent with those applied in
the previous year, or that any changes are
appropriate in the circumstances.
We assessed the design and tested the operating
effectiveness of key controls over the provisions
for impairment charges on loans. Key controls
included:
• governance, including the continuous re-
assessment by the Group that the impairment
models are operating in a way which is
appropriate for the credit risks in the Group’s
loan portfolios;
• controls over the timely identification of
deterioration in credit quality of individual
loans;
• controls inherent in the IT systems that
manage and transfer the data between
underlying source systems and the
impairment models; and
•
the review and approval process for the
outputs of the impairment models, and the
adjustments and economic overlays that are
applied to the modelled outputs.
Our work over the provisions for impairment
charges on loans included:
•
for selected portfolios recalculated the collective
provision using the key assumptions in the
model, such as PDs and LGD;
• performed analyses on key assumptions related
to the collective provision;
•
•
for a sample of individually assessed loans not
identified as impaired, considered the latest
financial information provided to the Group, to
test the Credit Risk Grade rating that has been
allocated to the borrower. We also inspected the
valuation of collateral (where applicable) to test
the LGD factor applied; and
for a sample of individually assessed loans
identified as impaired, considered the latest
financial information, valuation of collateral,
and independent expert advice (where available)
provided to the Group, to test the basis of
measuring the individually assessed provision.
3
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Statutory statements
Statutory statements
Key audit matter
How our audit addressed the key audit matter
AASB 9 Financial Instruments
(Refer to Note 1 of the financial statements)
On 1 October 2018 the Group transitioned to
financial instruments accounting standard AASB 9
which replaced AASB 139. The estimated transition
impact, net of deferred tax, in the period of initial
application is disclosed in Note 1 to the financial
statements according with AASB 108.
AASB 9 introduces an expected credit loss (‘ECL’)
model which takes into account forward-looking
information reflecting the Group’s view on potential
future economic events. Given this is a new and
complex accounting standard which requires
considerable judgement to estimate ECL provisions
against financial instruments, we considered the
transition impact disclosure to be a key audit
matter.
Key elements in the provisioning for impairment
charges on loans under AASB 9 include:
•
•
•
•
the judgments applied in determining
exposures that have a significant increase
in credit risk;
judgments in setting the assumptions
used in the ECL models, such as
estimating forward looking probability of
default (PD), loss given default (LGD) of
financial instruments and macro-
economic scenarios and their weightings;
judgments over the use of data inputs
required by the models; and
overlays added to reflect emerging trends
or particular situations which are not
otherwise captured by the impairment
models.
We assessed the design and tested the operating
effectiveness of key controls over the Group’s
estimate of the transition impact. Key controls
included:
• governance over the development, validation
and approval of the Group’s ECL models to
assess compliance with AASB 9;
•
•
•
review and approval of key judgements,
assumptions and forward looking information
used in the ECL models;
interfaces and reconciliations over transfer of
data inputs from source systems to the
models; and
review and approval of ECL model outputs,
overlays and disclosures of the transition
impact.
Our work over a sample of ECL models included:
• assessment of the methodology inherent
within the models against the requirements of
AASB 9
• assessment of key assumptions in the ECL
models, including staging, PD and LGD. This
included using credit modelling specialists in
our assessment;
• assessment of economic information used
within, and weightings applied to, forward
looking scenarios;
•
•
•
testing the accuracy and completeness of data
inputs by testing reconciliations between
source systems and the ECL models;
testing accuracy by sampling data inputs used
in the ECL models to source systems;
recalculation of the ECL for a sample using
the key assumptions in the models, such as PD
and LGD; and
• assessment of whether the overlays were
appropriate.
We assessed the appropriateness of the Group’s
transition disclosure in the financial statements.
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Statutory statements
Statutory statements
Key audit matter
How our audit addressed the key audit matter
Fair values of financial assets and financial
liabilities
(Refer to Note 23 of the financial statements)
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.
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. Second, judgement
and inherent complexity is involved in estimating
the fair value of financial instruments.
Level 2 financial instruments are more difficult to
value, and tend to rely upon models that use
observable inputs to calculate the fair value of the
instrument. Inputs to these models include interest
rates and yield curves, implied volatilities and
foreign exchange rates.
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:
• governance mechanisms and monitoring over
the valuation processes, including over
derivative valuation adjustments;
• controls to ensure valuation models remain fit-
for-purpose (‘model validation’);
• unit pricing controls and confirmations with
external custodians;
• controls to validate that inputs to valuations are
relevant and reliable;
• controls inherent in the IT systems that manage
and transfer the data between underlying source
systems and the valuation models;
• controls to independently validate valuations
produced by the front office; and
• controls to approve new products.
For a sample of financial instruments, our work
included:
•
•
independently gathering pricing for instruments
where market data existed and assessing any
significant differences in the prices to the
Group’s prices; and
independently modelling instruments’ fair
values, including testing key inputs to selected
models. This involved sourcing independent
inputs from market data providers, and using
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.
3
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Statutory statements
Statutory statements
Key audit matter
How our audit addressed the key audit matter
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 a significant number 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:
•
the technology control environment: the
governance processes and controls used to
monitor and enforce control consciousness
throughout the Group’s technology teams;
• change management: the processes and controls
used to develop, test and authorise changes to
the functionality and configurations within
systems;
security: the access controls designed to enforce
segregation of duties or ensure that data is only
changed through authorised means;
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
are used to ensure that any issues that arise are
managed appropriately.
•
•
•
For in-scope IT operations where technology services
are provided by a third party, we:
• considered assurance reports from the third
party’s auditor on the design and operating
effectiveness of controls; and/or
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.
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Statutory statements
Statutory statements
Key audit matter
How our audit addressed the key audit matter
Provisions and Contingent Liabilities
(Refer to Note 28 and Note 31 of the financial
statements)
The Group is exposed to risk related to operational,
compliance, legal and reputational matters which
could give rise to significant liabilities for the
Group. Compliance, regulation and remediation
provisions relate to matters of potential misconduct
in providing services to customers identified both as
a result of regulatory action and internal reviews.
We focused on this area because in assessing and
measuring compliance, regulation and remediation
provisions and contingent liabilities, 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 or regulatory processes.
We assessed the design and tested the operating
effectiveness of key controls over compliance,
regulation and remediation provisions and
contingent liabilities relating to operational,
compliance and reputational matters, litigation and
regulatory actions. The key controls included:
• controls over compilation and monitoring of
reports containing operational, compliance,
legal, reputational matters or other matters;
• controls over accounting judgments to assess
loss contingencies and the related accounting
impacts; and
• 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
the Management’s Document Review Committee
and considered key correspondence with relevant
regulatory bodies.
We obtained solicitors’ letters and discussed
ongoing legal and regulatory matters with
management. We also obtained access to relevant
selected documents to develop our understanding
of the Group’s conclusions in these matters.
We obtained support for the Group’s judgement as
to whether there is a potential material financial
exposure for the Group and if so the amount of any
provision required and the adequacy of related
disclosures. Where applicable, we recalculated the
provisions.
Where the Group determined they were unable to
reliably estimate the possible financial impact of
operational, compliance, legal, reputational
matters, we assessed the appropriateness of the
conclusion and disclosure within the financial
report.
3
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Statutory statements
Statutory statements
Other information
The directors are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 30 September 2018, including Performance
Highlights and Sections 1, 2 and 4, 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 Parent Entity
and 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 Parent or 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 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.
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Statutory statements
Statutory statements
Report on the Remuneration Report
Our opinion on the Remuneration Report
We have audited the Remuneration Report included in Section 1 of the Annual Report for the year ended 30
September 2018.
In our opinion, the Remuneration Report of Westpac Banking Corporation for the year ended 30 September
2018 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
Sam Hinchliffe
Partner
Sydney
5 November 2018
3
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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 extensive 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 enforcement of foreign judgments.
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04
Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations and defined terms
Contact us
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 extensive 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 enforcement of foreign judgments.
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Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations and defined terms
Contact us
4
Shareholding information
Analysis by range of holdings of ordinary shares as at 4 October 2018
Number of Shares
1
1,001
5,001
–
–
–
1,000
5,000
10,000
10,001 – 100,000
100,001 and over
Totals
Number of Holders
of Fully Paid
Ordinary Shares
339,377
214,750
39,102
25,681
668
619,578
%
54.78
34.66
6.31
4.14
0.11
100.00
Number of
Fully Paid
Ordinary Shares
131,333,329
491,681,146
272,558,295
539,189,055
2,000,034,886
3,434,796,711
%
3.82
14.31
7.94
15.70
58.23
100.00
Number of Holders
of Share Options
and Rights
45
88
36
44
24
237
There were 13,819 shareholders holding less than a marketable parcel ($500) based on a market price of $27.39 at the close
of trading on 4 October 2018.
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.
Shareholding information
Westpac ordinary shares
Top 20 ordinary shareholders as at 4 October 2018
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
WBC New Zealand Register Control Account
HSBC Custody Nominees (Australia) Limited
Australian Foundation Investment Company Limited
Argo Investments Limited
Pacific Custodians Pty Limited
AMP Life Limited
Milton Corporation Limited
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited – GSCO ECA
Netwealth Investments Limited
IOOF Investment Management Limited
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
Total of Top 20 registered shareholders1
Number of
Fully Paid Ordinary Shares
% Held
780,300,485
467,499,641
179,317,659
133,796,083
72,855,297
35,084,049
34,159,319
26,163,315
25,771,780
15,545,000
11,758,448
11,131,376
11,129,779
10,527,085
6,752,692
5,045,852
5,039,756
4,946,531
4,852,576
4,490,953
1,846,167,676
22.72
13.61
5.22
3.90
2.12
1.02
0.99
0.76
0.75
0.45
0.34
0.32
0.32
0.31
0.20
0.15
0.15
0.14
0.14
0.13
53.74
As at 4 October 2018 there were 619,578 holders of our ordinary shares compared to 633,272 in 2017 and 641,374 in 20162.
Ordinary shareholders with a registered address in Australia held approximately 98% of our fully paid share capital at
4 October 2018 (approximately 98% in 2017 and 98% in 2016).
Substantial shareholders as at 4 October 2018
As at 4 October 2018 BlackRock Group (comprised of BlackRock Inc. and its subsidiaries) and The Vanguard Group, Inc.
(including its subsidiary Vanguard Investments Australia Ltd.) 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.
BlackRock Group has been a substantial shareholder since 4 April 2017 and The Vanguard Group, Inc. became a substantial
shareholder on 17 July 2018 (as detailed below).
Significant changes in ordinary share ownership of substantial shareholders
On 17 July 2018, The Vanguard Group, Inc. became a substantial shareholder holding 171,757,716 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 2018, our Directors and Executive Officers owned beneficially, directly or indirectly, an aggregate of
1,013,495 (0.03%) 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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Shareholding information
Westpac ordinary shares
Top 20 ordinary shareholders as at 4 October 2018
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
WBC New Zealand Register Control Account
HSBC Custody Nominees (Australia) Limited
Australian Foundation Investment Company Limited
Argo Investments Limited
Pacific Custodians Pty Limited
AMP Life Limited
Milton Corporation Limited
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited – GSCO ECA
Netwealth Investments Limited
IOOF Investment Management Limited
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
Total of Top 20 registered shareholders1
Fully Paid Ordinary Shares
Number of
% Held
780,300,485
467,499,641
179,317,659
133,796,083
72,855,297
35,084,049
34,159,319
26,163,315
25,771,780
15,545,000
11,758,448
11,131,376
11,129,779
10,527,085
6,752,692
5,045,852
5,039,756
4,946,531
4,852,576
4,490,953
22.72
13.61
5.22
3.90
2.12
1.02
0.99
0.76
0.75
0.45
0.34
0.32
0.32
0.31
0.20
0.15
0.15
0.14
0.14
0.13
1,846,167,676
53.74
As at 4 October 2018 there were 619,578 holders of our ordinary shares compared to 633,272 in 2017 and 641,374 in 20162.
Ordinary shareholders with a registered address in Australia held approximately 98% of our fully paid share capital at
4 October 2018 (approximately 98% in 2017 and 98% in 2016).
Substantial shareholders as at 4 October 2018
As at 4 October 2018 BlackRock Group (comprised of BlackRock Inc. and its subsidiaries) and The Vanguard Group, Inc.
(including its subsidiary Vanguard Investments Australia Ltd.) 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.
BlackRock Group has been a substantial shareholder since 4 April 2017 and The Vanguard Group, Inc. became a substantial
shareholder on 17 July 2018 (as detailed below).
Significant changes in ordinary share ownership of substantial shareholders
On 17 July 2018, The Vanguard Group, Inc. became a substantial shareholder holding 171,757,716 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
limits on equity holdings.
We are not directly or indirectly owned or controlled by any other corporation(s) or by any foreign government. Refer to the
section ‘Exchange controls and other limitations affecting security holders’, which provides information on the Foreign
Acquisitions and Takeovers Act 1975, Corporations Act 2001 and Financial Sector (Shareholdings) Act 1998, which impose
At 30 September 2018, our Directors and Executive Officers owned beneficially, directly or indirectly, an aggregate of
1,013,495 (0.03%) of the fully paid ordinary shares outstanding.
Shareholding information
Analysis by range of holdings of ordinary shares as at 4 October 2018
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
339,377
214,750
39,102
25,681
668
619,578
%
54.78
34.66
6.31
4.14
0.11
100.00
Number of
Fully Paid
Ordinary Shares
131,333,329
491,681,146
272,558,295
539,189,055
2,000,034,886
3,434,796,711
Number of Holders
of Share Options
and Rights
45
88
36
44
24
237
%
3.82
14.31
7.94
15.70
58.23
100.00
There were 13,819 shareholders holding less than a marketable parcel ($500) based on a market price of $27.39 at the close
of trading on 4 October 2018.
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.
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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4
Shareholding information
Westpac Capital Notes
Top 20 holders of Westpac Capital Notes as at 4 October 2018
HSBC Custody Nominees (Australia) Limited
BNP Paribas Noms Pty Ltd
National Nominees Limited
BT Portfolio Services Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
IOOF Investment Management Limited
HSBC Custody Nominees (Australia) Limited – A/C 2
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd
Navigator Australia Ltd
V S Access Pty Ltd
Nulis Nominees (Australia) Limited
Berne No 132 Nominees Pty Ltd
Mutual Trust Pty Ltd
RACQ Investments Pty Ltd
Royal Freemasons Benevolent Institution
Mr Alexander Shaw
Willimbury Pty Ltd
Australian Executor Trustees Limited
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
Number of
Westpac Capital Notes
% Held
755,898
259,619
245,944
200,000
188,161
186,556
158,980
137,369
134,528
133,045
117,707
90,000
89,172
86,795
71,979
58,690
50,000
50,000
50,000
45,394
5.46
1.88
1.78
1.45
1.36
1.35
1.15
0.99
0.97
0.96
0.85
0.65
0.64
0.63
0.52
0.42
0.36
0.36
0.36
0.33
3,109,837
22.47
2,608,987
19.90
1
As recorded on the holder register by holder reference number.
Westpac Capital Notes 2
Top 20 holders of Westpac Capital Notes 2 as at 4 October 2018
HSBC Custody Nominees (Australia) Limited
BT Portfolio Services Limited
Netwealth Investments Limited
Nulis Nominees (Australia) Limited
Navigator Australia Ltd
HSBC Custody Nominees (Australia) Limited – A/C 2
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd
National Nominees Limited
IOOF Investment Management Limited
BNP Paribas Noms Pty Ltd
J P Morgan Nominees Australia Limited
Rakio Pty Ltd
Alsop 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
Shareholding information
Number of
% Held
Westpac Capital Notes 2
851,467
250,000
144,899
136,115
131,362
130,535
118,308
105,125
93,485
90,990
75,265
63,000
60,000
59,344
51,000
50,000
50,000
50,000
49,267
48,825
6.50
1.91
1.11
1.04
1.00
1.00
0.90
0.80
0.71
0.69
0.57
0.48
0.46
0.45
0.39
0.38
0.38
0.38
0.38
0.37
Analysis by range of holdings of Westpac Capital Notes as at 4 October 2018
Analysis by range of holdings of Westpac Capital Notes 2 as at 4 October 2018
Number of Securities
–
1
1,000
1,001
–
5,000
10,000
–
5,001
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes
16,405
1,719
109
46
11
18,290
Number of Holders of
%
89.69
9.40
0.60
0.25
0.06
100.00
Number of
Westpac Capital Notes
5,509,994
3,612,817
872,359
1,322,713
2,517,807
13,835,690
%
39.83
26.11
6.31
9.56
18.20
100.00
Number of Securities
1
1,001
5,001
–
–
–
1,000
5,000
10,000
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 2
Number of Holders of
Number of
Westpac Capital Notes 2
14,539
1,641
146
72
8
%
88.62
10.00
0.89
0.44
0.05
16,406
100.00
4,987,749
3,405,011
1,054,463
1,790,671
1,867,811
13,105,705
%
38.06
25.98
8.05
13.66
14.25
100.00
There were three security holders holding less than a marketable parcel ($500) of Westpac Capital Notes based on a market
price of $101.08 at the close of trading on 4 October 2018.
There were four security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 2 based on a market
price of $99.86 at the close of trading on 4 October 2018.
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Shareholding information
Westpac Capital Notes
Top 20 holders of Westpac Capital Notes as at 4 October 2018
HSBC Custody Nominees (Australia) Limited – A/C 2
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
BNP Paribas Noms Pty Ltd
National Nominees Limited
BT Portfolio Services Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
IOOF Investment Management Limited
Navigator Australia Ltd
V S Access Pty Ltd
Nulis Nominees (Australia) Limited
Berne No 132 Nominees Pty Ltd
Mutual Trust Pty Ltd
RACQ Investments Pty Ltd
Royal Freemasons Benevolent Institution
Mr Alexander Shaw
Willimbury Pty Ltd
Australian Executor Trustees Limited
Total of Top 20 registered holders1
Number of
% Held
Westpac Capital Notes
755,898
259,619
245,944
200,000
188,161
186,556
158,980
137,369
134,528
133,045
117,707
90,000
89,172
86,795
71,979
58,690
50,000
50,000
50,000
45,394
5.46
1.88
1.78
1.45
1.36
1.35
1.15
0.99
0.97
0.96
0.85
0.65
0.64
0.63
0.52
0.42
0.36
0.36
0.36
0.33
1
As recorded on the holder register by holder reference number.
3,109,837
22.47
Westpac Capital Notes 2
Top 20 holders of Westpac Capital Notes 2 as at 4 October 2018
HSBC Custody Nominees (Australia) Limited
BT Portfolio Services Limited
Netwealth Investments Limited
Nulis Nominees (Australia) Limited
Navigator Australia Ltd
HSBC Custody Nominees (Australia) Limited – A/C 2
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd
National Nominees Limited
IOOF Investment Management Limited
BNP Paribas Noms Pty Ltd
Rakio Pty Ltd
Alsop Pty Ltd
J P Morgan Nominees Australia Limited
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.
Shareholding information
Number of
Westpac Capital Notes 2
% Held
851,467
250,000
144,899
136,115
131,362
130,535
118,308
105,125
93,485
90,990
75,265
63,000
60,000
59,344
51,000
50,000
50,000
50,000
49,267
48,825
6.50
1.91
1.11
1.04
1.00
1.00
0.90
0.80
0.71
0.69
0.57
0.48
0.46
0.45
0.39
0.38
0.38
0.38
0.38
0.37
2,608,987
19.90
Analysis by range of holdings of Westpac Capital Notes as at 4 October 2018
Analysis by range of holdings of Westpac Capital Notes 2 as at 4 October 2018
Number of Securities
1
1,001
5,001
–
–
–
1,000
5,000
10,000
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes
Number of Holders of
Number of
Westpac Capital Notes
16,405
1,719
109
46
11
%
89.69
9.40
0.60
0.25
0.06
18,290
100.00
5,509,994
3,612,817
872,359
1,322,713
2,517,807
13,835,690
%
39.83
26.11
6.31
9.56
18.20
100.00
Number of Securities
–
1
1,000
1,001
–
5,000
10,000
–
5,001
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 2
14,539
1,641
146
72
8
16,406
Number of Holders of
%
88.62
10.00
0.89
0.44
0.05
100.00
Number of
Westpac Capital Notes 2
4,987,749
3,405,011
1,054,463
1,790,671
1,867,811
13,105,705
%
38.06
25.98
8.05
13.66
14.25
100.00
There were three security holders holding less than a marketable parcel ($500) of Westpac Capital Notes based on a market
price of $101.08 at the close of trading on 4 October 2018.
There were four security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 2 based on a market
price of $99.86 at the close of trading on 4 October 2018.
4
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Shareholding information
Westpac Capital Notes 3
Top 20 holders of Westpac Capital Notes 3 as at 4 October 2018
Number of
Westpac Capital Notes 3
% Held
HSBC Custody Nominees (Australia) Limited
JDB Services Pty Ltd
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Berne No 132 Nominees Pty Ltd
Balanced Property Pty Ltd
Seymour Group Pty Ltd
HSBC Custody Nominees (Australia) Limited < A/C 2>
Netwealth Investments Limited
V S Access Pty Ltd
BNP Paribas Nominees Pty Ltd
Dimbulu Pty Ltd
Invia Custodian Pty Limited
JMB Pty Ltd
Randazzo C & G Developments Pty Ltd
Wayrich Pty Ltd
Navigator Australia Ltd
Marshstoke Pty Ltd
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
1,099,126
245,606
188,772
168,483
133,405
129,333
117,085
100,000
76,774
65,879
63,798
60,000
56,396
50,000
50,000
50,000
50,000
50,000
47,678
47,000
2,849,335
Analysis by range of holdings of Westpac Capital Notes 3 as at 4 October 2018
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
13,568
1,449
119
87
7
15,230
Number of Holders of
%
89.09
9.51
0.78
0.57
0.05
100.00
Number of
Westpac Capital Notes 3
4,683,259
3,202,739
976,747
2,299,725
2,081,810
13,244,280
8.30
1.85
1.43
1.27
1.01
0.98
0.88
0.76
0.58
0.50
0.48
0.45
0.43
0.38
0.38
0.38
0.38
0.38
0.36
0.35
21.53
%
35.36
24.18
7.38
17.36
15.72
100.00
There were three security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 3 based on a market
price of $102.75 at the close of trading on 4 October 2018.
Westpac Capital Notes 4
Top 20 holders of Westpac Capital Notes 4 as at 4 October 2018
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Nora Goodridge Investments Pty Limited
BNP Paribas Noms Pty Ltd
Australian Executor Trustees Limited
Mutual Trust Pty Ltd
Netwealth Investments Limited
Zashvin Pty Ltd
Dimbulu Pty Ltd
J P Morgan Nominees Australia Limited
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
Willimbury Pty Ltd
Taverners No 11 Pty Ltd
V S Access Pty Ltd
JMB Pty Ltd
New Regency Pty Ltd
Shareholding information
Number of
% Held
Westpac Capital Notes 4
3,000,000
1,133,827
286,466
269,879
200,000
165,643
151,581
134,874
123,896
104,105
104,000
100,000
97,743
78,687
75,421
60,000
59,112
51,570
50,000
50,000
17.63
6.66
1.68
1.59
1.18
0.97
0.89
0.79
0.73
0.61
0.61
0.59
0.57
0.46
0.44
0.35
0.35
0.30
0.29
0.29
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
6,296,804
36.98
Analysis by range of holdings of Westpac Capital Notes 4 as at 4 October 2018
Number of Securities
1
1,001
5,001
–
–
–
1,000
5,000
10,000
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 4
Number of Holders of
Number of
Westpac Capital Notes 4
15,822
1,557
154
67
11
%
89.85
8.84
0.87
0.38
0.06
17,611
100.00
5,136,047
3,277,317
1,158,636
1,774,263
5,674.271
17,020,534
%
30.18
19.25
6.81
10.42
33.34
100.00
There were five security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 4 based on a market
price of $105.31 at the close of trading on 4 October 2018.
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Shareholding information
Westpac Capital Notes 3
Top 20 holders of Westpac Capital Notes 3 as at 4 October 2018
HSBC Custody Nominees (Australia) Limited
JDB Services Pty Ltd
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Berne No 132 Nominees Pty Ltd
Balanced Property Pty Ltd
Seymour Group Pty Ltd
Netwealth Investments Limited
V S Access Pty Ltd
BNP Paribas Nominees Pty Ltd
Dimbulu Pty Ltd
Invia Custodian Pty Limited
JMB Pty Ltd
HSBC Custody Nominees (Australia) Limited < A/C 2>
Randazzo C & G Developments Pty Ltd
Wayrich Pty Ltd
Navigator Australia Ltd
Marshstoke Pty Ltd
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
Number of
% Held
Westpac Capital Notes 3
Westpac Capital Notes 4
Top 20 holders of Westpac Capital Notes 4 as at 4 October 2018
Shareholding information
Number of
Westpac Capital Notes 4
% Held
1,099,126
245,606
188,772
168,483
133,405
129,333
117,085
100,000
76,774
65,879
63,798
60,000
56,396
50,000
50,000
50,000
50,000
50,000
47,678
47,000
8.30
1.85
1.43
1.27
1.01
0.98
0.88
0.76
0.58
0.50
0.48
0.45
0.43
0.38
0.38
0.38
0.38
0.38
0.36
0.35
2,849,335
21.53
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Nora Goodridge Investments Pty Limited
BNP Paribas Noms Pty Ltd
Australian Executor Trustees Limited
HSBC Custody Nominees (Australia) Limited
Mutual Trust Pty Ltd
Netwealth Investments Limited
Zashvin Pty Ltd
Dimbulu Pty Ltd
J P Morgan Nominees Australia Limited
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
Willimbury Pty Ltd
Taverners No 11 Pty Ltd
V S Access Pty Ltd
JMB Pty Ltd
New Regency Pty Ltd
Total of Top 20 registered holders1
1
As recorded on the holder register by holder reference number.
3,000,000
1,133,827
286,466
269,879
200,000
165,643
151,581
134,874
123,896
104,105
104,000
100,000
97,743
78,687
75,421
60,000
59,112
51,570
50,000
50,000
6,296,804
Analysis by range of holdings of Westpac Capital Notes 4 as at 4 October 2018
Number of Securities
–
1
1,000
1,001
–
5,000
10,000
–
5,001
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 4
15,822
1,557
154
67
11
17,611
Number of Holders of
%
89.85
8.84
0.87
0.38
0.06
100.00
Number of
Westpac Capital Notes 4
5,136,047
3,277,317
1,158,636
1,774,263
5,674.271
17,020,534
17.63
6.66
1.68
1.59
1.18
0.97
0.89
0.79
0.73
0.61
0.61
0.59
0.57
0.46
0.44
0.35
0.35
0.30
0.29
0.29
36.98
%
30.18
19.25
6.81
10.42
33.34
100.00
There were five security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 4 based on a market
price of $105.31 at the close of trading on 4 October 2018.
Analysis by range of holdings of Westpac Capital Notes 3 as at 4 October 2018
Number of Securities
1
1,001
5,001
–
–
–
1,000
5,000
10,000
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 3
Number of Holders of
Number of
Westpac Capital Notes 3
13,568
1,449
119
87
7
%
89.09
9.51
0.78
0.57
0.05
15,230
100.00
4,683,259
3,202,739
976,747
2,299,725
2,081,810
13,244,280
%
35.36
24.18
7.38
17.36
15.72
100.00
There were three security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 3 based on a market
price of $102.75 at the close of trading on 4 October 2018.
4
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Shareholding information
Westpac Capital Notes 5
Top 20 holders of Westpac Capital Notes 5 as at 4 October 2018
Number of
Westpac Capital Notes 5
% Held
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
IOOF Investment Management Limited
Navigator Australia Ltd
HSBC Custody Nominees (Australia) Limited
Dimbulu Pty Ltd
Nulis Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd
Netwealth Investments Limited
Citicorp Nominees Pty Limited
Zashvin Pty Ltd
Randazzo C & G Developments Pty Ltd
Berne No 132 Nominees Pty Ltd
Nora Goodridge Investments Pty Limited
Mrs Linda Anne Van Lieshout
Rakio Pty Ltd
McCusker Foundation Ltd
Avanteos Investments Limited
JMB Pty Ltd
Total of Top 20 registered holders1
1,545,482
469,762
211,296
170,672
155,138
136,064
100,000
97,990
95,032
94,859
92,355
92,220
92,000
60,000
60,000
60,000
55,000
50,685
50,000
50,000
3,738,555
1
As recorded on the holder register by holder reference number.
Analysis by range of holdings of Westpac Capital Notes 5 as at 4 October 2018
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 5
16,642
2,064
179
102
6
18,993
Number of Holders of
%
87.62
10.87
0.94
0.54
0.03
100.00
Number of
Westpac Capital Notes 5
5,818,805
4,447,676
1,351,199
2,597,289
2,688,414
16,903,383
9.14
2.78
1.25
1.01
0.92
0.80
0.59
0.58
0.56
0.56
0.55
0.55
0.54
0.35
0.35
0.35
0.33
0.30
0.30
0.30
22.11
%
34.43
26.31
7.99
15.37
15.90
100.00
There were two security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 5 based on a market
price of $98.15 at the close of trading on 4 October 2018.
Exchange controls and other limitations affecting
and
Shareholding information
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;
– Country-based sanctions
Under the Charter of the United Nations Act 1945
and associated regulations, UNSC financial
sanctions have been implemented. It is an offence
to use or deal with funds, financial assets or
economic resources of certain persons or entities
associated with countries designated by the UNSC.
It is also a criminal offence to make assets available
to such persons or entities.
Limitations affecting security holders
The following Australian laws impose limitations on the right
of non-residents or non-citizens of Australia to hold, own or
vote Westpac shares. All these limitations apply to the
holders of the American Depositary Receipts (ADRs)
evidencing ADS, issued by our Depositary in the
United States.
Foreign Acquisitions and Takeovers Act 1975
Acquisitions of interests in shares in Australian companies
by foreign persons that meet certain thresholds are required
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
Voting rights of Westpac Capital Notes, Westpac Capital
Notes 2, Westpac Capital Notes 3 and Westpac Capital
Notes 4 and Westpac Capital Notes 5
In accordance with the terms of issue, holders of Westpac
Capital Notes, Westpac Capital Notes 2, Westpac Capital
Notes 3, Westpac Capital Notes 4 and Westpac Capital
Notes 5 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 Capital Notes, Westpac
Capital Notes 2, Westpac Capital Notes 3 or Westpac
Capital Notes 4 or Westpac Capital Notes 5 (as applicable)
will become holders of Westpac ordinary shares and have
the voting rights that attach to Westpac ordinary shares.
security holders
Australian exchange controls
Australian laws control and regulate or permit the control
and regulation of a broad range of payments and
transactions involving non-residents of Australia. Pursuant to
a number of exemptions, authorities and approvals, there
are no general restrictions from transferring funds from
Australia or placing funds to the credit of non-residents of
Australia. However, Australian foreign exchange controls are
implemented from time to time against prescribed countries,
entities and persons. At the present time, these include:
a. withholding taxes in relation to remittances or dividends
(to the extent they are unfranked) and
interest payments;
b.
the financial sanctions administered by the Department
of Foreign Affairs and Trade (DFAT) in accordance with
the Autonomous Sanctions Act 2011 and the
Autonomous Sanctions Regulations 2011, specifically,
in relation to transactions involving the transfer of funds
or payments to, by the order of, or on behalf of
individuals or entities including:
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
if he considers the acquisition to be contrary to Australia’s
former Qadhafi regime in Libya;
national interest.
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,
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
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285
Shareholding information
Westpac Capital Notes 5
Top 20 holders of Westpac Capital Notes 5 as at 4 October 2018
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
IOOF Investment Management Limited
Navigator Australia Ltd
HSBC Custody Nominees (Australia) Limited
Dimbulu Pty Ltd
Nulis Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd
Netwealth Investments Limited
Citicorp Nominees Pty Limited
Zashvin Pty Ltd
Randazzo C & G Developments Pty Ltd
Berne No 132 Nominees Pty Ltd
Nora Goodridge Investments Pty Limited
Mrs Linda Anne Van Lieshout
Rakio Pty Ltd
McCusker Foundation Ltd
Avanteos Investments Limited
JMB Pty Ltd
Total of Top 20 registered holders1
Number of
% Held
Westpac Capital Notes 5
1,545,482
469,762
211,296
170,672
155,138
136,064
100,000
97,990
95,032
94,859
92,355
92,220
92,000
60,000
60,000
60,000
55,000
50,685
50,000
50,000
9.14
2.78
1.25
1.01
0.92
0.80
0.59
0.58
0.56
0.56
0.55
0.55
0.54
0.35
0.35
0.35
0.33
0.30
0.30
0.30
3,738,555
22.11
1
As recorded on the holder register by holder reference number.
Analysis by range of holdings of Westpac Capital Notes 5 as at 4 October 2018
Number of Securities
1
1,001
5,001
–
–
–
1,000
5,000
10,000
10,001 – 100,000
100,001 and over
Totals
Westpac Capital Notes 5
Number of Holders of
Number of
Westpac Capital Notes 5
16,642
2,064
179
102
6
%
87.62
10.87
0.94
0.54
0.03
18,993
100.00
5,818,805
4,447,676
1,351,199
2,597,289
2,688,414
16,903,383
%
34.43
26.31
7.99
15.37
15.90
100.00
There were two security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 5 based on a market
price of $98.15 at the close of trading on 4 October 2018.
Voting rights of Westpac Capital Notes, Westpac Capital
Notes 2, Westpac Capital Notes 3 and Westpac Capital
Notes 4 and Westpac Capital Notes 5
In accordance with the terms of issue, holders of Westpac
Capital Notes, Westpac Capital Notes 2, Westpac Capital
Notes 3, Westpac Capital Notes 4 and Westpac Capital
Notes 5 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 Capital Notes, Westpac
Capital Notes 2, Westpac Capital Notes 3 or Westpac
Capital Notes 4 or Westpac Capital Notes 5 (as applicable)
will become holders of Westpac ordinary shares and have
the voting rights that attach to Westpac ordinary shares.
Exchange controls and other limitations affecting
security holders
Australian exchange controls
Australian laws control and regulate or permit the control
and regulation of a broad range of payments and
transactions involving non-residents of Australia. Pursuant to
a number of exemptions, authorities and approvals, there
are no general restrictions from transferring funds from
Australia or placing funds to the credit of non-residents of
Australia. However, Australian foreign exchange controls are
implemented from time to time against prescribed countries,
entities and persons. At the present time, these include:
a. withholding taxes in relation to remittances or dividends
(to the extent they are unfranked) and
interest payments;
b.
the financial sanctions administered by the Department
of Foreign Affairs and Trade (DFAT) in accordance with
the Autonomous Sanctions Act 2011 and the
Autonomous Sanctions Regulations 2011, specifically,
in relation to transactions involving the transfer of funds
or payments to, by the order of, or on behalf of
individuals or entities including:
–
–
–
–
–
–
–
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,
Shareholding information
without the prior approval of the Minister for
Foreign Affairs;
c.
the United Nations Security Council (UNSC) financial
sanctions administered by DFAT, including:
–
Terrorist Asset Freezing Regime
In accordance with the Charter of the United
Nations Act 1945 and the Charter of the United
Nations (Dealings with Assets) Regulations 2008, a
person is prohibited from using or dealing with
funds, financial assets or economic resources of
persons or entities listed as terrorists by the
Minister for Foreign Affairs in the Commonwealth of
Australia Gazette. It is also a criminal offence to
make assets available to such persons or entities;
and
– Country-based sanctions
Under the Charter of the United Nations Act 1945
and associated regulations, UNSC financial
sanctions have been implemented. It is an offence
to use or deal with funds, financial assets or
economic resources of certain persons or entities
associated with countries designated by the UNSC.
It is also a criminal offence to make assets available
to such persons or entities.
Limitations affecting security holders
The following Australian laws impose limitations on the right
of non-residents or non-citizens of Australia to hold, own or
vote Westpac shares. All these limitations apply to the
holders of the American Depositary Receipts (ADRs)
evidencing ADS, issued by our Depositary in the
United States.
Foreign Acquisitions and Takeovers Act 1975
Acquisitions of interests in shares in Australian companies
by foreign persons that meet certain thresholds are required
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
4
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Shareholding information
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.
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.
income tax.
Fully franked dividends paid to non-resident shareholders
and dividends that have been subject to dividend withholding
tax should not be subject to any further Australian
There are circumstances where a shareholder may not be
entitled to the benefit of franking credits. The application of
these rules depends upon the shareholder’s own
circumstances, including the period during which the shares
are held and the extent to which the shareholder is ‘at risk’ in
relation to their shareholding.
Gain or loss on disposition of shares
Generally, any profit made by a resident shareholder on
disposal of shares will be subject to capital gains tax.
However, if the shareholder is regarded as a trader or
speculator, or carries on a business of investing for profit,
any profits may be taxed as ordinary income.
A discount may be available on capital gains on shares held
for 12 months or more by 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
Shareholding information
United States taxation
The following discussion is a summary of certain US federal
income tax implications of the ownership and disposition of
ordinary shares (including ADS) by US holders (as defined
below) that hold the ordinary shares as capital assets. This
discussion is based on the US Internal Revenue Code of
1986, as amended, its legislative history, existing and
proposed regulations, published rulings and court decisions,
and the Tax Treaty, all as currently in effect and all of which
are subject to change, possibly on a retroactive basis.
This discussion is intended only as a descriptive summary.
It does not purport to be a complete analysis of all the
potential US federal income tax consequences of owning
and disposing of ordinary shares and does not address
US federal income tax considerations that may be relevant
to US holders subject to special treatment under US federal
income tax law (such as banks, insurance companies, real
estate investment trusts, regulated investment companies,
dealers in securities, brokers, tax-exempt entities, retirement
plans, certain former citizens or residents of the US, persons
holding ordinary shares as part of a straddle, hedge,
conversion or other integrated transaction, persons that
have a ‘functional currency’ other than the US dollar,
persons that own 10% or more (by voting power) of our
stock, persons that generally mark their securities to market
for US federal income tax purposes or persons that receive
ordinary shares as compensation). As this is a complex
area, we recommend investors consult their own tax
advisers concerning the US federal, state and/or local
implications of owning and disposing of ordinary shares.
For the purposes of this discussion you are a US holder if
you are a beneficial owner of ordinary shares and you are
for US federal income tax purposes:
an individual who is a citizen or resident of the US;
acquired prior to 21 September 1999, an alternative basis of
calculation of the capital gain may be available which allows
a corporation created or organised in or under the laws
of the US or any state thereof or the District of
the use of an indexation formula.
Columbia;
Normal rates of income tax would apply to capital gains so
an estate, the income of which is subject to US federal
calculated. Any capital loss can only be offset against capital
income taxation regardless of its source; or
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.
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
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287
without prior approval from the Treasurer of Australia. A
Enforceability of foreign judgments in Australia
Shareholding information
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
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.
We are an Australian public corporation with limited liability.
All of our Directors and Executive Officers reside outside the
US. Substantially all or a substantial portion of the assets of
all or many of such persons are located outside the US. As a
result, it may not be possible for investors to effect service of
process within the US upon such persons or to enforce
against them judgments obtained in US courts predicated
upon the civil liability provisions of the federal securities laws
of the US. There may be doubt as to the enforceability in
Australia, in original actions or in actions for enforcement of
judgments of US courts, of civil liabilities predicated upon the
federal securities laws of the US.
Taxation
Australian taxation
The following discussion is a summary of certain Australian
taxation implications of the ownership and disposition of
ordinary shares (including ADS) for shareholders holding
their shares on capital account. This discussion is based on
the laws in force at the date of the Annual Report and the
Convention between the Government of Australia and the
Government of the United States of America for the
Avoidance of Double Taxation and The Prevention of Fiscal
Evasion with Respect to Taxes on Income (the Tax Treaty),
and is subject to any changes in Australian law and any
change in the Tax Treaty occurring after that date.
This discussion is intended only as a descriptive summary
and does not purport to be a complete analysis of all the
potential Australian tax implications of owning and disposing
of ordinary shares. The specific tax position of each investor
will determine the applicable Australian income tax
implications for that investor and we recommend that
investors consult their own tax advisers concerning the
implications of owning and disposing of ordinary shares.
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
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
c. have power to dispose of, or control the exercise of a
‘franked dividends’.
power to dispose of, that share.
15% under the Tax Treaty, provided the shares are not
effectively connected with a permanent establishment or a
fixed base of the non-resident in Australia through which the
non-resident carries on business in Australia or provides
independent personal services. In the case of residents of
the US that have a permanent establishment or fixed base in
Australia where the shares in respect of which the dividends
are paid are attributable to that permanent establishment or
fixed base, there is no dividend withholding tax. Rather, such
dividends will be taxed on a net assessment basis and,
where the dividends are franked, entitlement to a tax offset
may arise.
Fully franked dividends paid to non-resident shareholders
and dividends that have been subject to dividend withholding
tax should not be subject to any further Australian
income tax.
There are circumstances where a shareholder may not be
entitled to the benefit of franking credits. The application of
these rules depends upon the shareholder’s own
circumstances, including the period during which the shares
are held and the extent to which the shareholder is ‘at risk’ in
relation to their shareholding.
Gain or loss on disposition of shares
Generally, any profit made by a resident shareholder on
disposal of shares will be subject to capital gains tax.
However, if the shareholder is regarded as a trader or
speculator, or carries on a business of investing for profit,
any profits may be taxed as ordinary income.
A discount may be available on capital gains on shares held
for 12 months or more by 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.
Shareholding information
United States taxation
The following discussion is a summary of certain US federal
income tax implications of the ownership and disposition of
ordinary shares (including ADS) by US holders (as defined
below) that hold the ordinary shares as capital assets. This
discussion is based on the US Internal Revenue Code of
1986, as amended, its legislative history, existing and
proposed regulations, published rulings and court decisions,
and the Tax Treaty, all as currently in effect and all of which
are subject to change, possibly on a retroactive basis.
This discussion is intended only as a descriptive summary.
It does not purport to be a complete analysis of all the
potential US federal income tax consequences of owning
and disposing of ordinary shares and does not address
US federal income tax considerations that may be relevant
to US holders subject to special treatment under US federal
income tax law (such as banks, insurance companies, real
estate investment trusts, regulated investment companies,
dealers in securities, brokers, tax-exempt entities, retirement
plans, certain former citizens or residents of the US, persons
holding ordinary shares as part of a straddle, hedge,
conversion or other integrated transaction, persons that
have a ‘functional currency’ other than the US dollar,
persons that own 10% or more (by voting power) of our
stock, persons that generally mark their securities to market
for US federal income tax purposes or persons that receive
ordinary shares as compensation). As this is a complex
area, we recommend investors consult their own tax
advisers concerning the US federal, state and/or local
implications of owning and disposing of ordinary shares.
For the purposes of this discussion you are a US holder if
you are a beneficial owner of ordinary shares and you are
for US federal income tax purposes:
an individual 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.
4
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
286
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287
Shareholding information
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.
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.
Our constitution
Overview
We were incorporated in 1850 under the Bank of New South
Wales Act, a special piece of legislation passed by the New
South Wales Parliament at a time when there was no
general companies’ legislation in Australia. On
23 August 2002, Westpac became registered under the
Corporations Act 2001 (Cth) as a public company limited
by shares.
As part of the process of becoming a company regulated
under the Corporations Act, shareholders adopted a new
constitution at the AGM on 15 December 2000, which came
into operation on 23 August 2002. Our constitution has been
subsequently amended by shareholders on
15 December 2005, 13 December 2007 and
13 December 2012.
Our objects and purposes
Our constitution does not contain a statement of our objects
and purposes. As a company regulated by the Corporations
Act, we have the legal capacity and powers of an individual
both within and outside Australia, and all the powers of a
body corporate, including the power to issue and cancel
shares, to issue debentures, to distribute our property
among our equity holders (either in kind or otherwise), to
give security by charging our uncalled capital, to grant a
floating charge over our property and to do any other act
permitted by any law.
Directors’ voting powers
Under clause 9.11(a) of our constitution, subject to
complying with the Corporations Act regarding disclosure of
and voting on matters involving material personal interests,
our Directors may:
that of auditor;
a. hold any office or place of profit in our company, except
or in which it has an interest of any kind;
c. enter into any contract or arrangement with
our company;
d. participate in any association, institution, fund, trust or
scheme for past or present employees or directors of
our company or persons dependent on or connected
with them;
e. act in a professional capacity (or be a member of a firm
that acts in a professional capacity) for our company,
except as auditor; and
f. participate in, vote on and be counted in a quorum for
any meeting, resolution or decision of the Directors and
be present at any meeting where any matter is being
considered by the Directors.
Under clause 9.11(b) of our constitution, a Director may do
any of the above despite the fiduciary relationship of the
Director’s office:
a. without any liability to account to our company for any
direct or indirect benefit accruing to the Director; and
Additional information
b. without affecting the validity of any contract
or arrangement.
Under the Corporations Act, however, a Director who has a
material personal interest in any matter to be considered at
any Board meeting must not be present while the matter is
being considered or vote on the matter, unless the other
Directors resolve to allow that Director to be present and
vote or a declaration is made by ASIC permitting that
Director to participate and vote. These restrictions do not
apply to a limited range of matters set out in section 191(2)
of the Corporations Act, where the Director’s interest:
a. arises because the Director is a shareholder of the
company 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.
relates to a contract that insures, or would insure, the
Director against liabilities the Director incurs as an
officer of the company (but only if the contract does not
make the company or related body corporate
the insurer);
g.
relates to any payment by the company or a related
body corporate in respect of certain indemnities
permitted by the Corporations Act or any contract
h.
is in a contract or proposed contract with, or for the
benefit of, or on behalf of, a related body corporate and
arises merely because the Director is a Director of that
related body corporate.
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.
b. hold any office or place of profit in any other company,
body corporate, trust or entity promoted by our company
relating to such an indemnity; or
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Shareholding information
distribution. We have not maintained and do not plan to
between the US dollar value of the amount that you realise
maintain calculations of earnings and profits for US federal
and your tax basis, determined in US dollars, in your
income tax purposes, and as a result, you may need to
ordinary shares. A capital gain of a non-corporate US holder
include the entire amount of any distribution in income as a
is generally taxed at a reduced rate if the holder has a
dividend. If you are a non-corporate US holder, dividends
holding period greater than one year. The deductibility of
paid to you that constitute qualified dividend income may be
capital losses is subject to limitations. Such capital gain or
taxable to you at a preferential tax rate so long as certain
loss generally will be income from sources within the US, for
holding period and other requirements are met. Dividends
foreign tax credit limitation purposes.
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
Medicare tax
In addition to regular US federal income tax, certain
US holders that are individuals, estates or trusts are subject
to a 3.8% tax on all or a portion of their ‘net investment
income’, which may include all or a portion of their dividend
income and net gain from the sale, exchange or other
disposition of their ordinary shares.
Passive foreign investment company considerations
We believe that we will not be treated as a passive foreign
investment company (PFIC) for US federal income tax
purposes, and this discussion assumes we are not a PFIC.
However, the determination as to whether we are a PFIC is
made annually at the end of each taxable year and therefore
could change. If we were to be treated as a PFIC, a
US holder of ordinary shares could be subject to certain
adverse tax consequences.
Disclosure requirements for specified foreign financial assets
Individual US holders (and certain US entities specified in
US Internal Revenue Service (IRS) guidance) who, during
any taxable year, hold any interest in any specified foreign
financial asset, generally will be required to file with their
US federal income tax returns certain information on
IRS Form 8938 if the aggregate value of all such assets
exceeds certain specified amounts. ‘Specified foreign
financial asset’ generally includes any financial account
maintained with a non-US financial institution and may also
include the ordinary shares if they are not held in an account
maintained with a financial institution. Substantial penalties
may be imposed, and the period of limitations on
assessment and collection of US federal income taxes may
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.
Our constitution
Overview
We were incorporated in 1850 under the Bank of New South
Wales Act, a special piece of legislation passed by the New
South Wales Parliament at a time when there was no
general companies’ legislation in Australia. On
23 August 2002, Westpac became registered under the
Corporations Act 2001 (Cth) as a public company limited
by shares.
As part of the process of becoming a company regulated
under the Corporations Act, shareholders adopted a new
constitution at the AGM on 15 December 2000, which came
into operation on 23 August 2002. Our constitution has been
subsequently amended by shareholders on
15 December 2005, 13 December 2007 and
13 December 2012.
Our objects and purposes
Our constitution does not contain a statement of our objects
and purposes. As a company regulated by the Corporations
Act, we have the legal capacity and powers of an individual
both within and outside Australia, and all the powers of a
body corporate, including the power to issue and cancel
shares, to issue debentures, to distribute our property
among our equity holders (either in kind or otherwise), to
give security by charging our uncalled capital, to grant a
floating charge over our property and to do any other act
permitted by any law.
Directors’ voting powers
Under clause 9.11(a) of our constitution, subject to
complying with the Corporations Act regarding disclosure of
and voting on matters involving material personal interests,
our Directors may:
a. hold any office or place of profit in our company, except
that of auditor;
b. hold any office or place of profit in any other company,
body corporate, trust or entity promoted by our company
or in which it has an interest of any kind;
c. enter into any contract or arrangement with
our company;
d. participate in any association, institution, fund, trust or
scheme for past or present employees or directors of
our company or persons dependent on or connected
with them;
e. act in a professional capacity (or be a member of a firm
that acts in a professional capacity) for our company,
except as auditor; and
f. participate in, vote on and be counted in a quorum for
any meeting, resolution or decision of the Directors and
be present at any meeting where any matter is being
considered by the Directors.
Under clause 9.11(b) of our constitution, a Director may do
any of the above despite the fiduciary relationship of the
Director’s office:
a. without any liability to account to our company for any
direct or indirect benefit accruing to the Director; and
Additional information
b. without affecting the validity of any contract
or arrangement.
Under the Corporations Act, however, a Director who has a
material personal interest in any matter to be considered at
any Board meeting must not be present while the matter is
being considered or vote on the matter, unless the other
Directors resolve to allow that Director to be present and
vote or a declaration is made by ASIC permitting that
Director to participate and vote. These restrictions do not
apply to a limited range of matters set out in section 191(2)
of the Corporations Act, where the Director’s interest:
a. arises because the Director is a shareholder of the
company 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.
4
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Additional information
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.
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
Convening general meetings
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.
Additional information
Substantial shareholder disclosure
There is no provision in our constitution that requires a
shareholder to disclose the extent of their ownership of
our shares.
Under the Corporations Act, however, any person who
begins or ceases to have a substantial holding of our shares
must notify us within two business days after they become
aware of that information. A further notice must be given to
us if there is an increase or decrease of 1% in a person’s
substantial holding. Copies of these notices must also be
given to the ASX. A person has a substantial holding of our
shares if the total votes attached to our voting shares in
which they or their associates have relevant interests is 5%
or more of the total number of votes attached to all our
voting shares. For more details, refer to the section
‘Corporations Act 2001’.
We also have a statutory right under the Corporations Act to
trace the beneficial ownership of our shares by giving a
direction to a shareholder, or certain other persons, requiring
disclosure to us of, among other things, their own relevant
interest in our shares and the name and address of each
other person who has a relevant interest in those shares, the
nature and extent of that interest and the circumstances that
gave rise to that other person’s interest. Such disclosure
must, except in certain limited circumstances, be provided
within two business days after the direction is received.
Australian Company and Business Numbers
All Australian companies have a unique nine-digit identifier,
referred to as an Australian Company Number (ACN), which
must be included on public documents, eligible negotiable
instruments and the company’s common seal. In addition,
entities can apply for registration on the Australian Business
Register and be allocated a unique eleven-digit identifier
known as an Australian Business Number (ABN). For
Australian companies, the last nine digits of their ABN are
identical to their ACN. The ABN may be quoted on
documents in lieu of the ACN.
Our ACN is 007 457 141 and our ABN is 33 007 457 141.
Documents on display
We are subject to the disclosure requirements of the
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). 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.
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.
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.
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Additional information
Directors’ borrowing powers
Clause 10.2 of our constitution empowers our Directors, as a
Board, to exercise all the powers of Westpac to borrow or
raise money, to charge any property or business of Westpac
or all or any of its uncalled capital and to issue debentures or
give any other security for a debt, liability or obligation of
Westpac or of any other person. Such powers may only be
changed by amending the constitution, which requires a
special resolution (that is, a resolution passed by at least
75% of the votes cast by members entitled to vote on the
resolution and for which notice has been given in
accordance with the Corporations Act).
Minimum number of Directors
Our constitution requires that the minimum number of
Directors is determined in accordance with the Corporations
Act or other regulations. Currently the Corporations Act
prescribes three as a minimum number of Directors and
APRA governance standards specify five as the minimum
number of Directors for APRA regulated entities. Westpac’s
current number of Directors is above these prescribed
minimums.
Share rights
summarised as follows:
a) Profits and dividends
The rights attaching to our ordinary shares are set out in the
Corporations Act and in our constitution, and may be
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.
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.
Additional information
Substantial shareholder disclosure
There is no provision in our constitution that requires a
shareholder to disclose the extent of their ownership of
our shares.
Under the Corporations Act, however, any person who
begins or ceases to have a substantial holding of our shares
must notify us within two business days after they become
aware of that information. A further notice must be given to
us if there is an increase or decrease of 1% in a person’s
substantial holding. Copies of these notices must also be
given to the ASX. A person has a substantial holding of our
shares if the total votes attached to our voting shares in
which they or their associates have relevant interests is 5%
or more of the total number of votes attached to all our
voting shares. For more details, refer to the section
‘Corporations Act 2001’.
We also have a statutory right under the Corporations Act to
trace the beneficial ownership of our shares by giving a
direction to a shareholder, or certain other persons, requiring
disclosure to us of, among other things, their own relevant
interest in our shares and the name and address of each
other person who has a relevant interest in those shares, the
nature and extent of that interest and the circumstances that
gave rise to that other person’s interest. Such disclosure
must, except in certain limited circumstances, be provided
within two business days after the direction is received.
Australian Company and Business Numbers
All Australian companies have a unique nine-digit identifier,
referred to as an Australian Company Number (ACN), which
must be included on public documents, eligible negotiable
instruments and the company’s common seal. In addition,
entities can apply for registration on the Australian Business
Register and be allocated a unique eleven-digit identifier
known as an Australian Business Number (ABN). For
Australian companies, the last nine digits of their ABN are
identical to their ACN. The ABN may be quoted on
documents in lieu of the ACN.
Our ACN is 007 457 141 and our ABN is 33 007 457 141.
Documents on display
We are subject to the disclosure requirements of the
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). 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.
4
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.
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Additional information
Exchange rates
For each of the years indicated, the high, low, average and year-end noon buying rates1 for Australian dollars were:
High
Low
Average3
Close (on 30 September)4
2019²
2018
Year Ended 30 September
2017
(US$ per A$1.00)
2016
2015
2014
0.8105
0.7107
0.7583
0.7238
0.8071
0.7174
0.7624
0.7840
0.7817
0.6855
0.7385
0.7667
0.8904
0.6917
0.7781
0.7020
0.9705
0.8715
0.9155
0.8737
n/a
n/a
For each of the months indicated, the high and low noon buying rates for Australian dollars were:
October
2018²
September
2018
Month
August
2018
(US$ per A$1.00)
July
2018
June
2018
May
2018
Westpac Ordinary Shares
(ASX code: WBC, NYSE code: WBK)
New York ex-dividend date for final
9 November 2018
Ex-date for quarterly distribution
29 August 2019
High
Low
0.7223
0.7048
0.7278
0.7107
0.7428
0.7192
0.7466
0.7322
0.7677
0.7355
0.7595
0.7445
dividend
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 19 October 2018. On 19 October 2018, the noon buying rate was A$1.00 = US$0.7132.
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.
Ex-dividend date for final dividend
13 November 2018
New York record date for final dividend
13 November 2018
Record date for final dividend
14 November 2018
Annual General Meeting
Final dividend payable
12 December 2018
20 December 2018
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 Capital Notes,
Westpac Capital Notes 2, Westpac Capital Notes 3,
Westpac Capital Notes 4 and Westpac Capital Notes 5 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.
Information for shareholders
Westpac Capital Notes (ASX code: WBCPD)
Ex-date for quarterly distribution
29 November 2018
Record date for quarterly distribution
30 November 2018
Payment date for quarterly distribution
10 December 20181
Ex-date for quarterly distribution
27 February 2019
Record date for quarterly distribution
28 February 2019
Payment date for quarterly distribution
8 March 2019
Ex-date for quarterly distribution
30 May 2019
Record date for quarterly distribution
31 May 2019
Payment date for quarterly distribution
11 June 20191
Record date for quarterly distribution
30 August 20192
Payment date for quarterly distribution
9 September 20191
Ex-date for quarterly distribution
28 November 2019
Record date for quarterly distribution
29 November 20192
Payment date for quarterly distribution
9 December 20191
Adjusted to next business day as payment date falls on a non-ASX
Adjusted to immediately preceding business day as record date falls on a
Financial Half Year end
31 March 2019
business day.
Interim results and dividend
6 May 2019
non-ASX business day.
announcement
dividend
New York ex-dividend date for interim
15 May 2019
Westpac Capital Notes 2 (ASX code: WBCPE)
Ex-dividend date for interim dividend
16 May 2019
New York record date for interim dividend 16 May 2019
Ex-date for quarterly distribution
13 December 2018
Record date for quarterly distribution
Payment date for quarterly distribution
14 December 20182
24 December 20181
Record date for interim dividend
17 May 2019
Ex-date for quarterly distribution
14 March 2019
Interim dividend payable
3 July 2019
Record date for quarterly distribution
15 March 2019
Financial Year end
30 September 2019
Payment date for quarterly distribution
25 March 20191
Final results and dividend announcement 4 November 2019
Ex-date for quarterly distribution
13 June 2019
New York ex-dividend date for final
8 November 2019
Record date for quarterly distribution
dividend
Ex-dividend date for final dividend
12 November 2019
New York record date for final dividend
12 November 2019
Record date for final dividend
13 November 2019
Annual General Meeting
Final dividend payable
12 December 20191
20 December 2019
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.
14 June 20192
24 June 20191
Payment date for quarterly distribution
Ex-date for quarterly distribution
12 September 2019
Record date for quarterly distribution
13 September 20192
Payment date for quarterly distribution
23 September 2019
Ex-date for quarterly distribution
12 December 2019
Record date for quarterly distribution
13 December 20192
Payment date for quarterly distribution
23 December 2019
Adjusted to next business day as payment date falls on a non-ASX
Adjusted to immediately preceding business day as record date falls on a
business day.
non-ASX business day.
1
2
1
2
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Additional information
Exchange rates
For each of the years indicated, the high, low, average and year-end noon buying rates1 for Australian dollars were:
High
Low
Average3
Close (on 30 September)4
2019²
2018
2017
2016
2015
2014
Year Ended 30 September
0.8105
0.7107
0.7583
0.7238
(US$ per A$1.00)
0.8071
0.7174
0.7624
0.7840
0.7817
0.6855
0.7385
0.7667
n/a
n/a
0.8904
0.6917
0.7781
0.7020
0.9705
0.8715
0.9155
0.8737
For each of the months indicated, the high and low noon buying rates for Australian dollars were:
October
2018²
September
2018
July
2018
June
2018
May
2018
Month
August
2018
(US$ per A$1.00)
0.7223
0.7048
0.7278
0.7107
0.7428
0.7192
0.7466
0.7322
0.7677
0.7355
0.7595
0.7445
High
Low
1
2
3
4
of New York.
The noon buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank
Through to 19 October 2018. On 19 October 2018, the noon buying rate was A$1.00 = US$0.7132.
The average is calculated by using the average of the exchange rates on the last day of each month during the period.
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.
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 Capital Notes,
Westpac Capital Notes 2, Westpac Capital Notes 3,
Westpac Capital Notes 4 and Westpac Capital Notes 5 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
Ex-dividend date for final dividend
13 November 2018
New York record date for final dividend
13 November 2018
Record date for final dividend
14 November 2018
Annual General Meeting
Final dividend payable
Financial Half Year end
Interim results and dividend
announcement
12 December 2018
20 December 2018
31 March 2019
6 May 2019
New York ex-dividend date for interim
dividend
15 May 2019
Ex-dividend date for interim dividend
16 May 2019
New York record date for interim dividend 16 May 2019
Information for shareholders
Westpac Capital Notes (ASX code: WBCPD)
Ex-date for quarterly distribution
29 November 2018
Record date for quarterly distribution
30 November 2018
Payment date for quarterly distribution
10 December 20181
Ex-date for quarterly distribution
27 February 2019
Record date for quarterly distribution
28 February 2019
Payment date for quarterly distribution
8 March 2019
Ex-date for quarterly distribution
30 May 2019
Record date for quarterly distribution
31 May 2019
Payment date for quarterly distribution
11 June 20191
Record date for quarterly distribution
30 August 20192
Payment date for quarterly distribution
9 September 20191
Ex-date for quarterly distribution
28 November 2019
Record date for quarterly distribution
29 November 20192
Payment date for quarterly distribution
9 December 20191
1
Adjusted to next business day as payment date falls on a non-ASX
business day.
2
Adjusted to immediately preceding business day as record date falls on a
non-ASX business day.
Westpac Capital Notes 2 (ASX code: WBCPE)
Ex-date for quarterly distribution
13 December 2018
Record date for quarterly distribution
Payment date for quarterly distribution
14 December 20182
24 December 20181
9 November 2018
Ex-date for quarterly distribution
29 August 2019
Record date for interim dividend
17 May 2019
Ex-date for quarterly distribution
14 March 2019
Interim dividend payable
3 July 2019
Record date for quarterly distribution
15 March 2019
Financial Year end
30 September 2019
Payment date for quarterly distribution
25 March 20191
Final results and dividend announcement 4 November 2019
Ex-date for quarterly distribution
13 June 2019
New York ex-dividend date for final
dividend
8 November 2019
Record date for quarterly distribution
Payment date for quarterly distribution
14 June 20192
24 June 20191
Ex-dividend date for final dividend
12 November 2019
New York record date for final dividend
12 November 2019
Record date for final dividend
13 November 2019
Annual General Meeting
Final dividend payable
12 December 20191
20 December 2019
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.
Ex-date for quarterly distribution
12 September 2019
Record date for quarterly distribution
13 September 20192
Payment date for quarterly distribution
23 September 2019
Ex-date for quarterly distribution
12 December 2019
Record date for quarterly distribution
13 December 20192
4
Payment date for quarterly distribution
23 December 2019
1
Adjusted to next business day as payment date falls on a non-ASX
business day.
2
Adjusted to immediately preceding business day as record date falls on a
non-ASX business day.
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Information for shareholders
Information for shareholders
Westpac Capital Notes 3 (ASX code: WBCPF)
Westpac Capital Notes 5 (ASX code: WBCPH)
Westpac NZD Subordinated Notes (NZX code: WBC010)
Ex-date for quarterly distribution
13 December 2018
Ex-date for quarterly distribution
13 December 2018
Ex-date for quarterly interest payment
20 November 2018
Record date for quarterly distribution
14 December 2018
Record date for quarterly distribution
14 December 2018
Record date for quarterly interest payment 21 November 2018
Payment date for quarterly distribution
24 December 20181
Payment date for quarterly distribution
24 December 20181
Payment date for quarterly interest
3 December 20181
payment
payment
payment
payment
Ex-date for quarterly interest payment
18 February 2019
Record date for quarterly interest payment 19 February 2019
Payment date for quarterly interest
1 March 2019
Ex-date for quarterly interest payment
21 May 2019
Record date for quarterly interest payment 22 May 2019
Payment date for quarterly interest
4 June 20191
Ex-date for quarterly interest payment
21 August 2019
Record date for quarterly interest payment 22 August 2019
Payment date for quarterly interest
2 September 20191
Ex-date for quarterly interest payment
20 November 2019
Record date for quarterly interest payment 21 November 2019
Payment date for quarterly interest
2 December 20191
payment
1
and Sydney, Australia.
Annual General Meeting
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
The Westpac Annual General Meeting (AGM) will be held in The Perth Convention and Exhibition Centre, BelleVue Ballroom,
21 Mounts Bay Road, Perth, on Wednesday 12 December 2018, commencing at 10:00am (Perth 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 available on the website for viewing at a later time.
Ex-date for quarterly distribution
13 March 2019
Ex-date for quarterly distribution
13 March 2019
Record date for quarterly distribution
14 March 2019
Record date for quarterly distribution
14 March 2019
Payment date for quarterly distribution
22 March 2019
Payment date for quarterly distribution
22 March 2019
Ex-date for quarterly distribution
13 June 2019
Ex-date for quarterly distribution
13 June 2019
Record date for quarterly distribution
14 June 2019
Record date for quarterly distribution
14 June 2019
Payment date for quarterly distribution
24 June 20191
Payment date for quarterly distribution
24 June 20191
Ex-date for quarterly distribution
12 September 2019
Ex-date for quarterly distribution
12 September 2019
Record date for quarterly distribution
Payment date for quarterly distribution
13 September 20192
23 September 20191
Record date for quarterly distribution
Payment date for quarterly distribution
13 September 20192
23 September 20191
Ex-date for quarterly distribution
12 December 2019
Ex-date for quarterly distribution
12 December 2019
Record date for quarterly distribution
Payment date for quarterly distribution
13 December 20192
23 December 20191
Record date for quarterly distribution
Payment date for quarterly distribution
13 December 20192
23 December 20191
1
Adjusted to next business day as payment date falls on a non-ASX
business day.
2
Adjusted to immediately preceding business day as record date falls on a
non-ASX business day.
1
Adjusted to next business day as payment date falls on a non-ASX
business day.
2
Adjusted to immediately preceding business day as record date falls on a
non-ASX business day.
Westpac Capital Notes 4 (ASX code: WBCPG)
Ex-date for quarterly distribution
20 December 2018
Record date for quarterly distribution
Payment date for quarterly distribution
21 December 20182
31 December 20181
Ex-date for quarterly distribution
21 March 2019
Record date for quarterly distribution
22 March 2019
Payment date for quarterly distribution
1 April 20191
Ex-date for quarterly distribution
20 June 2019
Record date for quarterly distribution
Payment date for quarterly distribution
21 June 20192
1 July 20191
Ex-date for quarterly distribution
19 September 2019
Record date for quarterly distribution
20 September 20192
Payment date for quarterly distribution
30 September 2019
Ex-date for quarterly distribution
19 December 2019
Record date for quarterly distribution
20 December 20192
Payment date for quarterly distribution
30 December 2019
1
Adjusted to next business day as payment date falls on a non-ASX
business day.
2
Adjusted to immediately preceding business day as record date falls on a
non-ASX business day.
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Information for shareholders
Information for shareholders
Westpac Capital Notes 3 (ASX code: WBCPF)
Westpac Capital Notes 5 (ASX code: WBCPH)
Westpac NZD Subordinated Notes (NZX code: WBC010)
Ex-date for quarterly distribution
13 December 2018
Ex-date for quarterly distribution
13 December 2018
Ex-date for quarterly interest payment
20 November 2018
Record date for quarterly distribution
14 December 2018
Record date for quarterly distribution
14 December 2018
Record date for quarterly interest payment 21 November 2018
Payment date for quarterly distribution
24 December 20181
Payment date for quarterly distribution
24 December 20181
Ex-date for quarterly distribution
13 March 2019
Ex-date for quarterly distribution
13 March 2019
Record date for quarterly distribution
14 March 2019
Record date for quarterly distribution
14 March 2019
Payment date for quarterly distribution
22 March 2019
Payment date for quarterly distribution
22 March 2019
Ex-date for quarterly distribution
13 June 2019
Ex-date for quarterly distribution
13 June 2019
Record date for quarterly distribution
14 June 2019
Record date for quarterly distribution
14 June 2019
Payment date for quarterly distribution
24 June 20191
Payment date for quarterly distribution
24 June 20191
Ex-date for quarterly distribution
12 September 2019
Ex-date for quarterly distribution
12 September 2019
Record date for quarterly distribution
Payment date for quarterly distribution
13 September 20192
23 September 20191
Record date for quarterly distribution
Payment date for quarterly distribution
13 September 20192
23 September 20191
Ex-date for quarterly distribution
12 December 2019
Ex-date for quarterly distribution
12 December 2019
Record date for quarterly distribution
Payment date for quarterly distribution
13 December 20192
23 December 20191
Record date for quarterly distribution
Payment date for quarterly distribution
13 December 20192
23 December 20191
Adjusted to next business day as payment date falls on a non-ASX
Adjusted to next business day as payment date falls on a non-ASX
Adjusted to immediately preceding business day as record date falls on a
Adjusted to immediately preceding business day as record date falls on a
1
2
business day.
non-ASX business day.
business day.
non-ASX business day.
Payment date for quarterly interest
payment
3 December 20181
Ex-date for quarterly interest payment
18 February 2019
Record date for quarterly interest payment 19 February 2019
Payment date for quarterly interest
payment
1 March 2019
Ex-date for quarterly interest payment
21 May 2019
Record date for quarterly interest payment 22 May 2019
Payment date for quarterly interest
payment
4 June 20191
Ex-date for quarterly interest payment
21 August 2019
Record date for quarterly interest payment 22 August 2019
Payment date for quarterly interest
payment
2 September 20191
Ex-date for quarterly interest payment
20 November 2019
Record date for quarterly interest payment 21 November 2019
Payment date for quarterly interest
payment
2 December 20191
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
and Sydney, Australia.
Annual General Meeting
The Westpac Annual General Meeting (AGM) will be held in The Perth Convention and Exhibition Centre, BelleVue Ballroom,
21 Mounts Bay Road, Perth, on Wednesday 12 December 2018, commencing at 10:00am (Perth 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 available on the website for viewing at a later time.
1
2
1
2
Westpac Capital Notes 4 (ASX code: WBCPG)
Ex-date for quarterly distribution
20 December 2018
Record date for quarterly distribution
Payment date for quarterly distribution
21 December 20182
31 December 20181
Ex-date for quarterly distribution
21 March 2019
Record date for quarterly distribution
22 March 2019
Payment date for quarterly distribution
1 April 20191
Ex-date for quarterly distribution
20 June 2019
Record date for quarterly distribution
Payment date for quarterly distribution
21 June 20192
1 July 20191
Ex-date for quarterly distribution
19 September 2019
Record date for quarterly distribution
20 September 20192
Payment date for quarterly distribution
30 September 2019
Ex-date for quarterly distribution
19 December 2019
Record date for quarterly distribution
20 December 20192
Payment date for quarterly distribution
30 December 2019
Adjusted to next business day as payment date falls on a non-ASX
Adjusted to immediately preceding business day as record date falls on a
business day.
non-ASX business day.
4
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Information for shareholders
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
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.
Glossary of abbreviations and defined terms
AUSTRAC
Australian Transaction Reports and Analysis
Advanced IRB
Advanced Internal Ratings Based
ANZSIC
Australian and New Zealand Standard
AAS
AASB
ABS
ACCC
ADI
ADRs
ADS
AGM
AIRB
ALCO
ALM
AMA
APRA
ASIC
ASX
ASXCGC
AT1
ATMs
ATO
BAC
BankSA
BB
BBSW
BCBS
bps
BRCC
BTFG
BTIM
CAPs
CB
CCB
CDS
CEO
CET1
CFO
CFTC
CGU
CHF
CLF
CPM
CRG
CRO
CRS
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
Annual General Meeting
Advanced Internal Ratings Based
Westpac Asset and Liability Committee
Asset and Liability Management
Advanced Measurement Approach
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
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
Consumer Bank
Capital Conservation Buffer
Credit default swap
Chief Executive Officer
Common Equity Tier 1
Chief Financial Officer
Commodity Futures Trading Commission
Cash Generating Unit
Swiss franc
Committed Liquidity Facility
Treadway Commission
Credit Portfolio Management
Customer Risk Grade
Chief Risk Officer
Common Reporting Standard
Cash EPS
Cash earnings per share
Cash EPS CAGR
Compound Annual Growth in Cash EPS
CEOPP
CEO RSP
Chief Executive Officer Performance Plan
Chief Executive Officer Restricted Share Plan
Corporations Act
Corporations Act 2001 (Cth)
COSO
Committee of Sponsoring Organizations of the
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
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297
Information for shareholders
Useful information
Key sources of information for shareholders
Stock exchange listings
We report our full year performance to shareholders, in late
Westpac ordinary shares are listed on:
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.
Australian Securities Exchange (code WBC);
New York Stock Exchange (NYSE), as American
Depositary Shares (code WBK); and
New Zealand Exchange Limited (code WBC).
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.
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
Opt for electronic communications by logging into Westpac’s
Notes II
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
provides:
Westpac’s New Zealand website www.westpac.co.nz
access to internet banking services;
details on products and services;
economic updates, news and information, key financial
results; and
sponsorships and other community activities.
Information other than that relating to your shareholding can
Westpac Investor Relations
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
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
New Zealand
www.linkmarketservices.co.nz
Shareholder enquiries:
Postal address: P.O. Box 91976, Auckland 1142,
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.
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)
COSO
CPM
CRG
CRO
CRS
Committee of Sponsoring Organizations of the
Treadway Commission
Credit Portfolio Management
Customer Risk Grade
Chief Risk Officer
Common Reporting Standard
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
4
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297
Notes
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
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299
Notes
Glossary of abbreviations and defined terms
Cash ROE
Return on equity on a cash earnings basis
St.George
St.George Banking Group
2006 TPS
Trust Preferred Securities 2006
RBNZ
RISKCO
RMBS
ROE
RSP
RWA
S&P
SEC
SME
SOx
SPS
TCE
TLAC
TSR
UK
UKSS
UNSC
US
VaR
WGP
WHS
WIB
WNZL
WNZS
WPP
WRP
WSNZL
Reserve Bank of New Zealand
Westpac Group Executive Risk Committee
Residential Mortgage Backed Securities
Return on equity
US Securities and Exchange Commission
Restricted Share Plan
Risk-weighted assets
Standard & Poor’s
Small to medium enterprises
Sarbanes-Oxley Act of 2002
Stapled Preferred Securities
Total committed exposures
Total Loss Absorbing Capacity
Total Shareholder Return
United Kingdom
Westpac Banking Corporation UK Staff
Superannuation Scheme
United Nations Security Council
United States
Value at Risk
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
Westpac CPS
Westpac Convertible Preference Shares
298
2018 Westpac Group Annual Report
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299
4
Notes
Notes
The Westpac Group 2018 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.
300
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F
Global locations
Specific contact details for
the many locations globally can
be located on our website at
www.westpac.com.au. Select ‘About
Westpac’ from the top menu bar,
then ‘Global Locations’ from the
‘Explore’ menu.
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: 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.
BT Financial Group
Level 18, 275 Kent Street
Sydney NSW 2000 Australia
Tel: 132 135
From outside Australia: +61 2 9155 4070
Email: customer.relations@
btfinancialgroup.com
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 of 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
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
International payments tel:
+61 2 9155 7700
www.westpac.com.au/westpacgroup
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
Level 8, 97 King William Street
Adelaide SA 5000 Australia
Mail: GPO Box 399
Adelaide SA 5001 Australia
Tel: 131 376
From outside Australia: +61 2 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
www.westpac.com.au